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What Is a Private-Party Auto Loan?

What Is a Private-Party Auto Loan?
Jamie Cattanach

Jamie Cattanach

Updated November 10, 2021
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If you’re not buying a car through a dealership and are wondering how to finance a private car sale, some good news: auto loans are also available for private-party car sales, though they may take a little bit more footwork to find. While private-party auto loans tend to have higher interest rates than their dealership counterparts, since private-party auto sales often occur at lower overall price tags, the trade-off might be worth it for you. Here’s what you need to know about private-party auto loans, including where you can find them, their typical rates and terms and how you can apply for one.

Private-Party Auto Loan Defined

A private-party auto loan is a lot like the auto loans you’ll find at a dealership: a bank or financial institution lends a car-buyer money to purchase a used vehicle off the private market. A borrower might use a private-party auto loan to buy a car from a person they found on Craigslist, or from a friend who's looking to sell their car.Like other vehicular loans, a private-party car loan is a secured loan — and the collateral for this auto loan is, you guessed it, the car you’re purchasing. That means if you default on your payments, the lender can repossess your car.Private-party auto loans aren’t free, of course; interest is charged at an annual percentage rate, or APR, which can add up over the term, or length, of the loan. Loan terms may be anywhere from 12 to 84 months long.Importantly, private-party auto loans often come with higher interest rates than their dealership counterparts. These loans can also have eligibility limitations when it comes to the vehicles themselves — cars over a certain age or mileage may not qualify.

Where Do You Find an Auto Loan To Finance a Private Car Sale?

Private-party auto loans are available from a variety of financial institutions, including big, national banks as well as smaller regional credit unions and digital-first lenders. For example, here are some of the lenders that offer private auto loans:
  • Lightstream
  • PNC Bank
  • First Credit Union
  • USAA Bank 
Because you’ll need to seek out the loan on your own, rather than simply allowing the dealership to work with whichever institution it uses in-house, you’ll have the opportunity to shop around for the loan with the most competitive rates and terms.

Factors That May Affect the Interest Rate of a Private Auto Loan

As with other loans, there are a variety of factors that can affect the interest rate of your private-party loan, such as:
  • Your credit score
  • Other financial information, such as your income and employment history
  • The age of the vehicle
  • The mileage of the vehicle
  • The length of the term
While private-party auto loans do tend to have higher interest rates than the secured loans you’re likely to find at a dealership, they often have lower rates than personal loans, which are unsecured — so again, it’s all about weighing your options and deciding whether or not the option to finance a private-market vehicle is a worthy trade for you.

Rates & Terms

Private-party auto loan interest rates tend to hover between 3% to 5%, while dealership loan rates can be as low as 2% APR. The car loan term, which simply refers to the length of time the loan lasts, can range from 12 to 84 months, but is usually at least two years (24 months) and up to five years (60 months).Keep in mind that shorter-term loans tend to have lower interest rates, but because the repayment is concentrated over a shorter amount of time, the monthly payments will still be quite high. Longer-term loans may have higher interest rates, but their length may keep monthly payments lower, though you may still end up paying more in total over the full length of the loan term. (You may also be able to pay off the loan early, but it’s important to research whether or not your lender charges an early repayment penalty — you don’t want to be penalized for good financial behavior!)

How Do You Qualify for a Private-Party Auto Loan?

Like other loans, qualifying for a private-party auto loan will depend on your financial factors including your credit history, income, existing debts and more. Lenders are trying to assess how much of a risk it is to put money into borrowers’ hands; they use these indicators of past financial behavior in order to decide whether or not they think they’ll see the money back from you.As usual, when it comes to private-party auto loans, the higher your credit score and the lower your existing debt, the more likely you are to qualify for a loan with a lower interest rate. If you want to improve your odds of approval or securing a more competitive rate, there are steps you can take. For example, you could ensure that going forward you make all payments in full and on time, as payment history is the biggest determinant of your score. You could also work on paying off debt to lower your credit utilization. 

How Do You Apply for Private-Party Auto Loans?

To apply for a private-party auto loan, you’ll need to supply the lender with your basic demographic information, including:
  • Your name
  • Date of birth 
  • Address
  • Social Security number
The application will likely also ask about your employment history and income, as well as any current debts you pay (including your mortgage or lease payment).Additionally, you’ll need some details about the car you’re interested in purchasing, too, including its:
  • Make
  • Model
  • Year
  • Mileage
  • Vehicle identification number (VIN)
Depending on the lender, you may also be asked to provide:
  • The bill of sale detailing the terms of the purchase agreement
  • A copy of the vehicle’s title and registration
  • Written payoff quote from the seller’s lender, if the car is still under lien on their side

Should You Use a Private-Party Auto Loan to Refinance Your Car?

Along with purchasing a car in the first place, you might be interested in finding a new loan to refinance a car you’ve already purchased. It might be a time to examine personal loans as well.However, private-party auto loans are specifically for private-party sales, and may not be helpful for those looking to refinance. Additionally, with their higher interest rates, they might not save you money in the long run — which is the whole point of refinancing, after all.

The Takeaway

Buying a car on the private market opens so many doors to drivers — and we’re not just talking about the car doors themselves. While private-party auto loans make it possible to finance a vehicle purchased on the private market, it’s important to understand that these loans do tend to have higher interest rates than their dealership counterparts. However, their interest rates are still usually lower than the rates on unsecured personal loans — so if you’re committed to buying on the private market, a private-party auto loan might be your best shot.Already have a vehicle, but hoping to lower your monthly payment or save interest over the long term? Refinancing might be the right option for you. To decide whether or not it makes sense, you’ll need to determine the value of the car and compare that figure to your existing loan amount. If you owe more than the car is worth, refinancing might be a good idea. We can help you compare auto loan refinancing offers in just minutes.
Photo credit: iStock/krisanapong detraphiphat
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About the Author

Jamie Cattanach

Jamie Cattanach

Jamie Cattanach is a full-time freelance writer whose work has been featured at CNBC, Yahoo Finance, The Motley Fool, the Huffington Post and other outlets. At SoFi, she writes about investing, retirement, student loans and how to get your money right -- no matter what that means for you.
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