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It's possible to get a car loan to buy a car from a private seller. That said, the process can look a little different compared to financing a vehicle through a dealership.
If you're thinking about buying a car in a private sale, here's how the loan process typically works and how to get one.
Can I Get a Car Loan for a Private Sale?
Many lenders offer private party auto loans that you can use to buy a car in a private sale rather than through a dealership. That said, not all lenders offer private party loans, so you may need to spend a little more time researching and comparing options.
As you look for the right deal, be sure to include banks, credit unions and online lenders in your search.
How Does a Private Party Auto Loan Work?
A private party auto loan is a direct loan, which means that you're working directly with the lender rather than having a dealer arrange financing on your behalf. Here's how the process works:
- Apply for a loan. You'll start by applying for a loan through a lender's website, over the phone or in person at a local bank or credit union branch. The loan's terms, including the interest rate and repayment period, may vary depending on the lender and your creditworthiness.
- Receive the loan funds. Once you're approved, the lender may cut a check directly to the seller or give you a check that you can endorse to the seller. If the seller still has an outstanding loan, your lender may first pay off that loan before disbursing the remainder to you or the seller.
- Obtain insurance coverage. Lenders typically require you to maintain full coverage auto insurance, which includes collision, comprehensive and liability insurance. If you already have a policy, it may be as simple as adding the new vehicle.
- Manage the paperwork. Once you've paid the seller, you'll have them sign over the title to you and register the vehicle in your name. Note that you may also need to arrange other paperwork to finalize the purchase. Check with your state's department of motor vehicles to get a full list. You'll send the title to your lender, who will hold onto the document until you pay your loan in full.
Once the loan process is completed, you'll start making monthly payments on the date outlined in your loan agreement.
Learn more >> Best Way to Finance a Car
How to Get a Private Party Auto Loan
If you're planning to finance a car bought from a private seller, here are some steps you can take to get approved for a loan and ensure you get the best possible deal.
1. Check Your Credit Score
Auto loans are available to borrowers across the credit spectrum. However, the best interest rates are reserved for people with higher credit scores.
Get free access to your Experian credit report and FICO® Score☉ , so you can evaluate your creditworthiness and determine whether you need to improve your score before proceeding.
Learn more >> What Is a Good Credit Score for an Auto Loan?
2. Find Your Car
If you haven't already found a vehicle you like, you can peruse local classified ads for listings. Keep in mind that when buying a used car, you'll need to do your due diligence to ensure it's a good deal. Some steps you can take include:
- Research the car's value.
- Get a copy of the vehicle history report.
- Test drive the vehicle.
- Request a pre-purchase inspection from a local mechanic.
With all of these details in hand, you can negotiate a price with the seller and come to an agreement.
3. Shop Around
Take some time to find lenders that offer private party auto loans, and get prequalified or preapproved with a handful of them. This process can be a little time-consuming, but it can help ensure that you get the best possible rates.
As you compare interest rates, repayment terms and other features that are important to you, you can settle on a lender and move forward with a full application.
Learn more >> Prequalified vs. Preapproved: What's the Difference?
4. Apply for the Loan
Depending on the lender, you may be able to complete the full application online, or you might need to complete some of the process over the phone or in person.
In addition to providing some personal details and documents, you'll also need to share the vehicle identification number and the purchase price. Keep in mind, though, that you may not be able to ask for a higher loan amount to cover anticipated sales tax, registration fees and other costs related to the purchase.
Auto Loan Options to Avoid
When considering how to finance your used car purchase, steer clear of the following high-risk loans:
- Credit card cash advance: Some credit cards let you borrow cash at ATMs and pay it back later. But credit card companies usually charge an upfront fee plus higher interest rates on cash advances than on purchases—and there's no interest-free grace period—making this a costly way to pay for your new ride.
- Payday loan: These loans may seem appealing because they don't require credit checks, but generally must be repaid or renewed in a few weeks. With typical annual percentage rates (APRs) of 400%, payday loans can lead to a cycle of debt that's difficult to escape.
- Home equity loan or home equity line of credit (HELOC): Both types of loans use the equity in your home as collateral. If you can't repay the loan, the lender could foreclose on your house. That's a big risk to take to get a used car.
Monitor Your Credit to Improve Your Loan Options
Whether you're ready to move forward with buying a car or you want to work on building credit first, it's important to regularly monitor your credit and track your progress.
Experian's free credit monitoring service provides you with access to your FICO® Score and Experian credit report, both of which can give you important insights into your credit health and steps you can take to improve it. Even if you've already completed your used car purchase, regularly monitoring your credit can help you prepare for the next time you need to borrow.