While appearances might suggest the only way to finance a car purchase is through a dealer, the reality is a number of lenders gladly write private party car loans. While getting one does require a bit more effort on your part, they do exist. With that said, here’s how private party car loans work.
The Basic Requirements
Depending upon the lender, you’ll have to meet certain standards. Among the metrics considered are your credit score, income and down payment. The type, age, mileage and price of the car will usually come into question as well. You can generally provide all of this information online to determine the eligibility of your proposed deal.
You’ll also need to provide the lender with your full name, date of birth, address and Social Security number. They will also want your employment and income details.
Sellers must provide valid government identification, a copy of the vehicle’s registration card, as well as copies of the front and back of the vehicle’s title documentation.
When you reach a deal with the seller, your lender will also require a bill of sale with details about the agreed-upon purchase and a written 10-day payoff quote from the seller’s lender (when the vehicle has an existing loan against it). If the car is already paid off, the seller will only need to produce a copy of the pink slip.
Pre-Approvals are Beneficial
Getting pre-approved for private party car loans makes shopping for the car you want easier. You’ll know exactly how much you can afford and getting the money to the seller will go much faster when you find the one you want. This also improves your bargaining position as you can prove you’re good for the purchase price without having to flash a large wad of cash.
Payoff Amounts, Loan Terms and Costs
Private party auto loans are generally limited to 48-month terms and they usually require a down payment of 20 percent or more. The interest rate, while usually marginally higher than on dealer loans, will depend upon your credit worthiness, the length of the loan, the car’s age, and its mileage.
As with conventional loans, the longer the term you choose, the lower your payment will be. However, keep in mind this also means you’ll be paying interest longer. So, while the monthly payment is lower, the total purchase price will be higher.
The good news is most lenders will allow you to pay off the loan at any time without imposing prepayment penalties. This can save you quite a bit of money on interest charges.
Once all of the requirements are met, your lender will issue the check(s) in the name(s) of the seller (and lienholder) for you to hand over.
You’ll then need to have the seller accompany you to the Department of Motor Vehicles (DMV) to transfer the car’s title and registration into your name—placing your lender as lienholder on the title.
There, you’ll be required to pay the registration fees and sales tax based upon the transaction price. Once all of this is done, the DMV will send the car’s new title directly to the address designated by the lender.
Keep in mind, certain aspects of how private party car loans work can vary from state to state. It’s always a good idea to check with your local DMV to ensure you’re following the correct procedures for where you live.