If you’re considering buying a car from a private party with bad credit, you may not get the financing you need. Loans for a vehicle from a private seller are direct loans, which can be difficult to get with poor credit. So, what are your options?
Private Party Loans and Bad Credit
Private party loans are available through credit unions, banks, and online lenders. When a lender approves the loan, they approve you for a maximum amount and you take the check to the seller. Once you deliver the check, the seller signs the car’s title over to you.
When you’re looking for financing for a private party vehicle, rate shopping can help you determine the best deal. Rate shopping is just what it sounds like: shopping around for the best interest rate from different financial institutions.
When you’re rate shopping, instead of multiple credit pulls, only one hard pull is reflected on your credit score – as long as all inquiries are done within 14 days for the same type of loan. Within those two weeks, check with multiple lenders and weigh your options.
Typically, private party loans are for borrowers with good credit. Most direct lenders may be hesitant to finance a private party car loan for a borrower with poor credit. The main reason is lenders often want a third party, such as a dealership, to verify information about the primary borrower and the vehicle.
Getting a private party loan with bad credit isn’t impossible – but it’s not easy. There are a few things you can do to put yourself in a better position to get approved.
Increase Your Chances of Getting Approved
To increase your chances of getting approved for a private party loan, it helps to choose a financial institution where you’ve had an account for a while. It also helps if the account is in good standing.
Before you car shop, work on improving your credit score. Strategies you can use include:
- Reviewing your credit reports and removing errors.
- Making all your payments on time.
- Lowering your credit card balances to less than 30% of your combined credit limits.
- Avoiding closing lines of credit, even if you rarely use them.
Building your credit score can take time, but it’s never too late to start. The sooner you start, the sooner you can see results. If waiting around while building your credit score isn’t your speed, there are other options for bad credit financing.
Getting Financed with Bad Credit
If you’re not having any luck with private party loans and you need a car soon, consider special financing through a dealership. A credit score below 660 is commonly referred to as subprime. Subprime auto financing, or bad credit car loans, are designed for borrowers with less than perfect credit. These lenders use more than your credit score to consider you for financing.
Unlike private party loans from a financial institution, subprime auto loans are considered indirect loans, because these lenders work exclusively through car dealers. Subprime lenders don’t finance private party loans. However, if you’re approved for financing, you’re able to choose a vehicle from the dealership’s lot which meets your needs and fits within your budget.
Not all dealers offer special financing, so knowing where to start if your credit isn’t the best can be difficult. At Auto Credit Express, we’ve teamed up with dealerships around the country that have lender options for bad credit borrowers. To see if we can match you with a dealer in your local area, simply fill out our free auto loan request form.