Financing a car from a private seller means getting a direct loan, which is often called a private party loan. These typically come from banks or credit unions, and can be easier to get when you have good credit. If you're struggling with bad credit, it can be difficult to get a private party auto loan – but there are still ways to get the vehicle you're looking for.
Financing a Car from a Private Seller
In order to finance a car from a private seller with a direct loan, you need to get pre-approved. Once this happens, you can shop anywhere to find a vehicle in your approved price range. If you find a private sale car you're interested in, you would then request a check from your lender, which you give to the seller in exchange for the vehicle.
The direct loans that are used to finance cars from private sellers can come from any direct lender, whether that's a bank, credit union, or online lender. When you have bad credit, getting approved for one of these loans can be difficult. You're more likely to have better luck if you go through a financial institution where you have a history.
Going through your personal credit union, in particular, can be beneficial if you don’t have the best credit. Credit unions are typically more lenient and offer a wider range of loan options and rates to their members because they're private, non-profit organizations. Banks don't always have this luxury as public, for-profit institutions.
Private Party Auto Loans and Bad Credit
With bad credit, the difficulty finding a private party loan can come from the fact that not all direct lenders have the ability to work with bad credit borrowers. Generally, if you have bad credit, you're better off finding a loan with a subprime lender.
These lenders only work as indirect lenders through special finance dealerships, and don't deal in private party loans due to the amount of vehicle verification they need for approval.
The extra steps, paperwork, and requirements asked of bad credit borrowers often make pre-approval harder, which can make shopping for a car from a private seller harder, too.
Shopping for a private sale vehicle can be more difficult due to the extra verification needed by subprime lenders. These lenders have certain qualifications that a car must meet in order to be considered for a loan.
As a general rule, vehicles can't be more than 10 years old, nor can they have more than 100,000 miles on them. Subprime lenders also don't usually finance less than $5,000. These can mean financing an old cheap used car is out of the question as a bad credit borrower.
Why Have Lending Qualifications?
Subprime lenders enforce qualifications for both borrowers and vehicles because they know how important it is to have a reliable car, and to be able to successfully pay off your loan. These lenders don't want you to go broke paying for a vehicle that's going to break down.
As someone with bad credit, you may think these extra conditions are there to stop you from getting a car. In reality, however, they're there to make sure you get the right vehicle and financing.
Both of these things can help you build better credit so you may be able to get a private party loan without fear of your credit standing in the way the next time you need a car.
Ready to Get Your Next Car Loan?
Now that you know why a private party auto loan from a direct lender might not be in the cards for you as a bad credit borrower, it's time to find out what is, and Auto Credit Express wants to help.
We work with a nationwide network of special finance dealers that have subprime lending resources. Fill out our fast and free car loan request form, and we'll work to connect you with a local dealership right away. Don't hesitate any longer!