Most lenders offer auto loans that allow you to buy a car from a private seller, but consumers with bad credit will typically have a tough time getting approved for one.
How to Finance a Car from a Private Seller
Many lenders finance person-to-person car purchases with private party auto loans. After all, not many consumers have thousands of dollars they can shell out to buy a car with cash.
To get a private party auto loan, you can approach a bank or credit union, or even apply with an online lender. Request financing for a loan in the price range you plan on shopping in, and see what they offer. You can rate shop to compare offers from different institutions, which is a great way to find the best interest rate you’ll qualify for.
If you're pre-approved, you can go ahead and start shopping for vehicles in that price range. Find a car you like? Go back to your lender and request a check, which can be signed over to the private seller in exchange for the vehicle and its title.
However, if you have less than perfect credit, your dream of financing a car from a private seller could be crushed before it begins.
Bad Credit and Private Party Auto Loans
Consumers with imperfect credit will have a hard time trying to get approved for auto financing from a private seller. Most subprime lenders – those who are willing to work with consumers with poor credit – are indirect lenders who only work through licensed car dealerships. This means, as a rule, they typically don't finance private party car loans.
Direct lenders are those that you can approach directly and apply for a loan, as the name implies. However, these banks, lenders, and other finance companies tend to not work with applicants with bad credit. Instead, buyers with credit problems need subprime financing.
Subprime lenders typically only lend indirectly, meaning you can't approach them and apply. They choose to work through licensed auto dealerships who work as their representatives, so to speak. This arrangement is necessary for two big reasons:
- The Borrower's Information is Verified: These special finance dealerships verify all the information on your application, such as income, job, and residence. Subprime lenders also require documents to serve as proof of this information, which dealers collect and send over to them.
- The Vehicle's Information is Verified: These lenders trust their dealers will make sure the vehicle being financed is what the paperwork says it is, from age and mileage to trim level and equipment. Also, dealers verify a car's title is clean, as subprime lenders won't finance vehicles with a branded title (rebuilt, salvage, flood damage, etc.).
Subprime lenders typically don't finance private party loans because these additional steps of dealer verification wouldn’t exist, which they believe are necessary due to the higher risk involved in bad credit car loans.
The Bottom Line
While consumers with good credit can finance a car from a private seller, getting approved for one isn't as easy if you're dealing with credit issues. If you need financing, you just need to get connected to the people at those dealerships that can help.
At Auto Credit Express, we connect consumers dealing with credit problems to local dealerships that are teamed up with subprime lenders. Take a quick moment to fill out our free and secure car loan request form online and we'll work to match you with a dealer in your area.