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 Party
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.
When you have an account in good standing at either a bank or a credit union, it can be easier to begin the process of getting an auto loan. There are some differences between banks and credit unions, however, and it may be easier to get approved by a credit union.
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.
Financing From a Credit Union
Credit unions are member-owned, not-for-profit organizations. Typically, this means they’re able to focus on customer service, and keep costs low for things like new accounts and account services and upkeep. Because of this, they’re often able to pass these low costs on to their members when they’re looking for things like an auto loan. Because of their non-profit status, credit unions can also pass these benefits to their members in the form of lower interest rates on auto loans and credit cards.
Sitting down with a credit union representative face to face often helps your chances for a car loan, especially if you’re already a member in good standing – and most credit unions do require this. In the past, credit unions only offered membership to people with certain affiliations, such as religious groups or fraternal organizations, or to people in certain areas or specific careers. These days, the requirements aren’t always as strict, and many people can enjoy the benefits of belonging to a credit union.
Financing From a Bank
Banks are typically large, publicly-owned businesses. They’re responsible to their shareholders and usually focus on profit. Having an account with a bank usually means dealing with bank fees as well. These fees can be much higher than similar fees at a credit union. In fact, most banks charge services fees like minimum balance fees, ATM fees, monthly maintenance fees, and transfer fees, among others. These same services typically don’t cost you anything at a credit union.
However, since banks are larger than credit unions, they tend to get their money at a lower rate, which allows them to have competitively priced loans. But just because they can competitively price a loan doesn’t mean they will. Banks tend to approve auto loans only for people with good to excellent credit.
Financing From a Subprime Lender
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. This can mean financing an old cheap used car is out of the question as a bad credit borrower.
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 the fear of your credit standing in the way the next time you need a car.
Buying a Car From a Private Seller
If you’re fortunate enough to qualify for a direct loan from a bank or credit union, you can take this approval to finance a car from a private seller. Be aware, however, that cars bought from a private seller will need to be licensed, registered, and insured. Also, be aware that a vehicle from a private seller comes with no warranty or service contract, so if something happens to it right away, you could be out of a car while still paying on a loan.
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!