If you have bad credit, getting a private party auto loan may not be possible. Most lenders who offer private party car loans are direct lenders that typically won't finance borrowers with poor credit.
How to Get a Private Party Auto Loan
Private party car loans allow car buyers to finance vehicles purchased from an individual instead of a dealership. Private party auto loans are available through many financial institutions, such as banks, credit unions, and other online lenders. You can even get quotes from multiple lenders to shop for the best terms.
Borrowers may apply directly for a car loan with these lenders and, if approved, can deal directly with a private party. You can get a check from the lender to give to the private seller, and they'll sign over the vehicle’s title to you, with the lender as the secured party.
Many car buyers like to go the private sale route in an attempt to find a better deal on a used car. Others avoid private sales because of the extra legwork of setting up meetings and taking care of the paperwork – stuff that's unnecessary when getting a loan through a dealership.
Borrowers with bad credit may have to avoid private sales for an entirely separate reason.
Getting a Private Party Auto Loan with Bad Credit
The lenders who finance private party auto loans tend to be direct lenders. As a rule, most direct lenders usually only approve loans to borrowers with good credit, making it hard for car buyers with bad credit to land an approval.
Borrowers with poor credit who need an auto loan typically need financing through a subprime lender. These lenders are willing to help bad credit car buyers, but they're normally indirect lenders that you can't approach directly. Instead, they work through licensed car dealerships that help them in two main ways:
- Verify Borrower Information – The dealer works as the lender's agent. Dealers verify all of a borrower's information listed on their application. By double checking income, job, and residence details, lenders ensure a borrower can afford a loan, which helps offset the extra risk associated with bad credit. Dealers also collect the documents lenders require that serve as proof of the borrower's information.
- Verify Vehicle Information – Dealers also help lenders by making sure all information about the vehicle being financed is accurate. This includes its year, make, model, mileage, and equipment. Subprime lenders won't finance cars with branded, salvage, or rebuilt titles, so a dealer also makes sure the title is clean.
Subprime lenders won't finance private party auto loans, largely because private sales are missing these two critical elements. The dealers act as a third party to reduce risk, making them an important part of the bad credit auto loan process.
Getting an Auto Loan with Bad Credit
If you have bad credit and want a private party auto loan, your best bet is applying with your bank or credit union if you have a long-standing relationship with one. In the end, you'll likely need to go through a dealership that's signed up with subprime lenders.
Auto Credit Express helps car buyers with bad credit find these dealerships. We work with a nationwide network of special finance dealers that know how to handle unique credit situations. We will work to match you with a dealership in your area if you start the process by submitting our free and secure car loan request form online.