Getting approved for a private party used car loan usually means financing through a direct lender – but if you have bad credit, you may not get approved. However, going through a traditional auto lender isn’t your only route in getting financed for a used vehicle.
Private Party Auto Loans and Bad Credit
To get a private party loan, it means going through a traditional direct auto lender. Usually, these lenders include banks, credit unions, and online lenders. When you go through a direct lender, you get a direct loan, and you get pre-approved for a set amount.
After you receive your pre-approval amount, you can then purchase a car from a dealership, used vehicle lot, or, sometimes, an individual. If you have your heart set on a private seller’s used car, there are a few things you can do to increase your approval odds.
However, direct loans are usually reserved for those with good credit scores, and bad credit borrowers usually run into some roadblocks getting approved by a traditional auto lender. A direct lender may be hesitant to approve the loan, simply because there’s no guarantee on the condition of the used vehicle, and used car valuations can be hard to pinpoint.
This doesn’t mean that it's impossible to get approved by a direct lender, just know that it can be more difficult with bad credit. You should also know that going through a direct lender isn’t the only way to get into an auto loan. If you have a lower credit score, you shouldn’t get discouraged if you get denied by one lender, since there are lots of car loan options for many different credit types.
Increasing Your Car Loan Approval Odds
Before you apply with a direct lender, start saving for a down payment. As a bad credit borrower, nearly every lender you work with is going to require a down payment for you to be considered for an auto loan. The amount depends on the lender and how much you need to finance, but, generally, expect to need at least 10% of a vehicle’s selling price or a minimum of $1,000.
Secondly, you can rate shop – don't feel pressured to take the first deal if it's not good! When you apply for any new credit, a hard inquiry hits your credit reports and it can drop your credit score by a few points temporarily. However, when you apply with a few lenders of the same type within a two-week time frame, it’s called rate shopping, and only one hard inquiry is reflected on your credit score.
Knowing this, take some time to make a list of lenders or financial institutions that may be able to approve you based on their credit score requirements so you don’t waste your time applying to only be rejected. Call around to various credit unions, banks, and online lenders and ask about their requirements.
Getting approved for used car financing is largely preparing and finding the right lender, preparing your documents, and saving for a down payment to increase your chances of approval.
Other Bad Credit Auto Loan Options
If you’ve already tried applying with direct lenders and were met without an auto loan offer, you still have some options for getting into a car loan. It isn’t a private party loan, though – it's called subprime financing. Subprime simply means bad credit, and these lenders specialize in working with borrowers who have poor credit, no credit, or unique credit situations.
Subprime lenders are third-party lenders that are signed up with a dealership through their special finance department. The finance manager works on the subprime lender’s behalf, and you sit with a dealer to find a vehicle based on how much you qualify for.
Bad credit auto loans are tailored to your personal situation. The amount you qualify for is based on your income, residency, work history, and a few other factors. Subprime lenders have a list of requirements you need to meet, but the good news is that they don’t deny a borrower a loan simply because they have a bad credit score.
Keep in mind that subprime lenders don’t offer private party used car loans because they work through dealerships. However, due to this, you may be able to get into a reliable used vehicle, a certified pre-owned car, or possibly even an inexpensive new vehicle – it all depends on what you qualify for.
Your Next Car Loan
With a private party seller, it can be hard to know what you’re buying unless you can retrieve the vehicle’s comprehensive history and you pay to get the car inspected by a certified mechanic. This is just one of the reasons why direct lenders can be hesitant to approve someone for a private party auto loan, especially when your credit score is less than perfect.
If you don’t want to waste time fruitlessly looking for a dealer or lender that can work with your credit, work with us for free at Auto Credit Express. We take away the hassle of searching everywhere for bad credit lending options, and we match you to a dealership near you with the lending resources you need. To get started, complete our car loan request form.
