What is a car loan between individuals?
An auto loan between individuals allows you to finance a vehicle that you buy from an individual.
“Millions of vehicle sales to individuals occur each year, typically at lower transaction prices than what would normally occur at a dealership,” said Strati Papageorge, senior vice president of automotive product management for PNC Bank.
“These vehicles are generally older and have higher mileage, and offering financing to consumers looking to purchase such vehicles gives them flexibility and options that they might not otherwise have. “
However, auto loans for individuals have certain drawbacks. For example, they are not as widely available as loans for the purchase of new vehicles. And often they charge higher rates.
“Due to the nature of private sales, prices tend to be higher than what you would see if you went to a dealership,” says Papageorge. “But the tradeoff for customers is usually a lower vehicle price, so they can still have an affordable payment.”
There are ways to alleviate the drawbacks associated with personal auto loans and find a lender who will offer a loan. auto loan you can afford.
How does a car loan between individuals work?
Here are some simple steps you need to follow to get the best private party auto loan:
- Check your credit: Knowing your credit rating and credit history before finding a lender will give you a better idea of what interest rate and the loan amounts you may be entitled to.
- Budget accordingly: Once you know your credit status, it will be easier to budget and decide how much you can pay out of pocket and how much you need to finance.
- Choose a vehicle: Before going to a private auto lender, make sure you know the type, age, and mileage of the car you want. This will take into account the type of loan you are eligible for.
- Get loan quotes: In order to get the best loan, you will need to get quotes from a few potential lenders. Compare the prices to find the loan products that best suit your needs. Compare interest rates, loan terms, monthly payments, fees and penalties.
- Finalization of the loan: Once you find the best personal auto loan, the lender will send you a check, either to you or directly to the seller of the vehicle. The lender can even directly deposit the funds into your account. It may take a few days, so be sure to communicate this to the private seller.
- Transfer of vehicle ownership: This step depends largely on the state in which you are dealing with a private seller. Check with your state’s Department of Motor Vehicles to find out what you need to do to transfer ownership to yourself.
- Payment schedule: Many private auto lenders offer the option of setting up automatic payment or making payments through an online portal. Discuss your options with your lender to avoid missing payments.
Why consider a loan between individuals
Although private auto loans may charge higher rates than standard auto loans, there are some advantages:
- There are better vehicle deals: The selling prices of private lien holders tend to be lower than those of car dealerships. With a personal auto loan, you get financing just like you would at a dealership, plus savings that a private seller is likely to offer.
- It may be cheaper than a personal loan: A personal loan is likely to be more expensive because it is unsecured. A lender assumes more risk when there is no collateral to secure the loan in the event the borrower defaults.
- They offer flexibility: Rather than being limited to what a dealership offers, you can get the vehicle you want affordably from a private owner.
- There are loan options for bad credit: Even those with poor credit might be eligible for private auto loans. However, as with all loans offered to borrowers with bad credit, they come with higher interest rates and hence have higher monthly payments.
Where to find auto loans for individuals
Loan products vary from financial institution to financial institution, so not all lenders offer private auto loans. But you can get a personal car loan from most major financial institutions, community banks, local credit unions, and online lenders.
Some lenders may require the vehicle to meet certain criteria. For example, they may require the car to be less than 10 years old with less than 120,000 miles in order to consider the buyer for a loan.
Other lenders may have a minimum loan amount. If the vehicle you want costs $ 6,000, but the lender doesn’t offer such small loans, you’ll need to find another lender.
Be sure to carefully consider the lender’s criteria before applying for a car loan for an individual.
How to apply for a car loan between individuals
Once you’ve found the vehicle you want to purchase from a private owner, be prepared to provide the lender with some basic personal information, including:
- Your full name, date of birth, address, social security number and contact details
- Information on employment and income.
- Current debt securities, such as a mortgage.
You should also have certain documents and details available regarding the vehicle you wish to purchase, including:
- Make and model, model year and mileage.
- The vehicle identification number, or VIN.
- Bill of sale which details the purchase contract.
- Copy of vehicle registration.
- Copy of vehicle title.
- A written repayment quote from the seller’s lender, if applicable.
Lenders have different requirements for the borrower and the automobile that will secure the loan. You should be able to find out what these requirements are before you apply.
If your credit is not that good, consider postponing the purchase until you improve your credit score. Waiting a few months won’t turn your credit from poor to perfect, but it can make a difference enough to save you on interest rate and monthly payments.
Alternatives to auto loans between individuals
If your credit is not good enough or if the vehicle you have selected does not meet the lender’s criteria, there are alternatives that you can look for to purchase through a private seller.
The best alternative to a private car loan would be a Personal loan. With unsecured personal loans, the lender takes your income and credit rating into account when determining loan eligibility.
This can be a good option if:
- The vehicle you want to buy is too old or has too many kilometers.
- The vehicle is purchased with a salvage title. A salvage title is issued when a vehicle has already been declared “total loss” due to major damage.
- The minimum loan amount is more than what you want to borrow.
While a personal loan can give you the option of purchasing the vehicle of your choice, it will likely carry a higher interest rate than a personal car loan and could end up costing you more overall.