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Final Verdict
While it may take a bit more work to get a car loan without going through a dealer, there are plenty of private car loan companies from which you can choose. PenFed can be a great option if you need a small loan, while AUTOPAY is worth considering if you have either near-perfect or poor credit.Â
If you like the idea of an unsecured auto loan and don’t mind paying a higher interest rate, LightStream is a good option; or, if you’re a U.S. Bank customer or USAA member and like to keep all of your finances under one proverbial roof, consider one of those lenders.Â
Guide to Choosing the Best Private Party Car Loan
How Do Private Party Car Loans Work?
Private party car loans are direct loans, which means that you work directly with the lender instead of going through a dealership. Compared to traditional used car loans, private party loans may carry higher interest rates because lenders consider it a riskier purchase compared to a dealer-sold vehicle that’s been vetted by the dealership.
That said, you can often get a lower sales price from a private party compared to a dealer, and you also don’t have to deal with extra fees some dealers charge.Â
How to Qualify for Private Party Car Loans
The eligibility criteria for a private party loan will depend on the lender. Factors that go into the decision typically include:
- Credit score
- Income
- Debt-to-income ratio
- Vehicle’s age and mileage
- Vehicle’s purchase price
- Vehicle’s title (branded titles may be harder to finance)
The application process can also vary by lender, but here are some general guidelines:
- If the lender offers pre-qualification, provide some basic information about yourself and how much you want to borrow to get an idea of potential rates and terms.
- Complete an official application, providing information about yourself and the vehicle.
- Provide documentation to prove your identity, employment, income, and residence.
- Lenders may also require you to provide the vehicle identification number (VIN) for the car and may perform an appraisal of the vehicle.
- The lender will provide you with details on how to transfer the car title.
Depending on the lender, approval and loan disbursement can take anywhere from a day or two to a couple of weeks.Â
The more prompt you are in providing your information and documentation, the faster the loan approval process will go.
Alternatives to Private Party Car Loans
Depending on your situation, you may consider other options instead of getting a private party auto loan. Here are just a few to keep in mind:
- Dealership financing: If you want a less risky option, consider buying a used car from a dealership and having the dealer arrange financing on your behalf.
- Bank loan: If you opt for a used car from a dealership, you can still work directly with a lender to get an auto loan. In some cases, you may be able to get even better terms than what a dealer can offer.Â
- Personal loan: If you have great credit and want an unsecured loan, you may be able to get a relatively low interest rate. However, auto loans typically carry lower rates than personal loans on average, so research all of your options before committing to one.
- Leasing: Leasing a new vehicle is less expensive on a monthly basis than buying one. Depending on your budget and preferences, you may be able to get into the car you want without paying a lot.
Frequently Asked Questions
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Private party car loans are available from traditional banks, credit unions, and online lenders. However, not all lenders that offer used car loans extend that to private party purchases, so double-check before you submit an application to avoid wasting your time.Â
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Yes, even some of the best private party auto loans are accessible if you have bad credit. Just keep in mind that you may end up paying a higher interest rate and possibly even additional fees to get approved.Â
As you shop around, look for private party auto loan pre-approval options so you can gauge your approval odds without impacting your credit score. And if you do submit full applications, try to get all of your loan shopping done within 14 days to minimize the negative impact on your credit score (some credit scoring models give you 45 days).
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Yes, private party car loans tend to come with higher interest rates compared to used car loans for vehicles purchased from a dealership. Dealers typically have a vetting process to ensure that a car is in good working condition before selling it, making those purchases less risky for lenders.
Methodology
Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of auto loan lenders. To rate providers, we collected hundreds of data points across more than 20 auto loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs.