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Can I get a loan to buy a car privately?
How to finance a used vehicle purchase from an individual
Introduction
There is no doubt that you can find some great deals on used cars from private sellers on sites like Craigslist, Facebook Marketplace, or even from the classified section in your local newspaper.
But, are you able to come up with $20,000+ in cash to buy it outright? (If so, lucky you!)
If not, there are options available, but it may take a bit more legwork and paperwork than it would at a dealership. This article will give you a sense of the private party auto loan process from start to finish.
Quick takes
- Private sales often get you the best price for a car with more space for negotiation, and you can often access lower cost loans than you would at a dealership; however, they require more shopping around and paperwork on your part.
- Secured loans offer you the best rates, but they require a lien on the vehicle title. They also usually come with restrictions on what vehicles you can buy. Unsecured loans are essentially personal loans, which usually have higher rates, but you can use them any way you want.
- Some lenders will pre-approve you for a loan. In this case you will be given a certain budget to spend on a vehicle within a certain time limit. You should be aware that pre-approval sometimes requires a hard-pull credit check, which can lower your credit score, especially if you do this often.
- When you use KeySavvy for your private sale transaction, your lender may be more open to your loan because we are a licensed independent dealer and we do the work of verifying the title and paying off any existing loans your seller may have. Learn more about the process.
What is a private party auto loan?
Private party auto loans are loans for vehicles that you buy from an individual as opposed to a dealership. They do exist, but there is some confusing terminology you should be aware of when you are shopping around for the loan that best fits your needs.
- A secured private party auto loan is one in which the lender puts a lien on the vehicle until the loan is repaid. This means that the vehicle title is kept by the lender and is held as collateral in the case that the loan does not get paid off. Once the loan is paid off, the lien is cleared, and the title is sent to the borrower (you).
- With a secured loan, you will get a lower interest rate, but the lender usually stipulates which vehicles may be purchased (how old, mileage, current registration, etc.) Many lenders won't finance vehicles older than ten years or with more than 100k miles.
- The interest rate you receive will depend on the value of the vehicle you are buying, your own personal financial profile (income, credit score, etc.), the current interest rate, and the loan term you settle on.
- An unsecured loan does not add a lien to your vehicle's title, and it therefore is determined only on the borrower’s income, credit score (FICO), and history. In this sense it is essentially the same as a personal loan.
- Unsecured or personal loans generally come with higher interest rates, but there are no restrictions on what kind of car you can buy.
Preapproval with soft or hard pulls
Many lenders offer “preapproval” or “prequalification” for a particular loan with a rate and term. If you can get preapproved, that means you can shop anywhere for your car knowing you have access to a loan.
To preapprove you, the lender must look at your credit history, and you should be aware that when a financial institution draws your full credit history (known as a “hard pull”), it affects your credit rating, so you want to limit the number of times they do this.
Some lenders will preapprove you on a smaller record of your credit history (known as a “soft pull”) and that will not affect your credit rating.
Where to look for private party auto financing
If you have a vehicle and a rough budget in mind, it’s a good idea to start shopping around for potential lenders. These include banks, credit unions, and online lenders:
- Credit Unions: Credit unions should be your first stop when you seek a private party auto loan. If you have the VIN of the vehicle you want to buy, bring it with you as they may want to run a check on it.
- Banks: Some banks will offer secured auto loans for private party sales, but many will only deal with licensed dealers. If this is the case, you might consider using KeySavvy (see below).
- Online lenders: There are many sources of financing online, many of which will offer you an instant rate calculator if you enter your information.
Try all these options to get the best rate and terms that work for you.
Using KeySavvy can help you get a (better) loan
When you set up payment through KeySavvy, not only do you get superior scam protection; you may also get access to financing that is not available when buying privately through traditional methods.
That is because KeySavvy is an independent licensed dealer and we provide guarantees to you and your lender regarding the vehicle title. Your financial institution may be more open to lending if you are buying through KeySavvy because we add a layer of trust and security to the process.
Electric vehicles have some special loans
If you are looking at buying an EV, here are some special considerations regarding financing:
- Some lenders will offer better rates for EV loans. These loans also feature higher limits, since EVs tend to cost more.
- Some EV loans will include the amount it costs to install a level 2 charger in your home.
- Incentives may be able to help you pay for a used electric vehicle—with KeySavvy, you may be able to claim this credit even on a private sale.
- Some lenders specialize in financing EVs. Tenet is one such company that provides affordable EV financing—and it can be initiated conveniently through the KeySavvy transaction process.
Steven Gin
