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Most people feel safer engaging in a private party car sale involving a friend or relative. That’s because you’ve probably driven the car several times and seen how the owner maintains it. In addition, this type of sale has more room for price negotiation compared to dealerships. In fact, you can even apply for a private party auto loan.
1. Can you get a car loan for a private sale?
Yes, you can by applying for a private loan. It’s a form of credit whereby a lender offers to finance the buyer based on adherence to a set of requirements. It works just like a typical auto loan.
The seller retains his or her car title until you complete monthly payments. Your creditor will apply for a lien on the title to act as collateral.
2. What are the requirements?
1. Proof of identity
In order to verify that the sale is genuine, you’ll have to prove your identity for security purposes. No creditor wants to get caught up in the sale of stolen vehicles.
Creditors will request to see your utility bills for the past six months. They’ll also speak to your property manager to verify your bills. Some will even request for utility bills of your previous house if you’ve lived in the area for less than a year.
Remember to carry your driving license and present your SSN.
2. No history of bankruptcy
Creditors know that buyers who’ve ever filed for bankruptcy have unstable jobs and tend to fall behind on monthly payments. If you ever filed for one, you’ll have to wait it out on your credit report.
3. Earn at least $2,000 monthly
The national average car monthly payment is $530. Economists and renowned credit analysts agree that average buyers who earn a modest $2,000 a month can afford this payment without putting themselves at risk.
Are you looking for a car loan for low income earners?
4. The loan should be at least $10,000
Creditors want to make a significant profit from your transaction. So, they set a high principal amount to reap from the interest you pay every month.
5. A 5-year age limit
The maximum car age that’s eligible for private financing is usually five years. Also, the car’s mileage shouldn’t exceed 75,000 miles.
6. Have a good credit score
Due to the risk involved in dealing with private buyers, credit lenders only offer to finance buyers with excellent or good credit scores. Remember to download your credit report before applying for a private car loan.
7. A 30-40% down payment
Get ready to pay either 30 or 40% upfront at your creditor’s office. After payment, you’ll receive the keys to your new car.
3. What are the pros?
1. Easy application process
All you need to do is show up with the requirements we’ve just covered. You won’t have to show up with a cosigner for loan approval. The entire process might take only 3 days.
2. Friendly interest rates
Since creditors offer financing to buyers with good credit scores, the interest rates adhere to national guidelines. The interest you pay is reasonable and cannot put you at risk of default.
3. Short repayment periods
The longest repayment period is 72 months. While the shortest is just 36 months. Why is this great? Because you pay a low amount of interest. In addition, short repayment periods enable you to get a good price if you decide to sell or do a trade in.
4. Choose the car you want
In a typical car-financing situation, the creditor selects the vehicle and hands you a repayment plan without listening to your preferences. In a private auto loan, a buyer picks the car that fulfills their desires before signing any papers.
5. Boosts your credit score
Once your application gets approved, your lender opens a credit account with various credit reference bureaus. Each monthly payment boosts your credit score to better than it was when you applied for financing.
4. What are the cons?
1. You must get a comprehensive insurance plan
Signing up for a private party loan obligates you to get a comprehensive insurance plan.
The creditor wants you to maintain the car in excellent condition at all times. In case, you’re no longer able to afford payments, the creditor will still get a good resale price.
2. The creditor doesn’t perform due diligence or vehicle inspection on your behalf
The creditor will only ask for information pertaining to identity and vehicle ownership. It’s up to you to verify the seller’s identity and vehicle history.
3. Slim chances of refinancing
It’s usually hard to get refinancing because most private buyers need the cash urgently.
Are private party auto loans good?
Yes, when you’ve found a car you like and the price is right. It feels good driving a car that you picked rather than what you had to settle for. Plus, the interest rates are reasonable.
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