Buying a used car can be a tricky process, from getting approved for financing to checking out the history and maintenance of the vehicle. But what happens when you want to buy a used car from a person rather than a dealership? Before you purchase the car youâ€™ve been eyeing, itâ€™s helpful to learn the ins-and-outs of private party auto loans, where to shop around for them and how to make sure you are getting the best deal.
Here are some guidelines on how to navigate the used car industry and get the most competitive interest rate for your auto loan.
A private party auto loan is one option for would-be car owners purchasing a used vehicle from an individual, rather than a dealership. Those who donâ€™t have the savings to pay for the car will need to seek financing from a lender who offers private party auto loans.
There are many lenders who offer private party auto loans, including banks, credit unions and online lenders. These lenders have their own specific requirements for things like minimum credit score, income and down payment, and could also have a maximum limit on the age of the vehicle and the number of miles it has accumulated.
APRs for used vehicle loans are also generally higher than ones for new cars. Used cars depreciate more in value because there is more mileage on the vehicle, along with more wear and tear on the engine, tires and other parts. The lender is taking on more risk and, in turn, charges a higher interest rate.
The length of a private party auto loan is similar to that of loans for new and used cars that have been purchased directly from a dealer.
After youâ€™ve narrowed your search to the vehicle you want to purchase, you should start shopping around on how to finance it. Decide how much money you want to put toward a down payment from your savings or if the trade-in value of your car will be sufficient. The more money you have for your down payment, the lower your monthly payments will be.
Another important factor to look out for is the interest rate for your potential loan â€” a lower interest rate means that more of your money goes toward the principal of the loan. Make sure you compare auto loan rates from various lenders, including banks and credit unions. Banks will sometimes give a better rate if you are already a customer, though the lowest rates are often offered by credit unions â€” see if there is one in your neighborhood that you qualify for if your employer does not belong to one.
Youâ€™ll also be able to find out which lender offers the lowest APRs by comparing them online. You can compare rates from up to five auto lenders with LendingTreeâ€™s online marketplace by entering some basic personal information.
LendingTree is our parent company. LendingTree is unique in that they allow you to compare multiple, auto loan offers within minutes. Everything is done online. LendingTree is not a lender, but their service connects you with up to five offers from auto loan lenders based on your creditworthiness.
Still, one important thing to remember is that each time a lender checks your credit score, your overall score will be impacted. Coordinate your searches for auto loans only when you are ready to make the purchase so that they occur within a 14-day period, which has less of an impact to your credit score.
The way to determine the best price for a particular brand and model of a vehicle is to compare selling prices from industry standards, including the the National Automobile Dealers Association, Kelley Blue Book and Edmunds. These guides are also helpful if youâ€™re trading in your car and want to use the proceeds for a down payment.
Until you are ready to purchase a vehicle, continue to shop around on auto marketplaces or dealer websites. They could offer a discount for cars in different colors and features that may not be a priority for you.
Save your online research and show an individual car owner what other dealers are offering. Show them what their competitorâ€™s price is and see if they are willing to lower their price.
Obtaining a personal loan is an option, especially for car owners with lower credit scores or shorter credit histories. Personal loans are typically used by consumers to pay off high-interest debt, like credit cards. An individual could apply a personal loan toward the purchase of a used car, along with a down payment, instead of seeking a private party auto loan.
However, while personal loans allow an individual to borrow a set amount of money for a fixed period with a fixed interest rate, their interest rates are often higher than an auto loan that has collateral (the car itself). These loans usually range between 24 and 60 months.
Another option is a home equity loan. You can qualify if you have enough equity in your house, which is used as collateral. These loans, available from lenders including banks and credit unions, can be used for various purposes. Once you are approved, the lender will give you a lump sum of money, which can be used toward the purchase of a vehicle.
Youâ€™ll make monthly fixed payments when you receive a home equity loan, similar to how a traditional auto loan works.
Car buyers have several loan choices they can make before committing to a major purchase. Private party auto loans are another common option to finance your vehicle. Once youâ€™ve chosen the vehicle of you want to buy from another individual, you should check your credit history and the value of your current trade-in, and decide whether youâ€™re able to make a down payment.
Start shopping around for private party auto loans to get the best interest rate and a lower monthly payment.
By clicking â€śSee Offersâ€ť youâ€™ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.