Every year, millions of Americans turn to private sellers to buy their next car. Unlike most auto dealers, however, private sellers rarely offer financing. Private party auto loans can fill that gap.
When buying a car directly from an owner rather than an auto dealer, your financing options can be limited. If you don’t want to pay entirely in cash, you might be able to get an unsecured personal loan – or you could consider a private party auto loan, which often has lower interest rates. As a result, a private party auto loan can be less expensive than a personal loan because the car serves as collateral. Here’s what you’ll want to know about private party car loans before you get started:
Private party auto loan: What it is and how it works
With a private party auto loan, a lender loans you money to buy a car from a private seller. You must select the car you want to buy before applying for financing. If approved, the lender typically pays the seller or lienholder the amount you owe, then you repay the lender, with interest, over the term of the loan.
1. Find out if you are eligible
Lenders often have certain requirements for both the borrowers and the cars that will secure the loan. The criteria may include minimums for your credit score, income and upfront payment. The lender may also set a limit on the age and mileage of the car or require a floor on the price. Usually, you can go online, call lenders or even walk into a financial center to get information about eligibility. Locate a Bank of America financial center near you
2. Compare payoff periods and costs
Your interest rate on a private party auto loan will depend on a number of factors, including the length of the loan (often 48-72 months), your credit history and the car’s age and mileage. Pick the loan term that best fits your budget. Longer terms may have smaller monthly payments, but remember: The longer the term, the more interest you’ll end up paying over the life of the loan. Some lenders, including Bank of America, may let you prepay without penalties, which can save you money on interest.
You can use the Bank of America auto loan calculator to estimate what your monthly payments might be based on the loan amount, term and annual percentage rate (APR).
3. Apply for – and close – your loan
When you’ve found the car you want and you’re ready to apply for a loan, come prepared with the information and documentation you may be asked to provide:
- Your full name, date of birth, address and Social Security number
- Employment and income details
- A copy of the vehicle registration
- A copy of the front and back of the vehicle title
- A bill of sale with details about the agreed-upon purchase
- A written 10-day payoff quote from the seller’s lender (if the vehicle currently has a lien)
If you’re approved, you’ll get the final details on the loan and you’ll be ready to close. The lender will make out checks to the seller and/or lienholder and you can hand them over. You’ll still need to transfer the title and registration into your name and place your lender as lienholder on the title; you may want to check with your local Department of Motor Vehicles (DMV) for the details.
A private party auto loan can give you the flexibility to buy the car you want directly from an owner in a way that best fits your budget.