3 Private Party Auto Loans for Bad Credit

3 Private Party Auto Loans for Bad Credit
GUIDE
Matt Walker
By: Matt Walker
Updated: June 23, 2020
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Purchasing a used vehicle from an individual instead of a dealership can bring tremendous savings — and just as many headaches. Finding financing for such a purchase is tough, and securing private party auto loans for bad credit is even tougher.

While a private party auto sale won’t include dealer fees or add-on packages, it does come with several hurdles that often discourage banks from extending loans. Does the current owner still owe money on the vehicle? Is it in good mechanical shape? Is there any warranty backing the vehicle?

All these factors make private party loans slower to close than a traditional dealership loan — unless you acquire financing through a lender that specializes in this type of sale. Our choices below make it easier to get the car you want, without handcuffing yourself to a local dealer for the sale.

Best Overall
Alternatives | FAQs | Buyer Tips

Best Overall Private Party Auto Loan

You can submit your financing needs to myAutoloan.com and the lending network will shop your prequalifying form to a host of partner lenders. Qualified applicants can receive up to four loan offers in a matter of minutes.

Once you choose your preferred loan, you can receive an online certificate or check within 24 hours.

The network provides a host of free online tools to help you find the loan that best meets your needs and financial situation. When you’re ready to apply, you’ll need to provide basic information that includes your name, address, time at the address, Social Security number, and employment and income information. You’ll also need to state your requested loan amount and information about the financed vehicle and its seller.

Alternative Private Party Auto Loans for Bad Credit

While online lending networks give you access to a wider array of lenders — including those who specialize in working with consumers who have bad credit — they aren’t your only available options.

The lenders below provide private-party auto financing but may charge higher fees and be a little less forgiving of your credit history.

2. LightStream

LightStream is a division of SunTrust Bank that provides loans for the types of purchases that most banks shy away from. This includes loans for landscape financing, hot tub installation, boat repairs, child adoption fees, horse purchases, classic cars — and, of course, private party auto sales.

The network provides loans of between $5,000 and $100,000, with same-day funding available in some instances. You can apply for a loan directly on LightStream’s website, where you can review the lender’s current rates and terms.

3. Local Bank or Credit Union

Some local banks and credit unions provide private party auto financing, but these institutions typically aren’t in a hurry to approve applicants who have bad credit.

Bank of America, for example, provides these types of loans, but they’re often far slower to close because the bank has to do its due diligence to research the vehicle and seller before approving any financing.

Plus, banks often add extra loan fees to offset the risks associated with purchasing a car that doesn’t come with a dealer warranty. That means you often lose the savings associated with a non-dealer purchase.

How Do You Finance a Car from a Private Seller?

A private party auto loan isn’t like the loan you’d get to purchase a vehicle from a local dealer. Most lenders have partnerships with specific dealers that make these loans quick and easy to close. Some banks close dozens of such loans each day.

But a private party will have no such connections with lenders or banks. Before you can receive loan approval, a lender will want plenty of information on the vehicle used as collateral.

A lender could require documentation proving that the car has no outstanding loans or liens. You may also need reports from a mechanic that outlines the car’s current condition. Other paperwork — such as maintenance records or accident history — may also help your cause.

And, even if you can get traditional financing through a bank, you may find the interest rates higher than those on traditional auto loans — which essentially negates the savings you get when you skip the dealership and purchase from a private party.

Chart of Interest Rate Impact on Monthly Auto Loan Payments

Some financial institutions may even require you to purchase add-on mechanical repair insurance policies to qualify for a private party loan.

That’s why lending networks like myAutoloan.com attract thousands of borrowers each year. The partner lenders associated with these networks regularly process private party auto loans for consumers who have bad credit and can expedite the process and keep it as affordable as a traditional vehicle loan.

And, since the network partners with several lenders, you could receive multiple loan offers with varying terms and conditions to choose from. That kind of competition typically keeps loans more affordable and even more flexible in terms of approval.

Which Banks do Private Party Auto Loans?

Most banks provide financing for private party auto sales, but they have strict approval standards that often require higher credit scores than traditional auto loans. That’s because these loans bring more risk to the lender since the vehicle has less documentation than a dealer-backed purchase.

Some banks choose to offset the risks by adding extra fees or interest charges that you may not find on a traditional auto loan. Other banks relegate private party financing to a personal loan since it doesn’t fall within their typical auto loan scope.

Going the personal loan route almost always results in a higher APR than if you were to pursue a traditional auto loan.

Some banks, like PNC, separate dealer and private party loans and require more documentation for the latter. The added requirements often slow down the approval process.

While some banks can get you same-day funding for a dealer-backed purchase, a private party auto loan could take several days to close. Not every private seller wants to wait that long to close a deal — and you could lose the car of your dreams while waiting for a bank to decide on a loan that it’s not very motivated to fund.

If you’re looking for a loan to purchase a car from a private party, consider all of your financing options. While a big bank may be top of mind when considering loans, they’re often less forgiving of bad credit histories.

Can I Get a Car Loan with a 500 Credit Score?

Credit scores range between 300 and 850, with anything from 300 to 579 considered “very poor.” If you fall in that spectrum, you won’t find many banks that are eager to work with you.

That’s because traditional financial institutions must carefully select who they extend loans to. If a borrower defaults on a loan, it eats away at the institution’s profits. Too many of those losses can cost people their jobs. People typically don’t want to lose their job.

That’s why you’ll often struggle to acquire a loan with a 500 credit score through a bank or credit union. But when one door closes, another one opens.

Many online lenders understand that everyone needs occasional financing — and that your credit score shouldn’t keep you from getting the vehicle you need. That’s why many online auto lending networks partner with lenders that specialize in providing financing for consumers with bad credit — including recent bankruptcies or repossessions.

Direct Lenders vs Lending Networks

There’s an obvious risk associated with these loans, so they don’t always come cheap. Still, the price of expensive financing more than offsets the hassles associated with not having reliable transportation.

And, since there’s competition among these types of lenders, you could find yourself on the receiving end of multiple loan offers from a single application to a network like myAutoloan.com.

Just keep in mind that every lender that partners with a network has different standards for approval. No network can guarantee you a loan offer.

And, since each lender also sets different terms and conditions with their offers, you should examine every possibility before accepting the financing.

This not only includes the amount of the loan, but the interest rates, penalties, and length of the loan. While extending the loan repayment window lowers your monthly bill, it also adds substantial financing costs that can make your new vehicle more expensive.

Tips for Buying a Vehicle from a Private Seller

Auto dealers often provide warranties when you purchase a new vehicle. Even smaller guarantees, such as 30 days from the date of purchase, can provide some peace of mind when you drive your new car off of the lot.

But private parties aren’t required to provide any backing. These “as-is” sales mean you’re on the hook for any repairs or other costs the car incurs — even if you’ve only had the car for a few minutes.

Don’t let that discourage you from making a private party auto purchase. If you follow the steps below, you could save thousands on your new vehicle, while avoiding the hassles often associated with shopping at a dealership.

  • Find the car that’s right for you: When you finance a purchase from a dealership, you’re often given a certain amount of money to shop with — and you can buy any vehicle that falls within that range. Private party financing requires you to find the exact vehicle you want before you apply.
  • Research your chosen vehicle: While your desired car may be clean and pretty, there could be underlying issues that you can’t see. Information vendors such as CarFax can give you a detailed record of the vehicle’s accident history or other mechanical issues. Request maintenance records and always have the vehicle inspected by a certified mechanic. These things may cost you a little more upfront but can save you a lot down the road.
  • Shop around for financing: You may be anxious to accept the first loan you’re offered. Lenders understand this and often rush to offer loans with higher costs and fees in hopes that you’ll jump at the chance to accept them. Check with multiple lenders — and especially with a lending network that can shop your needs to several lenders — to make sure you’re getting the best deal possible.
  • Register the title and transfer your car: Before you purchase your new car, make sure the current owner owes no money on the vehicle. If there’s outstanding debt attached to the car, and the owner doesn’t pay it off, you could find your new car repossessed despite you having purchased it. Once you have the vehicle in your possession, register the title in your name to transfer ownership to you. Doing so removes any claims the previous owner has to the car and makes the vehicle solely your property and responsibility. 

Save Thousands on a Private Party Sale

Don’t let your bad credit keep you from getting the car you need. While banks prefer you shop for a vehicle at a dealership, you could save thousands of dollars by skipping the dealership’s fees and add-on packages and purchasing your car from a private seller.

While financing such a purchase may require a little extra work, you’ll find many online lending networks, like those listed above, eager to provide private party auto loans for bad credit. That gives you more time to enjoy your new vehicle without worrying about financing hurdles.

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