It is possible to buy a car from a private seller using a car loan. The primary problem with buying a car from a private party is that the seller must wait for the buyer to acquire the money from the bank. However, by being prepared to make the purchase, a buyer can significantly reduce the time needed to get the money, which will increase the odds of a successful purchase.
Pre-Approval
Before going car shopping, a consumer should contact a number of banks, credit unions or other lenders to determine which will offer the best loan terms. Borrowers can check loan terms from online and local lenders. Once the buyer determines which lender offers the best deal, he should complete the application process for pre-approval of the auto loan. By having a pre-approval before looking for a car, the buyer will be able to close the deal with the seller more quickly.
Completing the Loan
Once the buyer finds a car and settles on a price with the seller, the buyer will need to gather information on the car for the lender to complete the loan. Information will vary depending on the lender, but the make, model, mileage and Vehicle Identification Number are common requests. The bank will then use the information on the car to determine the specific terms of the loan. Banks may look into the car's background for collision and other damage reports before processing the loan.
Title Issues
Many sellers may not own the car outright. This means that a bank or other finance company holds the title. In this case, buyers should ask the seller to provide the name of the title's holder and get a payoff amount from her lender. The bank writing the loan for the car purchase can then pay the other lender directly and issue a check for the difference to the seller. The lender holding the title will then send the title to the new lender or buyer.
Other Considerations
A buyer using a loan to buy a car from a private party should expect to pay slightly higher interest rates than those buying a car from a dealer. Lenders see writing loans for older cars and those with higher mileage as a greater risk. This means that the loans for these cars may be shorter in duration and have a higher interest rate. Lenders may also have more strict lending guidelines for private party car loans. Buyers should review a copy of their credit report before applying to make certain of the accuracy of the information on the report.
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