How to Get a Car Loan for a Private Sale

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Updated January 26, 2023

Article QuickTakes:

• Can I get a loan for a private sale?
• How does it work
• Who offers these type of loans?
• How much does it cost?
• How to qualify

A car loan for a private sale can help you buy a car from an individual when you can't cover the purchase price upfront. When dealership cars aren't exactly what you're looking for, a private party auto loan allows you to expand your search.

This type of auto financing may also save you money, since an individual could sell the same vehicle for less money than a dealership. Here's what you'll want to know about how car loans for private sales work.

Can I Borrow Money to Buy a Car From a Private Seller?

Yes, you can borrow money from a financial institution to buy a car from a private seller. This type of financing means that if you're selling your car, you have a broader pool of potential buyers — you aren't limited to doing a dealer trade-in or selling your car to someone who can pay cash. If you're buying a car, a private sale car loan increases your options for the vehicles you might consider purchasing.

Lenders may have minimum and maximum amounts you can borrow for a private party vehicle purchase. If you're shopping at the low or high ends of the market, keep these possible limits in mind. It may be helpful to research how much you can borrow before you start your vehicle search. In fact, getting pre-qualified or pre-approved can be a smart move regardless of your price range.

How Does a Private Party Auto Loan Work?

If the seller hasn't paid off their loan on the vehicle they're selling, your lender will first send the seller's lender enough money to pay off that loan. This important step will allow the seller's lender to release their lien on the vehicle so you can buy it with a clean title. Then, your lender will send any remaining amount to the seller. Your lender will become the new lien holder on the car's title until you pay off your loan.

Similar to financing a dealership vehicle, you'll be able to choose a loan repayment term that works for you. Terms from one year (12 months) to seven years (84 months) are available. Some lenders may not offer all of these terms (or at least, they may not advertise them). However, if you only need a 12-month loan and the shortest term you can find is 36 months, you can always repay the loan sooner. That said, check the loan's terms to make sure there's no prepayment penalty, a fee for paying off your loan early.

Where Do You Get a Private Party Auto Loan?

Many banks, credit unions, and online lenders offer financing to help people buy vehicles from private sellers.* You may want to expand your search to include national, regional, and local financial institutions because you never know where you might find the best deal on a car loan. Everyone is familiar with banks, but you might not know as much about credit unions or online lenders. You might be surprised to learn that some credit unions allow anyone to join in exchange for a small fee. You may also be eligible to join a credit union based on where you live or your employer. Online auto lenders are companies that don't have physical branches. You'll handle the entire application process online, and you can usually get help by phone or email if you need it.

With so many options available, there's a good chance you will find a loan that fits your needs.

*For clarity, at the time of publication, Capital One does not offer financing for private party vehicle sales.

How Much Does a Private Party Auto Loan Cost?

A private party vehicle loan can be inexpensive, with interest rates that are competitive with new vehicle financing. However, rates can vary considerably among lenders, even for borrowers with excellent credit.

You have several options for saving money on a private seller auto loan:

• Get quotes from several lenders: since annual percentage rates (APRs) among lenders can vary by several percentage points for the same vehicle, loan amount, and repayment period, shopping around could mean big savings. Getting multiple quotes within 14 to 45 days should have a minimal effect on your credit score, according to the Consumer Financial Protection Bureau
• Sign up for automatic loan payments: some lenders will deduct a percentage from your interest rate if you let them automatically debit your car payment from your bank account each month
• Choose the shortest loan term with a monthly payment you can afford: a shorter loan term may have a lower interest rate. In addition, you'll pay interest for fewer years and save money in the long run. A monthly payment calculator can help you do the math for different scenarios
• Buy a newer car: lenders may offer lower rates on newer model years and cars with fewer miles. Weigh the savings from a lower rates against the purchase price on a newer vehicle to see if the math works out in your favor

How to Qualify for a Private Party Auto Loan

Lenders will qualify you for a private sale auto loan based on your credit history, financial profile and the vehicle you want to buy. These are the same criteria lenders use when you want to borrow money to buy a car from a dealer. There are multiple factors to be aware of:

• Credit score: borrowers with credit scores classified as super-prime (781 to 850) will typically qualify for a lender's lowest interest rates. Prime borrowers (661 to 780) may also qualify for these rates. As your credit score decreases, you can expect your interest rate to increase. With a credit score below 500, you may not qualify
• Income: lenders will require you to have enough income to demonstrate that you can afford to repay the loan
• Age: you must be legally old enough to sign a loan contract in your state. Usually, you'll need to be at least 18
• State of residence: you must live in a state where the lender offers vehicle financing
• Vehicle age: lenders may not approve your application if the vehicle is too old — say, older than 10 or 15 years — or has too many miles
• Vehicle value: cars that are worth too little as determined by an independent valuation source may not be eligible for financing
• Vehicle title: If the car has a salvage or branded title, it may not be eligible for financing

Alternatives to a Private Party Auto Loan

Besides paying cash, a personal loan could provide the money you need to buy someone's car. Personal loans also have minimum amounts you can borrow. The minimums vary by lender and by state but can be as low as $500 or $1,000. An unsecured may have a higher interest rate than a private sale auto loan, which is secured by the car you're buying. "Secured" means the car is collateral for the loan; if you can't repay your loan, the the lender can take your car and sell it to get back the money you still owe.

Of course, another alternative is to buy a new or used dealership vehicle by financing through the dealership or on your own. Dealership vehicles are sometimes more affordable than people expect, especially during promotions and if you have excellent credit.

Whether you get a car loan for a private sale or consider your alternatives, it's your decision on how to secure financing for the best vehicle for you — no matter who you buy from.