Under The Hood
It's now standard for used car dealerships to offer financing on their inventory. But what about financing a car from a private seller? Can you do that?
We're glad you asked. Here's the best way to go about it.
1) Check Your Credit Score
Whether you are going through a bank, credit union, or online lending institution - the higher your credit score is, the better rate you will secure on your auto loan.
You can use a service like Trans Union, Experian, or Equifax to get a free credit report once a year. It doesn't matter which credit bureau you pick, they all do the same thing. Once you receive your credit report, you'll want to make sure everything is in order. If your credit score isn't as high as you would like it to be, consider these quick tips for improvement:
- Watch how much credit you use
One factor in a credit score is how much of your available credit you spend. The smaller the percentage is, the better your score will be. Bankrate.com recommends using 30% of your available credit or lower. If having a high balance is unavoidable, try make making multiple smaller payments throughout the month, instead of one big one at the end.
- Pay off your balances
Another factor that affects your score is how many of your credit cards have outstanding balances. Pay off those balances, and then consider consolidating down to one or two cards that you use for all of your purchases.
- Leave old debt on your report
Specifically, leave GOOD debt on your report. Good debt is debt that you have paid off fully, and on time. A long record of good debt will help your credit score, and will be seen more favorably than a debt report that is empty. For this reason, it's recommended not to close accounts in which you've a good repayment record.
2) Talk to your lender
Once you have a basic estimate for how much money you are going to need for your car purchase, Talk to your bank, credit union, or online lender. You're going to request information on how much the interest rate would be for their loan. When figuring out how much cash you'll need, remember to factor in the cost of auto insurance, registration, and also possibly the financial institutions loan origination fees.
In order to confirm if they will sign off on your auto loan, you'll have to talk specifics. In general, most large lenders won't finance vehicles that are over 7 years old or have more than 100,000 miles on them.
If you do business with a local bank that you have an existing long term relationship with, they may make an exception. For large lenders, the size of the loan and how much they can make off interest payments will determine whether they want to take on the risk or not.
For terms, you should most likely expect a shorter payback period. The typical range for private party vehicles is 3-4 years, where as the payback period for dealer vehicles is usually 6 years.
The interest rate on a private party vehicle can sometimes be slightly higher- however this is something that can be negotiated. This is why it pays to shop around with different lenders so you can leverage your best offers against the others.
And remember this. Even though you may be paying more per month for a private party vehicle, because you are paying off the loan over a shorter term, you could potentially be paying less money for the vehicle in the long run. This is something you will have to run the numbers on, and find out for yourself, as it depends on what interest rate you secure.
Once you have been pre approved for the loan, bring the proof of approval with you when you visit the car you are considering purchasing. The seller will need to be confident that you have financial backing- and can actually purchase the vehicle.
Once you have negotiated a price that works for you, return to your financial lender, and request a check for the seller's requested amount.
3) Purchasing The Car
Once you have the check in hand, you are ready to purchase the vehicle. If possible, we recommend conducting the transaction at the lender's place of business. They can verify the check's validity should the seller request it.
Your lender will file with your local DMV, making it known that there is a lien on the vehicle you are purchasing ( basically, they are claiming ownership over your vehicle until your loan has been paid off).
You'll have to take a trip of your own to the DMV in order to exchange the title you received from the seller for a new registration under your name. The DMV will then send you a title with the name of your lender on the face of it. Once you have paid back your loan, the DMV will send you a new title with your name on it, and you will be the official owner of the car.
While they are a little bit of a hassle, securing an auto loan for the right priced privately sold vehicle can totally be worth it. Speaking of prices, did you know that on average you'll pay 20-25% less than retail for a car in Swap Motors Marketplace?
Yep. On top of that, all of them are evaluated by our ASE certified techs, come with free vehicle history reports, and feature comprehensive listings filled with HD photos and videos.
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