Is Taking a Private Party Loan to Buy a Car Worth It? The Pros and Cons of Private Party Auto Loans

Financing a vehicle you wish to buy from a private seller rather than a dealership can be tricky. In such a scenario, your best option is to go for a private-party auto loan. A private party loan is almost similar to an auto loan you can find at dealerships.

However, they come at a higher interest rate because they are riskier than auto loans from a dealership. Read more below to learn the pros and cons of private-party auto loans.

Pros of private-party auto loans

A private-party auto loan allows you to borrow money from a lender to buy cars from private sellers. You can use the loan to purchase a vehicle from a friend or someone you found on Craigslist. In short, a private-party loan is applicable for car purchases in the private market. The private-party auto loan ensures that you can enjoy several benefits. Here are the top pros of the private party loan.

1. Provides the easiest way to finance a car purchase from a private seller

Saving to buy a car from a private seller may require high-saving discipline. Any emergency you may have can ensure you dig into your car savings, which could delay your dream of buying a car.

Therefore, a private-party auto loan is the best and easiest way to finance a car purchase from a private seller. For one, you will not need to take years to save money to buy a car. You can purchase the vehicle promptly if your lender approves the private party loan.

2. They provide you with flexibility

A private party loan ensures that you can get any vehicle you want. It means that you can get a car that a car dealership does not offer. The flexibility of the private party auto loan occurs where you can purchase any car you want at whichever price from a private owner.

The primary requirement is that you should have a good credit score. Furthermore, cars from private sellers are often cheaper than those from a dealership. Therefore, you get to enjoy more options at affordable prices.

3. The private party loans are cheaper compared to personal loans

You can finance cars from private sellers in two main ways. That is through personal loans or private party loans. Private-party loans are more beneficial to get than personal loans.

In most cases, personal loans are unsecured. The unsecured nature ensures that lenders charge a higher rate of interest. Thus, personal loans are more expensive than private-party loans as there is no collateral. In a private party loan, the car will act as the collateral, ensuring it is less risky to the lender. Therefore, a private-party auto loan is cheaper.

4. Options are available for anyone with bad credit

In most cases, people with bad credit have difficulty getting loans. However, you can still find a private-party auto loan if you have bad credit. The only downside is that the loans will be more expensive for you than for those with good credit.

Loans provided to individuals with bad credit often have higher monthly payments, interest rates, and total costs. The bright side of the loans is that you will still have access to them.

5. You can improve your credit

If you make consistent payments on your loan, you stand a high chance of increasing your credit score. The consistent payments should be in full and on time. Whether you have good or bad credit, the private party auto loan is an excellent source of improving your credit.

Good credit will help you in the future if you want to buy another car from a private seller. Therefore, once you get your loan, ensure you follow all the requirements from the lender.

Cons of private-party auto loans

Despite the numerous benefits of a private-party auto loan, there are also some disadvantages. Here are some cons of private-party loans:

1. It involves complex processes

When purchasing a vehicle from a private seller instead of a dealership, you will find several complex processes involved. Most auto dealers come prepared with preferred lenders, which private sellers do not. Therefore, you will need to spare time to search for a lender that will meet your needs.

The research process will need you to shop around from various lenders, which may be time-consuming. You will also be responsible for several processes that a dealer often handles. Some of the tasks you will need to carry out include; submitting paperwork and paying taxes. Thus, the procedures involved in a private-party loan will require you to exact more effort compared to using a dealership.

2. Higher interest rates than loans received via a dealership

Most lenders believe that financing cars from private sellers are much riskier than that from a dealership. Therefore, they charge a much higher interest rate than sourcing loans through auto dealers.

The lenders often trust dealers more. Furthermore, most cars available in dealerships have certifications and warranties. They are also in good mechanical condition. The minimal trust awarded to purchasing cards from private owners ensures a higher interest rate.

3. You will need to find the car you wish to buy first

Lenders will require you to have several details about the vehicle you want before giving you a loan. Some of the information you may need includes; the vehicle’s mileage, age, make, value, and model. Some lenders may also need to know whether the private seller owes money for a previous auto loan.

Therefore, you need to shop for the car you want from a private seller first before you approach lenders for financing. Getting a private-party auto loan will require you to have a lot of patience.

Private party auto loan or personal loan: Which is better?

Most individuals suffer from indecisions when it comes to financing a car they wish to buy from a private owner. The indecision arises in choosing between personal loans and private party loans. The private-party auto loan is the better of the two as it is cheaper. You can consider personal loans only if:

• The minimum private party loan amount is higher than what you wish to borrow.
• You wish to purchase a car using a salvage title.
• The car you want to buy has many miles or is too old for you to receive the private party loan.

Bottom Line

Private-party auto loans facilitate the financing of cars purchased from private sellers. They ensure you can buy your vehicle at a lower price than using a dealership. Also, private-party loans are cheaper than using unsecured loans. If you are considering purchasing a car from a private seller, the private-party auto loan is your best option.