Auto financing is typically thought of as a dealership-to-buyer transaction, but occasionally an individual may purchase a car from another individual, at which time they may need a private party loan. There are subtle differences between purchasing a vehicle from a dealership and a person, so to explore this more closely, lets look at whats involved in purchasing a vehicle from a private seller.
The Basics of a Private Party Loan
As noted previously, the private party loan is taken out when a person is interested in auto financing, but is purchasing a car from another individual rather than a dealership. Dealership loans are more standardized and usually come with specific terms in relation to interest rates and length; however, working with an individual can offer different terms. Here are a few:
Loan length is usually shortened. This is especially true in comparison to purchasing a new vehicle from a dealership. Think about it; a car youre buying from another person is always going to be used, which means you will probably be paying less. As a result, the loan term is usually shorter than one from a dealership (typically around 48 months).
Rate of interest is usually higher. The rate of interest for a private party loan is usually around 2 points higher than for a new car at a dealership and 1 point higher for a used car at the dealership. Because your credit will determine your interest rate, its a good idea to get a copy of your report ahead of time to have an idea of what to expect. You can get get your free credit report from Go Free Credit.
You probably will not have a down payment. Most private financiers forgo asking buyers for a down payment. While this may sound attractive, its still a good idea to make one to avoid owing much more for the car than its worth.
When you take on auto financing from a dealer, you can often incorporate your taxes, title and registration fees into your loan amount - however, with a private party loan, this cannot be done. Also, unlike purchasing from a dealership, when the deal is sealed with a private seller, your name immediately goes on the title.
Deciding whether to handle auto financing through a dealership or with a private party loan depends on your goals and the car you want. So before you choose, try to weigh all of your options first.
