New vehicles instantly lose value the second they’re driven off the dealership lot. In fact, new vehicles are known to depreciate at a faster rate than used vehicles. Given that, you may consider buying a used car at a dealership or through a private seller. But what happens if you find a car with a private seller but can’t afford it outright?
Can you finance a private sale vehicle? Are there car loans for private sale?
Key Points
- While you can get financing from a private seller like you can with a dealership, you can get a private party car loan from some banks, credit unions and private lenders.
- You can also finance a private car sale via other loan options such as personal loans, credit lines, and home equity loans.
- Using the funds from a loan, you can shop for a privately-sold vehicle like a cash buyer.
- Keep in mind that some alternative loan options to buy a car from a private seller may come with higher rates and less favourable loan terms, depending on the loan option considered and your financial profile.
Can You Finance A Private Car Sale?
Yes, you can finance a private car sale through various loan types. Private sellers don’t offer financing like dealerships do, so you’ll have to secure financing on your own. You can use many types of loans to finance a private car sale including a personal loan, line of credit, a private party car loan or even by tapping into your home equity.
Can You Get A Car Loan For A Private Sale?
Yes, you can get car loans for private sale, usually called private party auto loans.
You can apply for a private sale car loan with a bank, credit union or alternative lender. A car loan for a private sale can be unsecured or secured (where the car acts as collateral).
Keep in mind that there may be certain conditions that the lender may place on these types of financing options, such as the following:
- Vehicle Specifications: Lenders often require that the vehicles they’re financing meet certain criteria when it comes to age, condition, and value. For instance, lenders may be willing to finance used cars that are no older than 10 years and are in good condition.
- Minimum Loan Amount: Lenders may have minimum loan amount requirements. For instance, both CIBC and RBC provide minimum loan amounts of $7,500 for car loans.
Learn more: Private Party Auto Loans
Best Car Loans In Canada
| Amount | Interest | Term (Months) | ||
|---|---|---|---|---|
 | $500 - $50,000 | Up to 35% | 12 - 84 | Learn more |
 | $7,500+ | Varies | 24 - 96 | Learn more |
 | $500 - $35,000 | Starting at 29.99% | 9 - 60 | Learn more |
 | $500 - $10,000 | 12.99% - 34.99% | 9 - 60 | Learn more |
 | $5,000 - $40,000 | Varies | 12 - 72 | Learn more |
 | $5,000 - $45,000 | 4.90 % - 29.95% | 36 - 72 | Learn more |
 | Varies | 11.9% + | 12 - 84 | Learn more |
 | Up to $50,000 | Varies | 12 - 84 | Learn more |
Other Types Of Loans To Finance A Private Car Sale
Before you apply for any type of car financing, make sure to compare all your options. Here are some loans you can use to finance a car through a private sale in Canada:
Personal Loans For Private Sale
A personal loan is a lump sum of cash that a lender can deposit directly into your bank account. You can then use the funds for any expense, including the purchase of a car from a private sale. Generally, personal loans will feature higher interest rates than car loans because there’s no security.
Loan terms will also vary depending on how much you wish to borrow, where you acquire the funds, and how strong your income and credit scores are when you apply. If you don’t know what your credit score is, check it out for free with Compare Hub.
Line Of Credit For Private Sale
Alternatively, you can apply for a secured or unsecured line of credit, which gives you a pre-approved revolving credit limit. Similar to a credit card, you can borrow from and repay that limit when you want, as long as you make minimum monthly payments. Once again, you may be able to offer an asset to get a secured line of credit at a lower rate.
Be careful with secured lines of credit, since they carry the same risks as any secured loan product, meaning the lender can seize your asset if you miss too many payments. Plus, having the benefit of minimum or partial payments and no set deadline for paying back your balance can lead to spending and debt problems, also like a credit card.
Second Mortgage
If you own a home, you may be able to use the equity you’ve built up to finance a private vehicle sale. In this case, you have a couple of options available:
- Home Equity Line Of credit (HELOC): A HELOC lets you borrow against your home’s equity as a revolving credit line. You can withdraw funds when required, and only pay interest on what you take out. This provides plenty of flexibility for expenses like private vehicle purchases.
- Home Equity Loan: A home equity loan also lets you borrow money from your home’s equity. But instead of accessing a revolving credit line, you’ll be provided with a lump sum of money that you repay in fixed installment payments.
Who Offers Financing For A Private Car Sale?
When researching car loans, it’s a good idea to compare multiple lenders, terms, and interest rates. Remember, many online lenders, banks and credit unions offer car loans for private sales, so you don’t necessarily have to pick the first one you come across:
Bank
Banks have different conditions and standards for car loans, but most start at roughly $3,000 with terms of 6 months to 8 years. While requirements are tougher and applying can be more time-consuming, rates are competitive if you have good credit and finances.
Credit Union
Most credit unions have similar car loan requirements, rates and conditions as banks. Clients may also need to wait about 1 to 3 weeks to receive car loans for private sales and meet with a loan specialist to discuss their borrowing options. All that said, union members with good creditworthiness may score even better deals than banks can offer.
Car Loan brokers
You can also finance a private sale car through a car loan broker. They will compare multiple private auto loans from the lenders they’re partnered with. That way you’ll know all the financing options available to you. You will then be able to compare loan packages and customize pre-approvals to help you pick the one that suits you best.
Private Lenders
Alternative or private lenders usually have more flexible requirements than banks and credit unions. You can finance a car from a private seller even if you have bad credit. However, loans usually come with shorter terms and higher interest rates.
They may also have restrictions on the age and condition of used cars that may be eligible for financing. Your lender will need to assess the car that you want to buy before agreeing to provide you with financing.
What Interest Rate Will I Pay On A Private Vehicle Purchase?
The interest rate you pay on loan to pay for a car will vary depending on the type of loan and other factors such as your credit score, debt-to-income ratio, and the vehicle you’re financing. That said, you can pay anywhere around 9.99% to 35%.
Can I Get A Private Car Loan For An Older Vehicle?
Yes, financing is available for older vehicles. However, you’ll have fewer options available. Depending on the age of the car, banks and credit unions may not finance older vehicles. For instance, 10 years is typically the maximum age that big banks allow. If the car is older than 10 years, you may need to seek out financing options with online and alternative lenders.
Can I Get A Small Private Car Loan To Finance A Cheaper Vehicle?
You can get smaller loans more often from online and alternative lenders. Banks and credit unions typically have minimum loan amounts that they allow. For instance, CIBC and RBC have minimum private car loan amounts of $7,500. So, if your financing needs fall under this amount, you may need to apply with a private or alterative lender.
What Is GAP Insurance, And Is It Available On Private Car Loans?
GAP insurance — short for “Guaranteed Asset Protection” — provides protection from financial loss if your car is totalled or stolen. This insurance will cover the difference between your car loan’s remaining balance and the insurance company’s payout. GAP insurance may be available for private car loans, though it depends on the lender.
How To Get A Car Loan For A Private Sale
If you’re ready to apply for a car loan for a private auto sale, here’s what you should do:
1. Shop Around For A Loan
As mentioned, it’s important to compare multiple rates, terms and fees when you’re looking for a car loan. If possible, it’s also smart to get pre-approved, as this can give you a basic idea of the deals you can get before you actually apply. Some lenders even favour pre-approved applicants, which you can use as a negotiation tactic too.
2. Apply For Financing
Applying for a car loan for a private sale can require several steps and documents, like your latest bank and income statements. Some lenders may ask you to apply in-person, while others will offer an online process. Wait times depend on the conditions of your loan but most lenders will take a few hours or days to send you the funds or finance the vehicle.
3. Register The Title Transfer And Your Car
Once you receive the funds, you can purchase the car. Be sure to visit a provincial or territorial licensing office to register your new car and title transfer. Depending on where you live, this may require certain fees and additional paperwork. Although some regions require you to visit a bureau in-person, others may have the option of doing this online.
Advantages And Disadvantages Of Car Loans For A Private Sale
Before applying, it’s essential to weigh the pros and cons of a car loan for a private sale:
Advantages Of Car Loans For A Private Sale
- Possibility Of Lower Prices – Since you’re not buying from a dealer, you may pay less interest and fees for a private sale overall. Plus, a lot of private sellers will let go of their cars for less than market value or what dealerships charge.
- More Potential For Negotiation – Unlike car salespeople, private sellers don’t always have strict pricing rules or expert negotiating skills. With some haggling, you may once again be able to snag a good car for a lower (and flat) sales cost.
- No Sketchy Dealerships – Auto dealers can sometimes be untrustworthy and will try to sell you unnecessary add-ons or sneak extra fees into your car loan agreement. Luckily, that’s typically not the case with a car loan for a private sale.
Disadvantages Of Car Loans For A Private Sale
- Extra Time & Paperwork – When you buy a car from a private seller, you need to handle the whole process on your own, including the financing, title transfer and registration. However, dealerships usually take care of those things for you.
- Fewer Protections – With a private auto sale, you normally don’t get a warranty. While a car’s factory warranty could still be in effect, it may offer limited coverage and expire at some point. If you discover that the car has a lien on it, you’ll be held reliable for the debt.
- Higher Interest Rates – Certain types of car loans and lines of credit have higher rates than in-house dealership plans. On the other hand, some dealerships will offer you great financing packages if you agree to buy a new or certified pre-owned car.
- Shorter Loan Terms – Some alternative lenders only approve short terms. This can lead to higher payments and rates, particularly if you don’t have collateral to get a secured loan. Once again, dealerships may be more flexible in this regard.
Tips On Buying A Car From A Private Seller
When you’re buying a used vehicle from a private individual, there are certain steps and precautions to take.
Safety First
When you’re buying a car from a private seller, make sure you meet in a public area to check out the car and make a deal. At no point should you be alone with a private seller, as there is always the possibility that you’re dealing with someone with bad intentions.
Find Out The Fair Market Value Of The Vehicle
Before you make an offer or agree to the seller’s price, find out how much the vehicle is truly worth according to today’s market. The value will be based on factors such as the make and model, year, mileage, condition, and features. Once you find out what the going price is, you’ll be in a much better position to pay a fair price for the car.
Request Service Records
If there has ever been any major work done on the vehicle, be sure to ask for the appropriate paperwork detailing the services conducted. That way you’ll know what was done and who was responsible for the repairs.
Have The Vehicle Inspected By A Mechanic
The private seller may say that the vehicle has been inspected, but you shouldn’t just take their word for it. You’ll want to ensure that the vehicle is inspected by a licensed mechanic to find out if it’s in decent condition before you buy it.
Take The Car For A Test Drive
Before agreeing to make a purchase, take the car out for a test drive. This is one of the best ways to inspect your car for any obvious problem. Pay attention to things such as the brakes, transmission, steering, shocks, computer features, and so forth. Be sure to inspect the car by taking a thorough walk around it and checking out what’s underneath to spot any rust, dents, and other issues.
Learn more: Should You Buy A Car From A Private Car Seller?
Final Thoughts On Financing A Private Car Sale
Buying a used car is an economical way to purchase a vehicle in good shape. But even though you’re saving a few bucks off the original purchase price, it’s still a lot of money to have to come up with all in one lump sum. Luckily, there are private auto loans available for you to help you finance your vehicle purchase without having to scrounge all that money upfront.
