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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? 

Can You Get A Car Loan For A Private Sale?

Yes, you can get car loans for private sale, however, you won’t receive it through the seller. Technically speaking, you usually have to pay the seller in full when you buy their car through a private sale. Unlike a lender or auto dealer, they aren’t obligated to offer you any sort of financing or help you manage the affordability of it.

What you can do is apply for a loan through a bank or alternative lender, which will allow you to get the funds needed to buy the car upfront. After that, you’ll repay your debt in divided installments with interest.

Types Of Car Loans For Private 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:  

Car Loans For Private Sale

One of the most common ways to finance a private auto sale is through a traditional car loan. You can apply for a 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).

The terms of your car loan will depend on your financial health and your car specs. This can include the age, mileage and value of the car you wish to finance. For instance, if you’re buying an older car with more mileage, you may only qualify for an unsecured loan with a higher interest rate because the vehicle has lost most of its resale value. It therefore can’t act as the collateral for a secured car loan.  

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 secured 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.       

Who Offers Car Loans For Private 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.

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What Is A Private Auto Sale?

A private auto sale involves the purchase of a used vehicle from a private seller. You can often find these sellers on websites like AutoTrader.ca or Kijiji.ca. These sellers are typically consumers who are looking to unload their cars for various reasons. Whether they’ve bought themselves a new car or simply no longer have a need for their cars, these individuals can pass on a good vehicle to someone else at a great price.

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.

To find out what you can do if your car loan is more than your car is worth, check this out.  

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.

Click here to learn how you can check the history of a used car.  

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.

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.

FAQs On Car Loans For Private Sale

What is a car loan for private sale?

A car loan for a private sale is financing provided by a bank or alternative lender to help fund the purchase of a car from a private seller.

Can I buy a used car if the seller still owes money on the car?

Before you use a loan to buy a car from a private sale, make sure the vehicle has no liens on it (or have the seller clear up any that exist), since you’ll become responsible for such debts once the title is in your name. If you don’t pay, the lender can repossess and resell the car. You can find out if there’s a lien on a car by getting its CARFAX report.    

Are there taxes for cars bought in a private sale?

Yes, if you use a car loan for a private sale, you’ll probably have to pay taxes to register the car with your provincial or territorial licensing office. Tax rates vary based on where you live, so be sure to factor yours into your budget prior to the purchase. For example, British Columbia residents pay a 12% Provincial Sales Tax (PST) on private car sales.   

Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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