Buying a car from a private seller can be a great way to save money compared to buying from a dealership. However, getting a loan for a private sale — referred to as private party auto loans — is different than getting a car loan from a dealership.
Let’s take a closer look at private party auto loans, including how they work, eligibility requirements, benefits, and tips for buying a car from a private seller.
Key Points
- A private party auto loan is a type of financing that lets you buy a vehicle directly from a private seller instead of a dealership.
- The funds from a private party car loan can then be used to pay for a vehicle through a private sale, all in cash.
- You can get a private party auto loan from banks, credit unions, and online lenders.
- Private party auto loans may also be available if you have bad credit, as long as other aspects are strong, such as your income or collateral.
What Is A Private Party Auto Loan?
A private party auto loan provides the funding needed to help a car buyer purchase a vehicle through a private sale, rather than from a dealership. They offer an alternative to traditional in-house dealership financing and can come with more flexibility and favourable terms. The loan is then repaid in installment payments over a set term to the lender who provided the loan.
Private Party Loan Features
Key features of private party loans are as follows:
- Loan Amounts: Up to $50,000, though it may be higher depending on the lender and your financial/credit profile.
- Loan Type: Private party auto loans are typically secured by your vehicle.
- Interest Rates: Generally, rates are lower than personal loans because they’re secured. Variable and fixed rates are available. However, private party car loans are typically higher than traditional auto loans due to increased risk for lenders.
- Loan Terms: Term lengths can be as long as 84 months (7 years), and possibly longer depending on the lender.
- Credit Requirements: Good credit is generally required if you apply for financing from a bank or credit union. However, loans obtained from alternative online lenders typically do not require good credit.
| Note: A private party is someone who is selling their vehicle privately. They may advertise their cars through classified ads or on websites like Craigslist, Kijiji, or Autotrader. |
What’s The Difference Between A Car Loan And A Loan Through A Dealership?
There are key differences between a car loan and a loan obtained through a dealership:
| Car Loan | Loan Through A Dealership | |
| Provider | BanksCredit unionsOnline lenders | Arranged through in-house financing, often through partnerships with lenders & manufacturers |
| Flexibility | Can be used to purchase a vehicle from any seller, including private sellers | Restricted to vehicles sold by the dealership |
| Funding | Funds are deposited into your bank account to be used to pay the seller | Funds are moved between the bank and the dealership |
| Convenience | Requires a separate loan and car-buying process | Handled directly at the dealership |
Eligibility Requirements For A Private Party Car Loan
Eligibility criteria for a private party car loan are as follows:
- Credit Score: Depending on the lender, you may need good — score of 660 or higher. This is particularly true if you apply with a bank or credit union. An alternative lender, however, may not require good credit.
- Income: You need to demonstrate a stable and sufficient income to ensure you make repayments comfortably.
- Debt-To-Income Ratio: Your current debt load should be at a level where you have plenty of income left over to cover car loan payments.
- Car Condition/Age: A private party auto loan can be used to buy both new and used vehicles. However, if you’re buying used, the car cannot typically exceed a certain age, which is generally no more than 10 years, depending on the lender.
Can You Get A Private Party Auto Loan With Bad Credit?
Bad credit private party auto loans are available for those with poor credit who want to purchase a car from a private seller. While you may have trouble obtaining such a loan from a bank, you may have better luck with an online lender and sometimes a credit union. Rather than focus on your credit score, these lenders may more attention to your income and collateral.
Bad credit private party auto loans make it easier for those with less-than-perfect credit to access financing. However, they often come with higher interest rates.
Researching and comparing offers from different lenders is important to find the best rates and terms. Otherwise, consider taking some time to improve your credit score to qualify for better rates.
Learn more: Bad Credit Car Loans Canada
Where Can You Get A Private Party Auto Loan?
Private party auto loans are available from the following sources in Canada.
Banks
You can take out a personal loan from a bank and use the money to cover the cost of a privately purchased vehicle. To qualify for a loan from a bank, you’ll need to have strong credit. Otherwise, you may need to add a cosigner or add collateral to the loan.
Otherwise, you may need to look elsewhere.
Credit Unions
If you’re a member of a credit union, you may be able to qualify for a private auto party loan with them. They often have affordable rates and offer flexible repayment schedules. Some may even work with borrowers with less-than-perfect credit.
Online Lenders
If you have bad credit and are unable to qualify for a loan from a bank or credit union, several online lenders are available that may help. Online lenders tend to work with bad credit borrowers, making their loans more accessible. However, their interest rates tend to be higher than banks and credit unions, so your loan may be more expensive.
| 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 |
How To Apply For A Private Party Auto Loan
Depending on the lender and the vehicle you intend to purchase, you may need to visit a branch; however, sometimes the application can be completed online. To apply for a private party auto loan, follow these steps:
Step 1: Check Your Credit Score
Before applying for a private party auto loan, check your credit score. Lenders use this information to assess your creditworthiness and determine your ability to qualify for a loan, your interest rate, and your loan terms. You can check your credit score for free online by using Loans Canada’s CompareHub. Checking your credit does not affect your credit score.
Step 2: Compare Lenders
Not all lenders offer private party auto loans, so you’ll need to do some research to see what options are available to you. You’ll also want to compare rates and terms among various lenders to see where you can get the best deal.
The quickest and most convenient way to compare lenders is to use an online loan comparison website, like Loans Canada. Simply plug in information such as your loan amount and credit score, and Loans Canada will populate a list of lenders and their loan offers. From there, you can compare lenders side-by-side.
Step 3: Get Pre-Approved
Loan pre-approval can help you determine how much you can borrow and the interest rate you may qualify for. To get pre-approved, you’ll need to provide lenders with the following information:
- Proof of income (pay stubs, tax returns)
- Employment verification (letter of employment)
- Proof of identity (passport, driver’s license)
- Proof of residency (utility bill, rental agreement)
Depending on the lender, a credit check may also be done. You’ll need to provide your consent to have the lender pull your credit report. Other lenders may not require a credit check at all.
Step 4: Finalize The Loan Application
Once you’ve found the car you want and are ready to formally apply for a loan and complete a purchase transaction, you’ll need to submit a final loan application. At this point, additional information may be required, such as the following:
- Bill of sale
- Vehicle information (VIN, make, model, mileage)
- Proof of insurance
Step 5: Loan Approval
If your loan application is approved, the terms of the loan agreement will be finalized and you’ll receive the money. You can then use the funds to pay for the vehicle in full to the private seller. Then, you’ll begin making regular installment payments to the lender over a set term until the loan is repaid in full.
Step 6: Title Transfer And Registration
Once the seller receives your payment, you’ll have to transfer ownership and register the vehicle in your name. Before this is done, check to ensure no lien is on the vehicle.
What Are The Benefits Of A Private Party Vehicle Purchase?
Here are a few reasons why you may consider buying a car through a private party:
Lower Purchase Price
You may be more likely to get a better deal on a privately sold vehicle compared to buying from a car dealership. Private sellers often list vehicles at lower prices than dealerships because there are no overhead costs to cover, such as salesperson commissions or dealership markups.
More Negotiating Room
There may be more room for negotiating when you buy a car from a private seller.
No Dealership Fees
Dealerships often charge additional fees, many of which you may not be aware of, such as administrative costs and documentation fees. These may be included in the price of the vehicle, resulting in a markup in price. You won’t have to deal with these extra expenses when you buy from a private party.
No Pushy Sales Tactics
Professional salespeople are skilled in negotiating and trying to sell for the highest price, as they’re typically paid on commission. Private sales, on the other hand, don’t typically come with such sales pressure.
Savings On Sales Tax
In Canada, there is no GST required on the purchase of a used car from a private seller. This differs from used vehicles sold by dealerships, in which 5% GST is required on top of the provincial sales tax (PST).
Learn more: Car Sales Tax On New And Used Vehicles In Canada
What to Consider When Purchasing A Car From A Private Party
When buying a used car from a private party, there are a few considerations that you need to make to protect yourself.
Get An Inspection
One of the first things to do is get an inspection done on the vehicle. While it may be easy to see scratches or damage on the interior or exterior of the car, it’s much harder to identify issues under the hood. An inspection from a trusted mechanic could potentially save you from buying a potential lemon.
Learn more: What Is A Lemon Car?
Check The Car’s History
Another important step to take is to request or purchase a car history report. This report will tell you about the accidents the car has been in, if there are any liens and other necessary information. While some sellers are honest, you can’t trust everyone based on their word alone, so properly checking the history of the vehicle is a smart idea.
Test Drive The Vehicle
A used car shouldn’t be purchased unless it is first taken on a rigorous test drive. You should try out the car on different surfaces, streets, and highways. You should also try out every feature within the car. Test all the bells and whistles in the centre console to make sure everything is functional.
Alternatives To Private Party Auto Loans
In addition to a private party auto loan, other alternatives may be available, such as the following:
Unsecured Personal Loan
An unsecured personal loan can be used to buy a car from a private seller. This type of loan doesn’t require collateral and allows you to use the funds to cover any purchase, including a private vehicle. However, unsecured loans present a higher risk for lenders, which means they may come with higher interest rates and lower loan amounts compared to secured car loans.
Home Equity Loans
You can access your home equity through a home equity loan to get the money needed to buy a used car from a private seller. Your home is used as collateral for lower interest rates. Depending on how much equity you have, you can access a sizable amount of money.
HELOCs
Similar to a home equity loan, a home equity line of credit (HELOC) lets you tap into the equity in your home. But rather than take out a lump sum of money, you’ll have access to a revolving credit line that you can draw from as needed. The funds available can then be used to cover the cost of a privately-purchased vehicle.
Final Thoughts
Private party auto loans offer a flexible and accessible financing option for purchasing a vehicle directly from a private seller. By understanding the terms, comparing lenders, and gathering necessary documentation in advance, you can secure funding needed to buy a car privately, even if you have bad credit.
