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Purchasing a brand-new car can be a huge investment and sometimes it makes more sense to purchase a used one. However, the price of a used car can still be pretty hefty. In situations like this, you may want to consider private sale financing to help you purchase the car.

Most lenders will have a few conditions necessary to qualify for financing on a private sale vehicle. In this article, we will take a closer look at those conditions. While also giving you some tips for making sure you’re on taking on debt you cannot afford and that the used car you purchase is a great one.

What Is Private Sale Financing?

Private sale financing involves getting funding for the purchase of an item (i.e. a car) through a private sale. A private sale is essentially a vehicle sale that takes place between two individuals. Instead of making a car purchase from a dealership, you find an interested seller on a site like Kijiji, Craigslist or others and use that to facilitate the transaction. 

Where Can You Find Private Sale Financing For Cars?  

You can find private sale financing for a vehicle from any one of the following sources: 

Banks

If you choose to apply for private sale financing from a bank, you’ll need to meet stringent requirements, including having a good to excellent credit score. The loan application and approval process also tends to be slower compared to other lenders and can take as long as a few weeks to complete. However, banks tend to offer the most competitive interest rates, making your auto loan more affordable.

Online Lenders

If you don’t have the best credit score, you’ll have better luck with an online lender than a bank. Online lenders have much more lenient criteria, making their loans easier to qualify for. You can also apply for financing online and get approved and funded very quickly. However, you’ll likely be charged a higher interest rate, making your loan more expensive. 

Credit Unions

Similar to banks, credit unions typically have stricter lending requirements compared to online lenders. You’ll also need to become a member to get approved for private sale financing. The loan process can also be lengthy, though you can get a lower rate if you have good credit and strong finances. 

What Are The Requirements For Private Sale Financing For Cars?

Lenders typically require borrowers to meet the following eligibility criteria for private sale financing:

Good credit

A good credit score means you’ve been diligent and responsible with your finances in the past and pose a lower risk for the lender. Not only will a good credit score increase your chances of loan approval, but it will also help you secure a lower interest rate, which will make your loan more affordable. Before you apply for private sale financing, be sure to check your credit score

Do You Meet The Age And Resident Requirements? 

Lenders typically require that you be a citizen or permanent resident of Canada to secure a car loan. You must also be at least 18 years old or older (depending on where you live) in order to get approved for a car loan, or any other type of loan. That’s because the law protects minors, so lenders cannot take them to court to recoup any losses if they have a change of heart about a sale or default on a loan. 

What Do Auto Lenders Look At For Private Sale Financing?

Most people simply do not have thousands in cash to go out and purchase a vehicle. As a result, most of us need financing or a loan to get the car we want.  Here are some requirements that you need to adhere to in order to finance a private sale vehicle. 

Mileage

Generally, the car should have under 180,000 KM in order to qualify for most types of financing. Cars with more than that are typically on their last legs and will suffer more issues due to increased wear and tear. As such, lenders are less likely to approve your car for financing. 

Age Of The Car

Any car that is older than a decade will see its value drop fairly significantly, so much so that the loan you get might actually be worth more than the car itself. Buying a slightly newer vehicle is a good way to ensure that you can get the financing that you need.

Status Of The Vehicle

You might struggle to get financing for a vehicle that has been rebuilt, which means it was in a large enough accident to warrant it a salvage title. While the car has likely been fixed, huge accidents can lead to structural damage that you cannot see. This type of damage could lead to some expensive repairs down the road. Many lenders might not finance a vehicle that has been rebuilt.

Price Of The Car

While this can differ depending on where you go, lenders generally don’t like to lend less than $5000. If the car costs less than that, there is a good chance it doesn’t meet the above criteria.

If the vehicle you are interested in purchasing in a private sale satisfies these four requirements, you shouldn’t have too much difficulty locating a lender to help you out with the financing.

Types Of Private Sale Financing

The following loan products can be used to finance a private car sale:

Car Loans

A car loan is a type of installment loan that provides you with a lump sum of money to cover the cost of a vehicle purchase. You then repay the loan through regular payments, which include both principal and interest. As mentioned, you can get a loan to finance the private sale of a car from banks, credit unions, and online lenders. 

The loan is secured against the car to minimize the lender’s risk. If you default on the loan, the lender has the right to repossess the vehicle.  

Personal Loan

As an alternative to a traditional car loan, you can apply for a personal loan and use the funds to cover the cost of a vehicle purchase. Personal loan lenders are usually very flexible in terms of how the funds can be used. 

You can choose a secured or unsecured personal loan, depending on whether or not you’d like to put up an asset of value as collateral. A secured personal loan — which requires collateral — could help you get a lower rate, though you’re putting your asset at risk if you default on your loan. 

The funds are repaid through installment payments until the full loan amount is paid back. 

Line Of Credit

Another option available is a line of credit, which allows you to draw from a credit account whenever you need extra cash. You’ll be given a specific credit limit, which means you can borrow as much or as little as you want, as long as it doesn’t exceed your limit. 

You can tap into the line of credit and take out whatever you need to cover the cost of a private sale of a car, then repay the funds at any time. However, you have to make minimum payments every month.

You’ll only pay interest on the withdrawn funds. Once you pay the money back, interest no longer accrues. 

Costs Of A Car Loan Through Private Sale Financing 

A few key factors impact the cost of a private sale car loan, including the loan amount, term, and interest rate. To illustrate how the cost of a loan can vary, let’s see how different interest rates affect a $15,000 loan with a 5-year, fixed-rate term:

6% Interest Rate8% Interest Rate11% Interest Rate
Car Loan Amount$15,000$15,000$15,000
Loan Term5 years5 years5 years
Monthly Payment$289.99$304.15$326.14
Total Interest Cost$2,399.52$3,248.75$4,568.18
Total Cost$17,399.52$18,248.75$19,568.18

Things To Consider Before Buying A Car Through Private Sale Financing

Now that you know all about how to secure your financing for a private sale, what sort of things should you be looking for in a private sale vehicle? If you go in blind, a private sale can be very risky and can often end with you getting a “not-so-great” car. With that in mind, here are a few tips to help you ensure you are purchasing a good used vehicle during your next private purchase.

Be Skeptical From the Start

If you are too trusting throughout the sales process, you can often be taken advantage of. While most people selling a car online are completely genuine, it is perhaps best to assume the worst. This will force you to fully analyze everything about the car, the seller, and everything in between. Most car scams come from private sellers, so it is better to be skeptical and approach with caution. Also, if a deal seems too good to be true, it generally is.

Take the Car For a Test Drive

A car might look good and not have any noticeable damage or issues, but sometimes those issues might begin to arise when you drive the car. As a result, you should never purchase a used car (from a private seller or otherwise) without first taking it for a test drive. During the test drive, you should listen out for any creeks or rattling noises and ensure all the buttons and switches are working. 

Find Out The Vehicle History

No matter how trustworthy or genuine a seller might appear, you can’t simply take their word when it comes to the history of the vehicle. If you are spending thousands of dollars on a used car. You deserve to know exactly what the car has been through. There are several services out there that can help you to learn all about the car’s past including any liens, accident history, repair history, etc. You should also ask the seller what sorts of damage and repairs the car has had.

Get it Checked Out Before You Buy It

Once you have driven the car, agreed on a price, and found out about its history, you are almost ready to purchase it. However, it is very important that you take it to a trusted third-party mechanic to get it inspected. Pre-purchase inspections are fairly inexpensive and can tell you a ton about the current condition of the vehicle. Sometimes the seller will pay for this inspection, but even if they don’t, it is well worth the money.

Looking For Private Sale Financing?

Purchasing a used vehicle from a private party is a great way to save money while still getting the car you want and need. Finding the right private sale financing may seem like a difficult task, but it doesn’t need to be. Loans Canada can help find you multiple options and you only need to submit one application. Fill out an application today and get the process started.

Private Sale Financing FAQs

Can I get financing for a private sale vehicle with a bad credit score?

If you have bad credit, you may have to work with an alternative lender that works with bad credit borrowers. Even then, you’ll need to prove that you have sufficient income to cover your payments. You may also be charged a higher interest rate as a result of your bad credit. Banks and credit unions typically require good to excellent credit to get approved for a car loan.

How do I pay a private seller with a car loan?

The lender usually sends the money from your car loan directly to the seller, instead of giving you the funds to pay the seller. Conversely, if you take out a personal loan to support a vehicle purchase, the money is deposited into your own account. Then, you’ll use the funds to pay the seller using the appropriate payment option.

Do I have to pay taxes on a private sale vehicle?

Yes, taxes are usually required if you’re buying a vehicle from a private seller. The applicable tax rate depends on where you live. For instance, in Ontario, the sales tax rate is 13%, and in Alberta, it’s only 5%.

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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