Depending on the person or company you are talking to, a private party auto loan is one of two things. In the eyes of the individual investor it is typically a person to person auto loan. In other words, there is no financial institution involved such as a bank or other lending company. This person or private lender may be an individual investor looking for a deal or it could be the owner of an independent used car dealership. There are some things to consider before entering this kind of loan and that will be talked about below.
Private party auto loans issued by a financial institution or bank like Capitol Federal are typically just another name for a used car loan that is being used to pay off an individual seller. Since the vehicle isn’t being purchased from a dealer and is instead being purchased from an individual person, the term private party is used to define the individual selling the car. These types of loans will also be discussed in more detail.
Private Party Auto Loans – Individual Investor
Person to person auto loans are most often used when the person buying the car has poor credit and can not qualify for a standard loan, or the car is being sold between family members or a friend and they agree to a certain dollar amount to be paid over a certain period of time.
When dealing with an actual investor, the rates on the loan are usually higher than on conventional loans. Sometimes the rates are substantially higher, making it difficult for the car buyer to pay off. The reason for the higher rate is because there is substantial risk involved for the investor. The rate of default on these car loans is very high and it’s possible that if the person owing money defaults, they could hide the car or sell it so the investor never gets their money back. The investor could sue but even if they win, there is usually no money to be collected which is why the loan was defaulted on in the first place. Professional Repo Men are sometimes hired in these situations to locate and retrieve the vehicle. The high interest rates and the high probability of default make private party auto financing between individuals a risky proposition.
A private party car loan between friends or family members also creates unique situations that must be considered. The feeling going into the loan is usually one of security since both parties know and trust each other. The trust and personal relationship are also the reason things can get complicated. The person borrowing the money might run tight on money and feel that the friend or family member will be lenient on the collections because of their relationship together. People even take extreme advantage of this relationship and stop paying altogether figuring that all will be forgiven.
The friend or family member that gave the loan, not surprisingly, usually feels different. They can feel betrayed and taken advantage of. This feeling of betrayal can lead to a deep resentment and the bonds of friendship and even family can be severed forever. A nasty legal battle might ensue between the two parties involved. This of course is the worst cast scenario. There is a great likelihood that the loan will be paid on time and both parties benefit and come out grateful to one another. The risks involved in personal relationships should be heavily weighed before either party enters into this kind of loan. Make sure that all details and expectations are written on paper and signed by both parties.
Private Party Auto Loans – Institutions
A bank or lending company issuing a private party auto loan are most likely issuing a loan that is meant to pay off a private car seller. An example would be someone obtaining a loan to pay off the car they found listed by an individual on Craig’s List. Chase bank has a good example of the this type of loan here.
The process to obtaining this kind of loan isn’t much different than any other type of loan. Personal information must be gathered, credit score must be checked, a certain amount of money at a certain rate will be issued and then a check is written to pay off the individual seller. The buyer now has a loan with the bank or lending company. Depending on credit score, these loans are usually slightly higher than a new car loan but not by much. With a good credit score it may only be a half point or less difference. The slightly higher cost of the loan is typically off-set by the lower price of the car and the lower amount of insurance needed to cover the car.
Every bank has different rules and requirements for these kind of used car loans. Nearly everyone requires that the applicant be at least 18 years old. The minimum income required varies but the odds are that more than $1700 a month in income will be required. There are of course, companies that require less income. The rates will reflect this. Job stability will be evaluated and a six month minimum history at the applicants current job is common. Again, exceptions can always be found. Credit score will always be the biggest determining factoring with red flags like bankruptcy, foreclosure, and 30 day late credit payments heavily effecting the score in a negative way.
Auto Loan Quote Online
Searching for an auto loan quote online is the quickest way to get started with financing. There is a lot of information available and many companies competing for loans. Finding a highly rated company is very important, especially when searching online. Highly sensitive personal information like social security numbers are needed to qualify for loans and many people are justifiably queasy about sending this information over the internet. An appointment with a local rep can usually be set up to discuss the sensitive details needed to qualify for a private party auto loan.