Ok, so you’ve found your perfect, new-to-you vehicle. You’ve looked it over, driven it, had it checked out by a mechanic and negotiated a reasonable price that both you and the seller can live with. Maybe you’ve even gone so far as to Google up a great auto loan calculator to see just how much the car will actually cost you. You’ve even looked at a few financing options—whether it’s a big bank or a tiny credit union. Perhaps you have also been pre-approved for a loan. But what you might not know is that there’s still one more possible way to finance your new-used car. Meet the Private Party Loan.
A private party loan is essentially an auto loan from one person to another that goes through a financial institution. It’s kind of a hybrid between a personal loan and a regular auto loan. Sometimes a bank considers the car as collateral against the loan and sometimes they don’t. It really depends on the bank and on your credit. If you have great credit some banks wont require a lien be placed on the vehicle. If you have bad credit, you’ll need to get a secured loan, meaning the bank could take your car if you fail to pay.
The other thing to know about a private loan is that, in general, rates will be higher. It goes the same for personal loans as well. These kinds of loans are more risky for the banks and as a result they charge higher interest rates for them.
When seeking out private party loans, you need to come prepared with a few things. First you’ll need to get a signed bill of sale. While this requirement differs from state to state, most places require a signed agreement between the buyer and the seller. The contract will protect both of you in the sale and regardless of whether or not its required in your state, it’s best to go ahead and get one. Occasionally banks will require that you come with the signed title or title transfer for the new-to-you car. You’ll need to check out the rules with whichever bank you’ve chosen.
Once you have a signed bill of sale and you’ve shopped around for the best private loan rates (the best way to do it is to simply Google up “private loans”), head to the bank and fill out the loan paperwork. Once that’s done, the lender will give you instructions on how to get the funds to your seller. Sometimes this is done through a bank account of your choice, other times the bank may provide a code for you to give to the seller so that they can receive payment straight from the bank.
Once the cash has changed hands you’ll need to get to the DMV to complete the title transfer. The seller will need to complete things like the current mileage (odometer statement-usually on the back of the title) and sign over the title. If the seller still has a loan on the car, you’ll need to have them arrange a meeting at the bank to complete the title transfer. Once the title transfer is complete, get your new-to you car registered and plated at the DMV. You’ll get a memorandum title in the mail in a couple of weeks that shows that you now own the car until you pay off your loan.
If you want to find out more about how to complete a sale using a private loan, check out the resources that Nationwide has put together on each state’s rules. It’s helpful to know what you are getting into when looking at a private party loan as an option.
In addition, if you really want to simplify your search for the right loan, Instamotor offers financing through the app and can help you find the most affordable way to buy that used car. Check back here often for all of your used car needs.
Digital media content producer/consultant & former CNN senior producer, now running CN'TRL : Cars, Tech, Real Estate & Luxury.