What is a car loan between individuals? (guide 2022)
Although you can find a good deal on a car through a private sale, if you want to finance your purchase, you’ll need to find a lender that offers car loans to individuals. From the Home Media Appraisal Team, we’ll explore what private car loans are, where you can find them, and what you need to know before financing your car with a loan.
We’ll also take an in-depth look at the market to see which lenders offer auto loans for retail sales – and which offer the best auto loan rates and service.
What is a car loan between individuals?
A peer-to-peer auto loan is a loan you can use to buy a car from a private individual rather than a dealership. A car dealership has a business license, which makes them more trustworthy than an individual in the eyes of a lender.
Like standard auto loans, personal auto loans are usually unsecured. That means they’re backed by warranties – in this case, the car itself. With a secured auto loan, the lender is the lien holder and holds title to the vehicle until you repay your loan.
For personal auto loans, lenders may charge higher interest rates or have different requirements for borrowers and vehicles. For example, you may need to purchase gap insurance or pay a larger down payment.
Where to get car loans between individuals
Not all financial institutions offer car loans to individuals, but you can find banks, credit unions, and online lenders that do. Here are a few :
*Rates as of 27/05/22. These rates may include an automatic payment discount and may vary by state.
How to get a car loan between individuals
Although peer-to-peer auto loans differ from traditional auto loans in some ways, the qualifying process is essentially the same.
1. Determine your budget
The first step to qualifying for a private auto loan is knowing how much you can borrow. In general, it is recommended that your monthly car loan payment not exceed 10-15% of your take home pay. The total monthly costs for your vehicle, including insurance, should not exceed 20% of your monthly income.
Using an online car loan calculator is a great way to get an estimate of what’s in your budget and what your monthly payments might look like. Auto loan calculators ask for information such as the following:
- Vehicle price
- Down payment amount (if applicable)
- Interest rate
- term of the loan
2. Find the car you want
Once you’ve figured out the price of the car you can afford, you can start shopping for a car that’s within your budget. Websites like Craigslist, eBay, and Facebook Marketplace are all good places to start your search.
Be aware that lenders have restrictions on which cars they will or will not finance. Typically, these restrictions include:
- Age: Lenders generally set a maximum age for the cars they finance. They also tend to offer higher interest rates and shorter loan terms for older cars.
- Mileage: Many lenders set a maximum mileage for financed vehicles, usually between 100,000 and 150,000 miles. Although some lenders finance higher mileage vehicles, they generally do so at higher interest rates.
- Condition: Most loan providers will not finance cars that have salvaged or rebuilt titles, as these cars have a higher likelihood of breaking down.
- Price: Lenders have restrictions on the loan-to-value ratio (LTV), or the amount you owe relative to the value of a vehicle. Even if you think a private sale is a good deal, the bank may disagree and ask you to put up more money to get your financing approved.
3. Compare lenders
When you find the car you want, it’s time to apply for financing. Applying for a private sale auto loan requires a thorough credit check. However, multiple firm checks in a short period of time count as one application, so comparing lenders won’t hurt your credit any more than applying with just one.
Most lenders allow you to apply for an auto loan online. You will need the vehicle’s VIN, as well as personal information such as your social security number, employment details, and financial information.
Compare loan offers to see which lender has the best financing options for you. The APR you see quoted is one of the most important factors to consider, but you should also consider things like whether the loan comes with a prepayment penalty and what the fees are for prepayment payments. late car.
What factors determine car loan rates?
The rates that lenders offer borrowers differ based on a number of factors. Here are the most significant:
- Credit score: The lowest rates for car loans are reserved for those with excellent credit, while people with bad credit will have a hard time finding competitive rates.
- credit history: Although your credit score is a reflection of your credit history, it is not the same thing. Your credit history includes more specific information, such as the percentage of your credit you’re using and your monthly payment history for credit cards and other loans.
- Revenue: The amount of money you earn, especially compared to the amount you want to borrow, can influence your interest rates.
- Mandate’s duration: Depending on your situation, you can choose different durations that correspond to your payment needs. While longer terms come with lower monthly payments, they also tend to come with higher interest rates.
- LTV report: Lenders compare the amount you want to borrow to the value of the car you want to buy.
- Advance payment: Larger down payment or exchange will reduce the LTV ratio and interest rate.
Should I buy a car in a private sale?
Although peer-to-peer car loans generally have higher interest rates than standard used car loans, there are some advantages to buying a car through a private sale.
For starters, you can get a better deal. Car dealerships have a lot of overhead, which is often built into the prices of the cars they sell. In addition, an individual may be in a hurry to sell his car or simply no longer need it. In any case, the purchase price during a private sale could compensate for the interest rate difference.
Another benefit of a peer-to-peer auto sale is that you don’t have to experience a high-pressure dealership. Because the process is designed to wear you down and sell you as much as possible, it’s understandable to want to avoid that. Buying a car privately requires some legwork on your part, but it can be an easier experience.
Personal Lending Alternatives
The car loan between individuals is not your only option if you want to finance the purchase of a used vehicle. Whether you’ve had trouble getting approved or haven’t found an auto lender you want to work with, there are other types of loans to consider.
- Personal loan: A personal loan is an unsecured loan, that is to say that it is not backed by a guarantee. So, although these loans generally have higher interest rates than car loans, the lender cannot repossess your vehicle if you miss loan payments.
- Home equity line of credit loan (HELOC): If you have at least 15% to 20% of the equity in your home, you may be able to borrow against that equity. HELOCs often come with very low interest rates compared to car loans, especially for those who don’t have good credit. However, borrowing against your home’s equity increases its LTV ratio.
- Friend or family loan: You may be able to borrow money from a trusted friend or family member. However, it can be risky to mix finances with personal relationships. If you go this route, it’s a good idea to write up a repayment agreement and have each party sign it.
Conclusion on Auto Loans to Individuals
Private car loans are not as easy to find as standard used car loans. But buying a car from a private seller can have benefits that could be worth it.
As with any loan, the keys to finding the best rates are understanding your financial situation and comparing lenders’ offers.
Our recommendations for auto credit between individuals
Not all lenders offer loans for private purchases, but our researchers were able to find quality providers who do. LightStream and myAutoloan are reputable lending institutions that offer reasonable starting interest rates for personal auto loans.
LightStream: first choice for good credit
Although LightStream has a higher minimum credit rating than many other lenders, the online lender is known for offering reasonable interest rates to borrowers with good credit. Personal auto loan rates start at 4.99%** APR with AutoPay and great credit, and LightStream offers loans ranging from $5,000 to $100,000.
Keep Reading: LightStream Review
myAutoloan: the most popular marketplace
The myAutoloan Marketplace allows you to search for lenders online. Because myAutoloan has an extensive network of lending partners, it’s easy to find lenders who offer car loans to individuals. Rates vary depending on available lenders and your financial situation, but private purchase loan rates through myAutoloan start at 2.99%.
Keep reading: myAutoloan review
Because consumers rely on us to provide unbiased and accurate information, we’ve created a comprehensive rating system to formulate our ranking of the best car loan companies. We’ve collected data on dozens of loan providers to score companies on a wide range of ranking factors. The end result was an overall score for each vendor, with the companies scoring the most points at the top of the list.
In this article, we have selected companies with high overall ratings and cost ratings. Cost ratings were informed by starting APR and loan amounts.
*Data correct at time of publication.
** Your loan terms, including APR, may differ depending on loan purpose, amount, term and your credit profile. Excellent credit is required to qualify for the lowest rates. Rates range from 3.99% to 20.49% APR with AutoPay. The fare is shown with the AutoPay discount. The AutoPay rebate is only available before the loan is funded. Rates without AutoPay are 0.50% higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and conditions are subject to change without notice.