Getting a private party, or person to person, auto loan is not so simple. Not all lenders are willing to finance the purchase of a used car from a private seller. Many major banks will only allow you to use your loan for a car from a franchised dealership, as opposed to an independent dealer, let alone private parties. If you want to finance a car you find through Craigslist, the classifieds, or a private owner, then you’ll need to do some research to find out which banks/lenders grant such loans. Here are a few that are known to offer them:
- PNC Bank
- Wells Fargo
- Bank of America
Of course, these banks mainly work with people who have fairly good credit. They are not known to offer subprime or “bad credit” car loans. In general, the same criteria are going to be considered for the loan application as would be if you were buying from a dealership. There are; however, a few things about the buying process that you may want to keep in mind.
The Approval Criteria
- Loan to value (LTV)…between 85 and 115 percent.
- Age of vehicle…less than 8 years old.
- Term of loan…36 to 60 months.
- Miles on vehicle…under 100,000
- Down payment…at least 10 percent or $1,000.
- Time on job…two years.
- Time at residence…again, two years.
- Monthly income before taxes…depends on lender, usually $1,450 minimum.
- Credit score/profile…540 or above depending on the lender.
- Total debt to income (DTI) including new payment…most lenders look for less than 36 percent, but some specialty lenders may stretch that to 45 percent.
Tips When Buying from a Private Seller
A private seller does not have the same obligations to be honest about a vehicle as a dealership does. You may want to take the vehicle to a mechanic that you trust and be sure to get a vehicle history report from Carfax or another website that you trust. This is particularly important if you are buying a car from Craiglist, which is notorious for scammers and people trying to offload flood-damaged, rusted, banged-up, or otherwise problematic vehicles. To avoid getting a lemon, the inspection process is key. Either pay a mechanic to come along, take the car to one, or enlist the help of a friend or relative who knows cars well. Ideally, they should have experience with the exact make/model that you are purchasing, or you should have researched common issues for these cars online prior to looking at the vehicle.
Be sure to shop your loan around to find the lowest interest rates and best loan terms possible. While shopping your loan, do not ignore online resources. There are many specialty lenders waiting to approve your application.