Dealership vs Private Party Auto Loans

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January 27, 2012

Comparing dealership vs private party auto loans is the first step in choosing which direction you want to go with car financing. There are many car loan options available to you when you are in the market for a new or used automobile, including dealership loans and private party loans. A private party loan is different from a car dealer loan in that they can be used to purchase a new or used car, but you cannot buy a car from an individual seller with a dealership loan.


A dealership loan typically has a life of up to 6 years, whereas a private party loan may only last for 3 to 4 years. This means, that for the same amount of money being lent to you, you will pay more interest with the dealership loan because it lasts longer. With a private party loan, you may pay more per month, but ultimately you will pay less when you include all the accrued interest over the life of the loan.


Car loan rates, also called the APR or annual percentage rate, is typically higher for private party loans. Whether a new or a used car loan, the interest rate is higher because of the shorter life of the loan and the fact that many private party lenders accept riskier borrowers. This might be discouraging at first, but you will find a large assortment of online lenders, and if you shop around, you will probably find a private party loan with an APR that isn't much higher - or even less than a dealership loan.

Get Approved First

When you find a private party lender, get approved before you begin to search for the right car, rather than the other way around. At a dealership you will often search for a car before you apply for financing. With private party loans, get approved first so you will know exactly how much you have been approved to spend. This will help you pick a car you can afford and ultimately give you more flexibility and wiggle room.

With a dealership loan, you are limited to buying a car from that dealer. Because they pass their high overhead costs down to the consumer, you will end up spending more for either a new or used car. Private party loans, on the other hand, can be used with private sellers, allowing you to purchase a car on eBay, from the want-ads, an auction, or elsewhere. Often times you will get a much better deal because you have many more choices than if you were to finance through a dealership.

The choice is yours whether you finance through a dealership or with a private lender. Consider the differences and the advantages of both before you make the decision that is best for you.

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