Private Party Used Car Sales with Bad Credit

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Even with poor credit.


Contributing Writer

David Topham covers the automotive and auto finance industries as the Content Manager of Auto Credit Express who also contributes to CarsDirect. He was born and raised in Michigan and is a graduate of Michigan State University.

, Contributing Writer - November 9, 2018

When buying a used car from a private seller, many borrowers try to get pre-approved for a private party auto loan. While there are several advantages to buying a vehicle privately, one of the drawbacks is that getting approved for a private party car loan may not be possible if you have bad credit.

Advantages of Private Party Auto Loans

A private party auto loan is a type of loan that you can use to buy a car from a private seller instead of a dealership. There are several advantages for this type of auto financing, including:

  • The Ability to Compare Rates – You can apply with many different lenders to compare the rates and terms each can offer. Banks, credit unions, and other lenders are all competing to serve borrowers, so you can rate shop among them. You can give yourself an advantage in the car buying process by comparing different offers to identify the best deal for you.
  • You Know How Much You Can Spend – Private loans are sometimes called blank check auto loans because you get pre-approved for a certain amount. While you have to stick to this limit, it's called a blank check car loan because it works just like a check when buying privately. Knowing exactly how much you can spend on a vehicle works to your advantage because you can't get in over your head or finance more than you can afford – you already know your spending limit.
  • You're in Control of the Car Choice – Many buyers like private sales because it gives them the freedom to explore cars for sale in their area and choose the one they want. When getting a loan through a dealer's finance department, your options are restricted to what's on the lot.

Disadvantages of Buying a Car Privately

Car buyers also need to consider these drawbacks to private car loans:

  • More Legwork Involved – Not only do you have to find a lender and get approved, you have to locate cars and organize meetings with the seller. Coordinating meetings for you to check out the car or test drive it around both of your schedules could prove to be inconvenient and time consuming. In addition, you have to take care of the paperwork, which involves more time and a trip to the secretary of state or DMV.
  • Fewer Legal Protections – Private sellers aren’t held to the same standards that dealers are, meaning there are more federal and state laws protecting you at a dealership. With a private sale, you have little legal recourse if any issues arise with the vehicle or sale.
  • Hard to Get Approved with Bad Credit – Most private auto loan providers tend to turn down borrowers with poor credit. Getting denied is a waste of time that can also hurt your credit score through hard inquiries.

Why it's Hard to Get Bad Credit Private Auto Loans

The main reason private party car loans aren't typically available to people with imperfect credit is because most banks, credit unions, and other lenders who finance private party loans are generally direct lenders who are less likely to approve borrowers with bad credit.

Consumers with poor credit that need a car loan typically have to get financed through a subprime lender. The catch is that subprime lenders usually only work through licensed car dealerships, which takes private loans out of the equation.

The reason subprime lenders only work through dealers is because they require verification of the borrower's income, employment, and residence information, as well as the information regarding the vehicle being financed. This added level of assurance is an important part of the bad credit car loan process. As private sales are missing these two verification components, subprime lenders tend to stay out of the space.

The Bottom Line

Private party auto loans provide an alternative way to get financed through a third-party lender instead of a dealership. However, getting approved for one can be difficult if you have bad credit.

Instead, let CarsDirect set you up with a local dealer that specializes in helping car buyers with less than perfect credit. We work with dealerships all across the country that are signed up with subprime lenders – the type who are willing to give bad credit borrowers a second chance in a way direct lenders that offer private party loans don't.

We want to make the bad credit auto financing faster and easier for you. We'll work to match you with a dealer in your area after you fill out our secure and free auto loan request form.

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, Contributing Writer

David Topham covers the automotive and auto finance industries as the Content Manager of Auto Credit Express who also contributes to CarsDirect. He was born and raised in Michigan and is a graduate of Michigan State University.

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