Private Sale Auto Financing

Quick Links

1. What Is a Car Loan and Can I Get One for a Private Car Sale?
2. How Does a Private Party Auto Loan Work?
3. Auto Loan Key Terms
4. How To Apply for Private Sale Auto Loans
5. Buying a Car From a Private Seller – Important Tips
6. Frequently Asked Questions

What Is a Car Loan and Can I Get One for a Private Car Sale?

What Is a Car Loan?

A car loan is a debt instrument that enables consumers to complete a vehicle purchase via structured financing. Car loans are repaid in periodic car loan payments, and are usually secured against the underlying vehicle. This means that the lender can seize the vehicle if the borrower fails to meet the scheduled principal and interest payments.

Car loans are a popular method for financing new and used vehicles; many offer flexible payment options, and can be secured via banks, credit unions, online lenders, local dealerships, and other lenders. Factors such as credit score, payment date, and loan contract details impact the loan terms.

What Is a Private Auto Sale?

A private sale is simply one that does not include a third party or dealership; the car is owned privately the entire time, and is sold directly from one owner to another, without any intermediary. This perforce means that cars available through private sale are used, and you are not able to get access to a brand new car via private sale.

Private sales are popular in Canada thanks to their relative affordability and the rise in online vehicle sales sites that connect potential buyers with those seeking to sell their car.

A private sale can be a little more complicated than one handled by a dealership, as auto dealers usually complete all of the paperwork for you, and in a private sale, the individuals involved must complete all of the vehicle purchase and title transfer steps themselves. However, if you are prepared for a slightly higher paperwork burden, you can find a great used car at a great price via a private seller.

Can I Get a Private Sale Car Loan?

Many people choose to finance their used vehicle purchase via the lender directly connected to the dealership from which they bought the car. This is a simple solution, but it’s not necessarily the cheapest, and it’s not relevant to those pursuing a private sale. Many people – whether buying a new or used car, or buying from an auto dealer or a private seller – can save money by shopping around for their car loans.

There are many types of car loans available in Canada, and many which are relevant to private car sales. Take a look at some of the options shown in the table above for a snippet of what’s on the market, right now, and accessible to those needing a private car loan.

How Does a Private Party Auto Loan Work?

Car loans for private car purchases come in a variety of forms, and the type of loan you choose will dictate its finer details. However, in general, a private party auto loan works just like any other type of loan: you borrow a certain amount of money and agree to pay it back, over a set amount of time, at a set rate of interest.

But within these very broad parameters, you have many options, including:

Because buying a car from a private seller puts the onus on the buyer to find their own financing, it’s more important than ever to do your research and understand what car loans are available before you commit to a loan.

Auto Loan Key Terms

APR

The Annual Percentage Rate (APR) is the most critical consideration with most car loans for private purchases, as it illustrates the amount of interest that the borrower has to pay per year. Many lenders advertise their interest rates in various ways, but by comparing annual percentage rates, you can be sure you’re seeing a fair comparison between products.

Down Payment

The total amount borrowed depends on the market value of the vehicle being bought, plus applicable fees and taxes – minus any down payment you have available. A down-payment can help to reduce your monthly costs, and as such is a great method for saving money, but not everyone is in the position to provide one.

Monthly Payment

The total monthly payment, including your principal and interest amount, is a function of APR, principal amount, and the term of the loan. To optimize this, it is best to use a loan calculator to ensure affordability.

Loan Term

The length of the loan – or loan term – is another consideration. Longer loan terms mean smaller monthly payments, but the offsetting factor is that the amount of interest paid is greater over the total life of the loan.

Penalties and Other Fees

While some institutions have relaxed policies regarding loan early payment, others charge a prepayment penalty for paying off your loan early. There are also processing or administrative charges that borrowers often have to pay to compensate the lender for the work undertaken in setting up the loan. It is extremely important to read the “fine print” of the loan documentation to gain an understanding of the total costs you’ll be liable for.

How To Apply for Private Sale Auto Loans

Getting a car loan can be easy, if you know what steps to take. Here’s how to go about the entire process:

1. Understand Your Circumstances

Preparing for your private party auto loan application requires you to gather your paperwork and have an honest, complete assessment of your financials. This includes understanding your budget, any down payment options, your credit score, and your existing debt burden. These factors will affect what you can afford as a loan amount, and which vehicle loans you are eligible for. It’ll also dictate which lenders will work with you – for example, banks and credit unions have higher credit score requirements than online lenders.

Gather together all of your supporting paperwork – including ID, bank account statements, proof of employment, and so on, before you start an application.

2. Explore Your Car Loan Provider Options

There are several used car loan options available to Canadian car buyers. Research the pros and cons of each option to determine which one suits your needs best, as well as which you are eligible for given your financial situation and the fact you’re pursuing a private sale. Consider getting the help of a loan specialist if you’re struggling to make a decision. Consider as well the loan terms available, as this will impact your monthly bottom line.

3. Find the Right Vehicle

Finding your new car via a private seller can take some time. Do your research; consider purchase price, vehicle history (available via the CARFAX report), vehicle age, size and style, mileage, and other factors pertaining to your expected usage of the vehicle. Also consider insurance, how much it may cost, and whether the car is competitively priced.

Many of these factors are the same as when buying any car, but when purchasing a car from a private seller, the responsibility for finding and reviewing this data is yours.

4. Get Pre-Approved

If you’re able, try to obtain pre-approval for your car loan before contacting a private seller. Pre-approval gives you an idea of the loan amount you’re eligible for and the interest rate you can expect, allowing you to negotiate better terms and streamline the car purchase process. If you wait until you find the car you want, it’s possible that the seller will find another buyer while you’re waiting on your loan approval!

5. Complete the Loan Application

Lastly, once you’re good to go, you’ll need to fill out a loan application. This typically requires your personal information, financial details, and information about the car. Submit the application along with the required documents and wait for the lender’s response. If you use online banking, you can opt to receive approved funds directly into your bank account.

By following these steps, you’ll be well-prepared to get a car loan and secure the financing you need for your next vehicle.

Buying a Car From a Private Seller – Important Tips

A private sale is inherently more risky than a public one; here are some important things to remember to keep your experience positive:

Find out the fair value of the car before making an offer.

Many car sale websites have built-in tools that show whether a car is under or overpriced compared to its competitors, but not all do. Check the average sale price of the make/model/age of car you’re interested in, to be sure you’re paying a fair price.

Check out the history of the car.

By inputting the car’s VIN into CARFAX, you can find out the car’s history, including how many owners it has had, whether it’s been involved in any accidents, whether there are any liens against the vehicle, and so on.

Consider a pre-purchase inspection.

Not all issues will manifest themselves during a test drive; a pre-purchase inspection can be an inexpensive way to detect any major issues with the car’s internal systems.

Perform a test drive.

A test drive can tell you more about a car than all of its documentation; always perform a test drive to be sure the car is in good condition.

Don’t forget the paperwork.

Every province has slightly different requirements, but wherever you are, you will need to ensure your paperwork is in order to finalize your purchase. This can cover items such as:

Frequently Asked Questions About Private Sale Auto Financing

Do I qualify for a used car loan?

To qualify for a used car loan in Canada, you need to meet certain eligibility criteria, including a minimum credit score (usually 550), a valid driver’s license, proof of Canadian residency, and proof of income. Lenders may also require information about your other debts and monthly costs.

What is a good interest rate for a used car loan in Canada?

Interest rates for used car loans for private sales vary widely, ranging from 0% to 30%. Used cars often have higher interest rates than new vehicles. Your interest rate depends on factors such as your credit score, monthly income, deposit, vehicle specifics, and loan terms.

Can I get a car loan for a private sale with bad credit?

Yes, bad credit car loans for private vehicle purchases are available. While many lenders require a minimum credit score of 550, there are options for those with lower credit scores. Consider exploring our list of bad credit car loan lenders to compare your options. Keep in mind that bad credit loans typically come with higher interest rates. If you have had a consumer proposal or bankruptcy in the past, your loan costs are likely to be significantly higher.

What are my used car loan options if I have no Canadian credit history?

New Canadian residents with no credit history can still obtain a car loan. As they won’t pass a credit check, lenders will look at alternative factors, like proof of employment, the deposit amount, or a cosigner when evaluating the loan application.

Is it safe to fill out a car loan application online?

Completing a loan application online is generally safe, as most reputable online lenders use encryption to protect your personal and financial information. Make sure to review the lender’s privacy policy and ensure you’re working with a trustworthy company.

Where can I get a used car loan for a private vehicle purchase?

Many lenders offer car financing options for those buying a used car; most lenders do not actually care where you’re buying the car from, instead focusing on your details. If you have good credit, you will find it easy to secure financing from almost anywhere, including your local bank or credit union. You may however qualify for a lower rate if you apply for a used car loan online.

How do I know how much to borrow for a personal loan for a private sale?

Those searching for a new car via private sale know that the price the car is listed at is not necessarily the price it will sell for. In addition, another private party may be interested in a given car. This means that, ideally, in order to proceed with a new car purchase quickly and secure the vehicle, the buyer would have their used car loan lined up in advance. But in order to do this, you need to know exactly what long amount and loan term you need – which you can’t know until you’ve made an offer on a car!

Many people get round this catch-22 by making use of loan pre-approval, which is available for both private and regular sales. Pre-approval means you know before you start shopping exactly how much you can borrow, and at what rate, so you have a firm budget to work with, rather than an estimate

How do I get a used car loan in Canada?

Start by comparing the private sale financing choices open to you. Consider the loan amount, loan term, and more specific terms and conditions to find the personal finance solution that suits you. Then gather the necessary paperwork, which typically includes proof of insurance, proof of income, proof of residency, and a driver’s license. Use this paperwork to complete the used car loan application.

What will I need to provide to finance a private auto sale?

Documentation requirements vary by lender, but in general you will need to be able to show ID, bank account statements, proof of employment, and information about other debt obligations.

How much do car loans for private car purchases cost?

The cost of a private car loan depends on many factors, including the car itself, its purchase price, age, history and so on, as well as your personal details, including age, credit score, credit utilization ratio, and so on. In addition, different lenders charge different rates. To understand exactly how much a car loan will cost you, use a loan calculator with as specific information as you can.

What are the hidden costs of buying a used car privately?

Buying a car can get expensive; remember that when you buy privately, you are liable for tax, just as you are when buying from a dealership. In addition, your lender may charge fees associated with your financing package.

Can I buy a used car if the seller owes money on it?

Private sellers may have an existing personal loan or car loan against the car they are trying to sell. This is not necessarily your problem, you just need to make sure the seller’s lender (whether a credit union or another individual) is apprised of the sale so that the car is no longer used as collateral against the seller’s loan.