What is a private-party auto loan?

Smiling young couple with cell phone at carImage: Smiling young couple with cell phone at car

In a Nutshell

If you want to buy a car from a private seller but don’t have the money on hand, a private-party auto loan could help you fund the purchase. Like other types of auto loans, private-party car loans are offered by some banks, credit unions and online lenders. But beware — private-party auto loans tend to have higher interest rates than traditional auto loans.
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A private-party auto loan is one way to get the cash you need to buy a vehicle from a private seller.

Buying a used car from a private seller could help you save money. For example, sale prices tend to be lower through private sellers than dealerships.

But private parties don’t offer financing (and you should be very careful if they do). That’s where a private-party auto loan can come in. With a private-party loan, you get the perk of financing as if you were buying from a dealer — while getting the savings that a private seller may have to offer.

What banks offer private-party auto loans?

Not all big banks offer these loans, but here are a few that do.

Good for competitive rates: Lightstream

Lightstream’s private-party auto loans feature competitive rates. To get the lowest rate possible with Lightstream, you must set up autopay and have excellent credit. On top of the low rates it offers, Lightstream says it can fund your loan on the same day that you apply (though the accessibility of your funds may depend on your bank).

Read our review of Lightstream auto loans to learn more.

Good for one-on-one support: PNC Bank

If you prefer a personalized experience over applying online, PNC could be a good fit for you. To apply for an auto loan from PNC, you must visit a branch in person. If you live in one of the states where PNC operates, you may be able to take advantage of the PNC website’s guidance and instruction as you go through the process of getting a private-party auto loan.

Learn more about PNC Bank’s auto loans in our review.

Good for an unsecured option: U.S. Bank

U.S. Bank allows borrowers to use an unsecured personal loan to buy a car from a private party. This option isn’t a traditional auto loan — but U.S. Bank personal loans have competitive rates, and you won’t be putting your car at risk by using it as collateral.

Learn more about U.S. Bank personal loans.

What is a private-party auto loan, and how do they work?

Private-party loans are similar to other auto loans because they’re typically secured loans, with the car serving as collateral. So just like with typical auto loans, if you default on the loan, the lender can repossess the vehicle.

And also like other auto loans, private-party loans have an annual percentage rate and fixed loan term that affect your monthly payment. Depending on the lender, private-party loan terms typically range from 12 to 84 months.

Interest rates can also vary based on your credit and state of residence as well as the loan amount, loan term and any discounts, like an autopay or customer discount. The lender may also factor in the age of the car you want to purchase.

Private-party auto loan APRs are typically higher than the interest rates for used cars you’d buy at a dealership.

How do I get a private-party auto loan?

Some large financial institutions, as well as some smaller, regional banks, credit unions and online lenders offer private-party auto loans. Keep in mind that some lenders have restrictions on vehicles they’ll finance, like age or mileage — or they may charge a higher interest rate on older vehicles or those with a lot of miles.

Compare offers

It’s always a good idea to get quotes from multiple lenders and compare them to find the best offer for you. Consider more than the monthly payment when reviewing offers — factors like loan term, APR, fees and penalties (including prepayment penalties) can affect how much you pay over the life of the loan. For example, a longer loan term could result in lower monthly payments, but you’ll likely end up paying more in total loan interest. An online auto loan calculator can help you run the numbers.

While you shop around for a private-party loan, you may want to apply to get preapproved for a car loan. Preapprovals can trigger a hard credit inquiry, which could lower your credit scores by a few points. Multiple hard inquiries could affect your scores more heavily.

To help minimize some of the negative effect to your credit while comparing offers, apply for multiple preapprovals within the same time period. Depending on the credit-scoring model, multiple inquiries that fall within a 14- to 45-day window might count as one inquiry, which may only affect your scores minimally. 

How to apply for a private-party auto loan

To formally apply for a private-party loan, you’ll need to fill out an application with the lender you choose. You’ll be asked to provide some information about the car, which may include the vehicle identification number (or VIN), make and model, model year and mileage. You’ll also be asked for personal information, which could include your Social Security number, address, employment and income. The information you need to provide will vary by lender.

The lender will review this information, along with your credit, to determine whether you qualify and what the loan interest rate and terms will be.

Once you’ve chosen a loan, you may need to provide additional information and documents to your lender, like the vehicle registration, vehicle title, bill of sale and a payoff quote.

Depending on the lender, you may get a check for the agreed-upon sale amount that’s made out to the seller or the lienholder (if it isn’t the seller), or the loan amount might be deposited into your bank account after the loan closing.

Should I get a private-party auto loan or personal loan?

An unsecured personal loan may be an alternative to a private-party auto loan, but a private-party loan may be the less expensive option. Unsecured personal loans often have higher interest rates because the loan isn’t backed by collateral, like a car.

While a personal-loan interest rate can range from around 4% to 36% or more, a report from credit bureau Experian showed that average used-car interest rates in the fourth quarter of 2023 had an average interest rate of 11.93%.

But it’s not always easy to find a lender that offers private-party auto loans, and you may have a preferred bank that you already work with. In general, it’s a good idea to look at several lenders and consider your options before committing to a lender.

Next steps

When you want to buy a car from a private seller and don’t have the cash, a private-party auto loan might be your best option.

Just remember to account for the higher APR that typically comes with a private-party auto loan when determining your used-car budget. To learn more about auto loans and all their moving parts, check out our guide to understanding a car loan.

FAQs about private-party auto loans

What is the difference between a private-party auto loan and a traditional auto loan?

A private-party auto loan is not as accessible as a traditional auto loan — big banks are less likely to offer these types of loans, and depending on your circumstances, you may need to expand your financing search to unsecured personal loans. You can get a traditional auto loan when you buy a car from a dealership, but you may end up paying more for a comparable car from a dealership than from a private party.

​​Can I get a private-party auto loan if I have bad credit?

You may be able to get a private-party auto loan with bad credit, but you’ll likely pay higher interest rates and have less favorable terms overall.

Are there any fees associated with private-party auto loans?

The fees that private-party auto loans can vary by lender. Carefully read the terms of any loan you apply for before signing an agreement.

About the author: Liz Knueven is a personal finance writer with a BFA in writing from Savannah College of Art and Design. Liz has been published by Business Insider, Carfax.com and LendingTree. Read more.