Getting a loan to buy a car from a friend, relative or other private seller works a little differently than getting a loan to buy a car from a dealership. Private sale financing offers key advantages if you’re considering the purchase of an older used car, or a vehicle with higher mileage. Many traditional car loan lenders have restrictions on the age and condition of eligible used cars; however, private sale financing usually comes with fewer restrictions on what you can buy — allowing you to select older models and vehicles with higher mileage.
Read this guide to learn more about how to finance a used car using a car loan for a private sale and to make sure you get the best deal.
Car loans for a private sale have these features:
Another way to finance a used car from a private sale is to get a personal loan. Lenders generally don’t have restrictions on how you can use your personal loan.
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A third option is to borrow from an unsecured or secured line of credit. A secured line of credit will give you lower rates, and assets you can use as collateral include your house or investments. Learn more about line of credit rates.
With a line of credit, you’re approved to borrow up to a limit. You can withdraw the amount you need to pay for the car and pay back the money you owe at any time. However, you must make a minimum payment each month, which is usually equal to the interest.
The risk with lines of credit is lack of discipline with repayments since there’s no deadline to pay off the balance. You could also be tempted to spend more than what you originally planned.
If you’re looking to finance a used car from a private seller, you can go to an online lender, bank or credit union.
| Interest rate | Finance amount | Loan term | ||
|---|---|---|---|---|
| Online lender | 6.99% – 35% | $500 – $50,000 | 3 – 60 months | |
| Bank | From 4.70% | Starts at around $3,000 | 6 months – 8 years | |
| Credit union | From 4.70% | Starts at around $3,000 | 6 months – 8 years |
Keep in mind that the rates and loan terms shown in the table above are for illustrative purposes only. The loan terms you’re offered may differ based on your financial situation and each lender’s specific finance products.
Our full guide to credit union auto loans
The cost of a private car loan depends on the loan amount, loan term and interest rate. For illustrative purposes, below is a breakdown of how much a $12,000 car loan might cost over five years at 5.99%, 7.8% and 10.84% fixed APR.
| APR | Loan amount | Loan term | Monthly payment | Total cost |
|---|---|---|---|---|
| 5.99% | $12,000 | 5 years | $232 | $13,916 ($1,916 interest) |
| 7.8% | $12,000 | 5 years | $242 | $14,530 ($2,530 interest) |
| 10.84% | $12,000 | 5 years | $260 | $15,597 ($3,597 interest) |
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Before applying for a loan to purchase a car from a private seller, consider these pros and cons:
Each lender has different eligibility requirements, though you typically must:
While each lender has its own set of eligibility requirements and application process, there are some overlapping themes. Here’s a look at the key documents you may be asked to provide as you go through the application process:
It’s important to find out if there are any outstanding debts on the car before you buy it. You can do this by getting a CARFAX report. If the car has a lien, think twice about buying it. You’ll be on the hook to pay off the loan, and the seller’s lender can repossess the car if you don’t.
If you’re set on buying a car with a loan on it, visit the seller’s bank together and have them clear the debt in front of you first.
It depends. Some lenders specialize in private car loans for people with bad credit. You’ll need to demonstrate that you have enough income to cover the debt payments. You may also want to enlist a cosigner with good credit to increase your chances of approval. But if you default on payments, your cosigner will be responsible for paying them.
Watch out for steep interest rates because lenders view borrowers with bad credit as higher risk of defaulting.
Convinced buying a car from a private seller is right for you? Follow these steps to secure financing:
Keep these pointers in mind when buying a used car from a private seller:
According to recent results from the Finder: Consumer Sentiment Survey Q2, where more than 1,011 Canadians were asked about their vehicle purchase plans in 2023, 15% of Canadians plan on getting a car loan in the first few months of 2023 in order to buy a new or used car.
A demographic breakdown reveals that Gen Z and Gen X are most likely to purchase a vehicle in 2023, followed by millennials and baby boomers.
Since getting a car loan for a private sale vehicle can be more expensive and take more time than financing a car from a dealership, it pays to understand when and why to use private sale financing.
Learn about other car financing options by reading our car loans guide.
Pictures: Getty Images
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