Compare car loans for a private sale in Canada

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.

Option 1: Get a car loan for a private sale

Car loans for a private sale have these features:

• Secured or unsecured. Depending on the age and mileage of the car, the lender may approve you for a secured or unsecured car loan.
• Varying interest rates. Older cars have higher rates because their resale values have decreased over the years. Rates can be fixed or variable and will also depend on your personal factors, such as credit score and income.

Option 2: Get a personal loan

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.

• Secured or unsecured. You can get a secured personal loan and use an asset like your house as collateral. You can also avoid putting up collateral by getting an unsecured loan.
• Varying interest rates. Securing your loan with collateral will help lower your interest rate. You can also get a fixed or variable rate. Learn more about personal loan rates in Canada.

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Option 3: Use a line of credit

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.

Where can I get a loan to finance a car from a private seller?

If you’re looking to finance a used car from a private seller, you can go to an online lender, bank or credit union.

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.

Features of online lenders

• Flexible eligibility requirements. Overall, online lenders have more lenient criteria than banks and credit unions. However, you may pay for this benefit with higher rates.
• Fast. You can complete the process in one to two business days. Some lenders can give you a quote right after you apply without impacting your credit score.
• Online. The entire process can be done online. On the other hand, banks and credit unions may require you to visit a branch to speak to a loan specialist.
• Steeper rates. Online lenders on average offer higher rates than traditional lenders, but there are select online lenders that can offer rates that are equal to or better than banks. Most rates from online lenders are fixed.

Features of banks

• Stricter eligibility requirements. You usually need good to excellent credit to get approved for a private car loan.
• Slower. Be prepared for the process to take about one to three weeks, from application to funding.
• In-person meeting. You might be required to speak to a loan specialist. You’ll need to bring documents with you such as recent pay stubs, most recent T4, personal tax return and list of assets and liabilities.
• Competitive rates. If you have good to excellent credit, get a low interest rate on your loan. Rates can be fixed or variable.

Features of credit unions

• Stricter eligibility requirements. Like banks, you’ll need good to excellent credit get approved for a private car loan. You may also be required to get a membership with them.
• Slower. It may take you one to three weeks to get your private auto financing.
• In-person meeting. Like banks, you’ll meet with a loan specialist to discuss your borrowing needs.
• Low rates. If your finances are strong, get a competitive rate whether you get a secured loan or unsecured loan. Rates can be fixed or variable.

Our full guide to credit union auto loans

How much do private car loans cost?

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.

• How to use this car loan monthly payment calculator

  1. Enter the amount you want to borrow to buy a new car under Loan amount. This might not be the same as the cost of your car, since many lenders require a down payment.
  2. Write the amount of time you have to pay off your car loan under Loan terms (in years). If your loan term is in months, divide it by 12 first.
  3. Enter the interest rate you expect to pay on a car loan under Interest rate. If your car loan comes with fees, enter the annual percentage rate (APR) instead.
  4. Click Calculate.

Pros and cons of private sale car loans

Before applying for a loan to purchase a car from a private seller, consider these pros and cons:

Pros

• Potentially less expensive overall. The savings in private sale financing comes in the loan amount, rather than interest. Private party sellers often offer cars at a lower price than dealers.
• More room to negotiate. Private sellers typically aren’t excellent negotiators. And if they just want to get the car out of their hands, they might sell it for lower than the asking price.
• No sneaky add-ons. Dealerships sometimes try and upsell with add-ons you don’t need to inflate the price of the car. This rarely happens when you buy from a private seller.

Cons

• Higher rates. These types of loans tend to come with higher interest rates than car loans used to buy a vehicle from a dealership.
• Shorter terms. Lenders also might give you less time to pay back a car loan for a private sale, resulting in higher monthly repayments. Dealerships can sometimes afford to be more flexible in the length of the loan terms offered to you.
• More paperwork. You have to handle the bill of sale, title and registration transfer and any other paperwork that a dealership might normally handle for you.
• Less protections. You typically won’t get a warranty when you buy a car outside the dealership. There may be some of the original manufacturer’s warranty left on the vehicle, but this coverage may be limited and when it runs out, you’ll be left to handle all maintenance expenses on your own. Also, if you buy a car with a lien on it, consumer protection laws may not be able to help you.

Am I eligible for a car loan for a private sale?

Each lender has different eligibility requirements, though you typically must:

• Have strong credit.
  Since lenders consider private sale car loans more of a risk, you typically need strong credit to qualify for favourable financing terms. You can typically lock in a competitive rate with a good credit score of at least 660. It’s possible to get a car loan with a bad credit score, but your interest rate will be higher. In some cases, a cosigner may even be required.
• Have a car picked out.
  You can only apply for a car loan for a private sale after you know exactly what you’re going to buy.
• Meet age and mileage requirements.
  Many lenders have restrictions on the age and mileage of the car you’re looking to purchase. Typically, the older the car, the more expensive the loan.
• Be a Canadian citizen or a permanent resident.
  It can be very difficult to find a car loan for a private sale if you don’t have citizenship or permanent residency status.
• Be at least 18 or 19 years old.
  In Canada, you need to be at least the age of the majority in your province or territory (either 18 or 19 years old) to take out any type of loan. This is because minors are protected by law so that they cannot be sued if they don’t live up to their obligations or if they change their mind about a sale.

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

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:

• Government-issued ID
• Recent pay stubs and bank statements
• List of assets and liabilities
• Credit score (agree to a credit check)

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

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.

5 steps to get a car loan for a private sale

Convinced buying a car from a private seller is right for you? Follow these steps to secure financing:

1. Find your car. You need to know what car you’re going to buy before you apply for a loan. Have details on hand such as the make, model, year, mileage (if the car is used) and price.

2. Shop around for a loan. Start by finding lenders you’re eligible to borrow from and then compare APRs (annual percentage rates), terms and fees. Some lenders offer car loan pre-approval, which allows you to compare the rates and terms you qualify for before filling out the full application. This can help seal a deal with a seller because of the confidence they have that your financing is in place. You may even be able to use pre-approval amounts as a negotiation tool.

3. Apply for financing. Most lenders have an online application, though banks and credit unions might require an in-person visit. With an online lender, you could have the funds as fast as one day.

4. Fill out the paperwork. At this point, the seller has to sign the title over to you and complete the bill of sale. You can typically drive away in your car as long as the title is transferred over to your name.

5. Register the title transfer and your car. Once you’ve signed the paperwork, you’ll have to visit your provincial licensing office to register the title transfer and your new car. You’ll have to pay a fee depending on where you live and will likely have to fill out more paperwork. You can often register your car online, though some provinces may require you to report to a physical location to register the title.

6 tips for buying a used car from a private seller

Keep these pointers in mind when buying a used car from a private seller:

• Check the vehicle’s history. Run a check on the vehicle identification number (VIN) to make sure the car isn’t stolen, hasn’t been salvaged and doesn’t have liens on it.
• Verify the seller’s identity. Ask to see the seller’s ID and vehicle registration to make sure you’re buying a vehicle from the owner.
• Have your mechanic look at it. Mechanics tend to favour the person they’re working with — you might get a more honest assessment if you use someone you’ve worked with before, rather than the seller’s.
• Give it a spin. Test driving your vehicle is the only way to tell if it’s right for you and can help you spot potential problems.
• See the title before you buy. It’s a red flag if the seller can’t produce the title up front or won’t show it before you sign the bill of sale.
• Double-check all sale and registration paperwork. Nobody likes delays due to incomplete or sloppy paperwork.

Bottom line

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.

Frequently asked questions about car loans for private sales

• Can you finance a private car sale?

  Yes. If you're looking to buy a car from an individual, one way to pay for it is to get a car loan designed for private sales. Since lenders consider it a riskier purchase, these loans may come with higher rates than traditional car loans. You can also use a personal loan or line of credit.

• How do I pay a private seller with an auto loan?

  In most cases, the lender sends the funds directly to the private seller so you don't have to receive the money and pay for the car yourself. If you take out a personal loan, the funds are transferred to your personal account and you will have to discuss payment options with the seller yourself.

  Possible methods of payment include electronic transfers using online banking or services such as PayPal, cheques, money order, cash or even debit/credit payments using portable debit terminals.

• Do I have to pay tax on a car I buy in a private sale?

  Yes, if you're buying a used car from a private seller, you'll likely be required to pay taxes when you register the car. The tax rate you'll pay will depend on the province or territory where you live. In Ontario, for example, you'll have to pay 13% sales tax on top of the price of the car. Make sure you factor that in to the amount you apply for in your private sale financing.

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Written by

Carmen Chai

Writer

Carmen Chai is a freelance writer at Finder, specializing in financial products. She is an award-winning Canadian journalist who has lived and reported from major cities such as Vancouver, Toronto, London and Paris. She has reported on personal finance, mortgages, and banking products for nearly a decade. See full bio

Co-written by

Chelsey Hurst

Publisher

Chelsey Hurst is a publisher at Finder, specializing in banking and investments. She loves empowering people to avoid financial pitfalls and make better decisions with their money. Chelsey has a Bachelor of Science from Redeemer University, a Master of Science from McMaster University, and has won multiple awards for research communication. In her spare time, Chelsey enjoys cooking and taking long walks in nature. See full bio

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