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Private vehicle finance

You might save on the sale price, but be sure if it's worth the higher rates.

Payday loans are expensive forms of credit and shouldn’t be used to fix long-term financial issues. People should avoid payday loans if it will put their budget under strain, as late fees for payday loans can build up quickly and result in debt.

Getting a loan for a car you want to buy from a friend, relative or other private seller works a little differently than when you buy one at a dealership. While you might get a better deal on the price of the car, private vehicle finance tends to come with higher rates and/or require stronger personal credit. It can also take more time, since you’ll have to transfer the title yourself.

How does a private vehicle finance work?

Private vehicle finance is a type of vehicle finance you can use to buy a car from an individual, rather than a dealership. Since lenders consider it a riskier purchase, these loans often come with higher rates. It can also take longer because you have to transfer the title yourself — though you’ll likely save on the fees a dealership would charge for this service. If you’re buying a car with a loan the current owner hasn’t fully paid off, that can also take some extra time.

Where can I get private vehicle finance?

You can get a private vehicle finance from some car finance providers. Generally, you need to have an idea of the car you want to buy before you apply. Once you know how much you’ll need to borrow, compare lenders to find the most competitive deal you’re eligible for. After you apply and get approved, the lender sends the funds to your seller and you can begin the process of transferring the title. Repayment starts as soon as the loan is issued.

5 steps to secure a private vehicle finance

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 private vehicle finance, including the model, make, year, mileage and purchase price.
  2. Shop around for a loan.
    Start by finding a lender you’re eligible with before comparing interest rate, terms and fees. Some lenders offer preapproval, which allows you to compare the rates and terms you might qualify for before filling out the full application.
  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 funds sent to the seller in as fast as one day, while banks typically take at least a week to process the application.
  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 want to check your vehicle is correctly registered on the national traffic information system (eNaTIS). You may have to pay a fee depending on where you live and will likely have to fill out more paperwork.

Pros and cons

Though you can often nab a lower sticker price by buying a used car through a private seller, you may get stuck with less-competitive rates and terms on your loan.

Pros

  • Potentially less expensive overall. The savings in private vehicle financing come 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 add-ons. Dealerships sometimes sneak in add-ons you don’t need to inflate the price of your car. This may happen less frequently than with private car finance.

Con

  • Higher rates. Private vehicle finance agreements tend to come with higher 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 private party auto loan, resulting in higher monthly repayments.
  • More paperwork. You have to handle the bill of sale, title and registration transfer and 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. And many state laws that protect buyers from faulty cars don’t apply to private party purchases.

What do I need to get private vehicle finance?

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

  • Have a strong credit score. Since lenders consider private vehicle finance more of a risk, you typically need strong credit to qualify for a competitive deal.
  • Have a car picked out. You can only apply for this type of finance 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 finance agreement.
  • Be a South African citizen or permanent resident. It can be difficult to find a private party car loan if you don’t at least have permanent residency.
  • Be older than 18. Typically, you need to be at least 18 years old to take out any type of loan in most provinces.

Can I get a loan with bad credit?

Because lenders often consider buying a car from a private seller riskier than going through a dealership, finding a private car finance deal with bad credit can be tricky — it’s a double risk. You might have better luck using an online connection service, though make sure you’re not working with one that specializes in dealership financing.

You also might want to save for a down payment, since it’s typically easier to get approved for smaller loan amounts. And like with other bad-credit loans, you’ll probably end up with a higher interest rate.

How do I pay a private seller with vehicle finance?

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 can choose how to pay off the seller.

6 tips for buying a used car from a private seller

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

  • Check the vehicle’s history. Run a check on the car’s vehicle history to make sure the car isn’t stolen and hasn’t been salvaged.
  • Verify the seller’s identity. Ask to see province-issued ID to make sure you’re buying a vehicle from the person on the car’s title.
  • 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 your own, rather than the seller’s.
  • Give it a spin. Test driving your vehicle is a good 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 you it before you sign the bill of sale.
  • Double-check all the paperwork. The last thing you want to do is have to unfix the paperwork if it’s wrong or incomplete.

What if the seller has an outstanding loan on the car?

If your seller hasn’t completely paid off the car loan, you’ll have to get their lender to release the title to your name. This can take a couple of weeks or longer. In some cases, the seller might be able to pay off the loan up-front. But if they can’t, your lender might need to work with the seller’s lender to make sure both loans are paid off.

Bottom line

Getting private vehicle finance can be more expensive and take more time than financing a car from a dealership. But the potential savings on the actual price of the car might just make it worth it.

Learn about other car financing options by reading our vehicle finance guide.

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