-
Private Party Auto Loans: Advantages and Disadvantages
If you are in the market for a vehicle, it is a good idea to look at car loan options that are available to you, and one used car loan option you might wish to consider are private party auto loans. This is a specific type of car loan that makes it possible for you to finance the purchase of a vehicle through an individual or private party rather than through a dealership or financial institution. There are many advantages to a private auto loan, but there are also some drawbacks that you should be aware of as well when making a decision about which option is best for you.
Advantages of a Private Car Loan
Using a private auto loan lender can be a good option for a consumer who has bad credit. When your credit is poor you may have a difficult time finding a dealership or bank that will be willing to finance your purchase. Private auto lenders are often more willing to approve auto loans for consumers who have bad credit. In addition, it may be possible to locate a private auto loan lender who does not require a down payment, although you should keep in mind that it is always a good idea to pay at least a small amount of money upfront as this will lower your monthly payment. Using a private auto lender also gives you the advantage of being able to confidently walk onto a car lot and know that you are pre-approved for a vehicle purchase without the need to go through a time consuming financing process with the dealer. This can be time saving.
Disadvantages of a Private Car Loan
There are also some disadvantages you should be aware of when considering a private auto loan. Perhaps one of the biggest drawbacks to this type of loan is the fact that car loan rates tend to be higher. There are a couple of reasons for this. First, the payback period tends to be shorter. This results in a higher interest rate many times. Also, private lenders often lend to consumers with bad credit, which increases the risk of having the borrower default on the loan. To hedge against that risk, lenders typically charger a higher rate of interest on auto loans. A higher interest rate means that not only will you ultimately pay more to finance the purchase of the vehicle, but your monthly payments will also be higher.
Remember that there are many options that are available today for financing auto purchases. If you find yourself in a position where your chances of being approved for a car loan through traditional finance methods are poor because of bad credit, using a private party auto loan very well could be a good option for you. Just keep in mind that you may need to pay more when financing through a private auto lender than you would through other methods.
