Do Private Car Loans Have Higher Interest Rates?

Yes, private party car loans often have higher interest rates than used cars bought from a dealership, but that may not be the case with every lender. The more you shop around the more likely you’ll be to find the lowest loan rate for your situation , even if you’re buying from a private seller.

Where Do You Get Private Party Auto Loans?

Not all lenders offer private party car loans, but in general you can get private party car loans from the same types of companies that offer other types of car loans, aside from dealerships. Certain banks, credit unions, and online lenders offer private party loans, as shown above, and you may also have luck finding options available in your local area.

Are There Private Party Auto Loans for Bad Credit?

Yes, as with most types of loans, there are lenders who do offer private party car loans if you have bad credit . You’ll need to be prepared to spend a bit more time searching them out, however, and you’ll likely pay much higher loan costs.

Best Private Party Car Loans of 2023

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Getting financing for a used car isn’t as easy as for a new car. And if you plan on buying from a private seller, it can be even harder yet. Many lenders offer used car loans, but they often restrict you to buying from a dealership, which limits your options.

That’s not the case with every lender though. Local lenders may be more willing to offer private party car loans, and there are several online options as well. If you’re looking for more widespread options, here are our top picks for lenders that do offer private party car loans, based on APRs, loan amounts, vehicle and borrower qualifications, and more.

Best Private Party Car Loans of 2023

Best for Old Cars: PenFed
Best for Low Used APR/Bad Credit: AUTOPAY
Best for High Maximum Accepted Mileage: LightStream
Best Big Bank: U.S. Bank
Best for USAA Members: USAA

Not sure where you’ll be buying a car? See more options with our picks for the best overall auto loans.

Best for Old Cars : PenFed

PenFed logo.

APR Range: 6.04%–17.99%
Loan Amounts: $500–$150,000
Loan Terms: 3–6 years

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Pros & Cons

Pros

Quick funding times
No limits on vehicle age
Wide range of loan amounts

Cons

Doesn’t offer any discounts
Must join credit union if approved for a loan
Doesn’t allow co-signers; only co-borrowers

Why We Chose It

PenFed is a particularly good choice if you’re trying to buy an older car because the credit union doesn’t have any age limits in place for financing a used car for any of its term lengths, except for the seven-year loan option. If you want to finance a used car over the course of seven years, it’ll need to be less than five years old and have less than 60,000 miles on it.

PenFed is a credit union, but anyone is allowed to join as long as they deposit at least $5 in a savings account to establish your membership (PenFed may even provide the $5 for you). It offers next-day funding, which is helpful if you need to buy a car fast. It doesn’t offer any discounts on its loans though, unfortunately, nor does it allow you to apply with a co-signer. You can only apply by yourself, or with a joint applicant, who will be equally responsible (along with you) for making the loan payments.

Borrower Qualifications

Available in all 50 U.S. states and Washington, D.C.
Must join credit union to receive loan if you’re approved

Vehicle Qualifications

No limits on vehicle age
Maximum loan-to-value ratio: 125%
Maximum mileage: 125,000 miles
If you’re financing over seven years, vehicle must have fewer than 60,000 miles and be less than five years old
Allows private-party vehicle purchases

Best for Low Used APR/Bad Credit : AUTOPAY

APR Range: Starting from 2.99%
Loan Amounts: $2,500–$100,000
Loan Terms: 2–8 years

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Pros & Cons

Pros

Very low starting rates
No payments for first 45 days
Able to accommodate most credit scores

Cons

Provides very few loan details
Doesn’t disclose its lender network
Doesn’t allow co-signers; only co-borrowers

Why We Chose It

AUTOPAY is a car loan marketplace, which means that it partners with several lenders to offer you the best private party car loans from among the group. This gives you more options than applying with a single lender and can also be beneficial if you’re in a tough spot, like if you have bad credit—AUTOPAY’s minimum recommended credit score is just 500, according to customer support.

Unfortunately, AUTOPAY doesn’t disclose its partner lender network, so it’s impossible to say who you’d be checking your rates with, or what their loan terms might look like in advance. However, if you’re a strong borrower with good credit, you may qualify for some of the lowest rates you’ll find anywhere. In addition, you won’t have to make any payments for the first 45 days of the loan.

While technically you can take a short break from payments for those 45, check whether interest accrues during this period. If it does, it could add a lot of loan interest that you’ll have to repay back later.

Borrower Qualifications

Minimum credit score of 500
Available in all 50 states and Washington, D.C.
Requires you to have an income, but amount isn’t disclosed

Vehicle Qualifications

Allows private-party car purchases
Maximum age: 10 years
Maximum mileage: 150,000 miles

Best for High Maximum Accepted Mileage : LightStream

APR Range: 9.49%–26.49%
Loan Amounts: $5,000–$100,000
Loan Terms: 2–12 years

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Pros & Cons

Pros

Charges zero fees
Same-day funding available
No age or mileage limits for car

Cons

Doesn’t offer pre-qualification
Can’t change payment due date
Doesn’t allow co-signers; only co-borrowers

Why We Chose It

LightStream offers unsecured loans, which makes for a faster loan experience and eliminates the danger of having your car repossessed if you default on the loan. However, as you can see, you pay for that convenience in the form of a much higher APR. Even after you consider that LightStream doesn’t charge any fees with its loans, it’ll still be a much more expensive option than choosing a normal auto loan secured by your car.

Another thing to be aware of is that you must submit a full loan application without getting pre-qualified first, which can temporarily drop your credit score slightly. If approved, LightStream can deposit the funds into your account the same day—even before you go to purchase a car.

Taking out a loan before you even know the price of the car is risky because you can end up borrowing more than you actually need, which in turn makes your loan even more expensive.

Borrower Qualifications

Minimum credit score of 660
Available in all U.S. states and Washington, D.C.

Vehicle Qualifications

Allows private-party car purchases
No vehicle age or mileage restrictions

Best Big Bank : U.S. Bank

APR Range: Starting from 6.71%
Loan Amounts: $5,000–$100,000
Loan Terms: 1–7 years

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Pros & Cons

Pros

Offers a car-buying service
Can change your payment due date
Discount for autopay from a U.S. Bank account

Cons

Charges a prepayment penalty
Not available in much of the eastern U.S.
Can’t apply for private party car loans online

Why We Chose It

U.S. Bank doesn’t make it easy to apply for private party car loans because you’ll need to apply in person at a branch, instead of online like you can with the rest of its used car loans. And since U.S. Bank only operates in 27 states (mostly located in the western U.S.), it’s not as widely available as with many other lenders. In addition, unlike most lenders, it does charge a prepayment penalty of up to $100 if you pay off your car loan early.

If you already do your banking with U.S. Bank it could be a good option since you’re familiar with it. You’ll also get a discount if you set up autopay from your U.S. Bank account; otherwise, rates will be higher. And if you back out and decide to purchase from a dealership, U.S. Bank offers a direct car-shopping experience to streamline the purchase of a used car.

Borrower Qualifications

Available to U.S. citizens
Must live in one of the 27 states where U.S. Bank operates
Must meet employment and minimum income requirements

Vehicle Qualifications

Maximum age: 10 years
Maximum mileage: 100,000 miles
Maximum loan-to-value ratio: 120%
Private-party car loans allowed if you apply for the loan in a branch

Best for USAA Members : USAA

APR Range: 5.54%–17.34%
Loan Amounts: $5,000–$500,000
Loan Terms: 1–7 years

Get a Quote

Pros & Cons

Pros

No limits on vehicle mileage or age
Long 45-day preapproval offer window
Excellent customer satisfaction ratings

Cons

Doesn’t offer pre-qualification
Can’t change payment due date
Only open to people affiliated with military

Why We Chose It

USAA is only open to people with ties to the military. But if you’re eligible and you value good customer service, it’s a great lender to choose because J.D. Power gave it the second-highest score in a 2022 customer satisfaction survey of auto lenders. USAA is also very welcoming to all types of cars, with no mileage or age restrictions on what you can finance. If you’re approved, your offer will also be valid for 45 days, instead of 30 days, which is more common.

The downside is that you need to be a member before you apply, and you can’t get pre-qualified. You have to commit to a full application for private party car loans. You also can’t apply with a co-signer (you can use a co-borrower, though).

Borrower Qualifications

Must be a member of USAA to apply
Available in all states and Washington, D.C.

Vehicle Qualifications

No limits on vehicle mileage or age
Maximum loan-to-value ratio: 120%
Allows for private-party used car purchases

Final Verdict

It’s always best to check your options with local banks and credit unions because they may be able to offer a better loan that’s specific to your area. But as far as nationwide options go, PenFed Credit Union is an excellent choice for private party car loans due to its wide range of loan options and relatively loose vehicle financing requirements.

If you’re associated with the military, USAA is also an excellent choice. AUTOPAY offers the potential for the cheapest loan rates, but you’ll need to be careful to vet any lenders you match up with. LightStream is a good choice if you’re OK with taking out an unsecured loan, but private party car loans through U.S. Bank may be a cheaper option (if you live close enough to a branch).

Guide to Choosing the Best Private Party Car Loan

How Do Private Party Car Loans Work?

When you buy a used car from a dealership, your lender will work with that dealership’s financing department to arrange payment for the vehicle. But when you buy from a private party, you’ll both need to handle this bit yourselves.

Check with your lender to make sure it allows private party sales, and if so, what information you’ll need to provide. You’ll generally need to provide the car’s VIN, for example. If the person you’re buying the car from is still paying off the vehicle, you’ll also need to provide details like the name and contact information of their lender, as well as a loan payoff estimate.

If your lender approves your loan, it’ll usually first send any funds to the seller’s lender to pay off the loan. That clears the car’s title so that it can be transferred to your lender. If there are any funds left, your lender will then send them to the car’s seller. Local lenders may be more likely to help you through this process than large nationwide lenders.

This process takes a bit more work on your end than buying a car from a dealership. But on the other hand, you may be able to negotiate a better price with the seller, and you’ll certainly have more car-buying options than if you limited yourself to dealerships only.

How to Qualify for Private Party Car Loans

Lenders generally consider all of the same factors of your financial situation regardless of whether you’re applying for a normal car loan or a private party car loan. These factors include things like your:

Income
Credit score
Citizenship status
Debt-to-income ratio

In addition, the car you’re buying will also need to pass your lender’s requirements too. Lenders usually have certain types of caps in place for different car features, such as:

Mileage
Model year
Loan amount

Many lenders don’t get into the nitty-gritty details of these qualifications until you reach out to them to get pre-qualified for private party car loans. You can use these guidelines to help you pick out a car to buy, or if you already have one picked out and it doesn’t meet the lender’s requirements, you can pass them by for a different lender.

After you get pre-approved and you have a car in mind, you can submit a formal loan application with all of the details your lender requests. If you’re approved, your lender will send the funds to you, the seller, and/or the seller’s lender (if the seller still has a loan).

Alternatives to Private Party Car Loans

If you think you need a private party car loan, it’s important to consider other options first. Car loans are expensive and can make it harder to get ahead financially, so it’s worth investigating other options first before you apply.

Lease a car: Loans to lease new cars generally come with lower payments than loans for buying new cars, but used car leases are a bit more rare.
Dealership financing: If you don’t mind purchasing from a dealership, you can often negotiate your loan and/or car costs down even further.
Save up more money: It can be hard to rely on friends, family, and public transportation, but if you’re able to save up enough to buy a car in cash you won’t need to worry about financing at all. A high-yield savings account can help with this.
Apply with a co-signer: A creditworthy and trustworthy friend or family member can help you get approved with some lenders, but make sure you never miss any payments or you’ll damage both of your credit profiles.
Low-income loans and grants: Check in your community or reach out to 211.org to find options for need-based support in your area. There may be more options than you think.

Frequently Asked Questions

Do Private Car Loans Have Higher Interest Rates?

Yes, private party car loans often have higher interest rates than used cars bought from a dealership, but that may not be the case with every lender. The more you shop around the more likely you’ll be to find the lowest loan rate for your situation, even if you’re buying from a private seller.
Where Do You Get Private Party Auto Loans?

Not all lenders offer private party car loans, but in general you can get private party car loans from the same types of companies that offer other types of car loans, aside from dealerships. Certain banks, credit unions, and online lenders offer private party loans, as shown above, and you may also have luck finding options available in your local area.
Are There Private Party Auto Loans for Bad Credit?

Yes, as with most types of loans, there are lenders who do offer private party car loans if you have bad credit. You’ll need to be prepared to spend a bit more time searching them out, however, and you’ll likely pay much higher loan costs.

Methodology

Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of auto loan lenders. To rate providers, we collected hundreds of data points across more than 20 auto loan lenders, including interest rates, fees, loan amounts, borrower requirements, and vehicle requirements, to ensure that our reviews help users make informed decisions for their borrowing needs.