The Benefits and Drawbacks of Private Party Auto Loans

Many borrowers turn toward private party auto loans when they need to purchase a car. Private party auto loans are different than the traditional loan that is obtained for the purchase of a car. This type of loan has some benefits and drawbacks associated with it. Here are a few of each that you might want to consider. 

Benefits

  • Faster process- When you deal with a private party auto loan, you will often be subject to a much faster approval process. You may not have to go through the normal underwriting process that comes with a standard auto loan. This can get you through the paperwork faster and get you the money that you need.
  • Flexible terms- Many private auto lenders offer flexible terms for their loans that you may have trouble finding with a traditional lender. They can customize a program to fit your needs and help get you the car that you want. For example, you may be able to utilize an interest-only loan with them to get you the lowest payment possible each month. Regardless of your situation, there is most likely a private lender out there that can help.
  • Credit decisions- Many people do not have credit that is good enough to get approved with a traditional auto lender. If this is the case, you may be able to find a private auto lender that is willing to loan you the money that you need. These lenders are not subject to the normal ratios and credit guidelines that other lenders are. Therefore, they can look at each borrower on a case-by-case basis and decide whether or not to lend them money. 

Drawbacks

  • Higher interest rate- The biggest drawback to using private auto lenders is the interest rate that you will have to pay. Most of the time, the interest rate is going to be quite a bit higher than what you could get from an institutional lender. These private lenders are typically individuals that have extra money to lend. They want to get a higher return on their money than they could through other methods and therefore have to charge a higher rate of interest.
  • Difficulty locating a lender- Private party auto lenders are not always easy to find. Most of the time, they are only licensed to do business in a certain geographical area. They may not have an established office for you to visit either. This can make locating a private party auto lender very difficult. Some areas might have several of them and some areas might not have any. If you do not qualify at a traditional lender, you might ask them if they know of any private lenders in the area in order to locate one.
  • Lack of features- When you work with a private party lender, you may not be able to get all of the features that come with a large lender. For example, they most likely will not have online account access or any of the features that we have come to expect from large lenders. 
blog comments powered by Disqus