Private Party Auto Loan Information

Recently getting a private party auto loan has become much more common. The current economic situation may have been devastating for some, but it has created new opportunities for others. Since the automobile industry has been affected so extensively, and since so much of the success of the U.S. economy is tied to the automobile industry, it was only a matter of time before creative thinkers came up ways to keep wheels rolling and found ways to make private seller car loans.

In the past, lenders were only willing to make car loans for the purchase of new cars. Private seller car loans were not even considered. A new car, purchased from a new-car dealer, provided a layer of security for a lender that could not be obtained otherwise. Lenders could rely on the dealer invoice, the manufacturer’s suggested retail price, the manufacturer’s warranty and most importantly, the commercial context in which the transaction took place, to be assured that the collateral was worth the amount being financed. Eventually, even certified used cars, sold from a new-car dealer’s lot, or vehicles coming off an auto manufacturer’s leasing program, gained that same level of confidence. While loans for previously owned vehicles were made a higher interest rates, at the least the financing was offered.

Keep in mind that the two major elements that go into the financing of an automobile are the credit-worthiness of the borrower and the value of the collateral. Unlike a home loan, where the collateral (the home) traditionally appreciates in value, a car is a depreciating asset. Lenders are not in the used car business, nor do they care to be. The theory of lending for the purchase of a new car, covered by a manufacturer’s warranty and collision insurance, was that if anything happened to the collateral, it could be repaired or replaced, with the borrower being responsible for only deductibles. As a car grew older and its book value decreased, the possibility that a borrower would simply walk away from an expensive repair or a non-compensated accident increased dramatically. A borrower in that situation was more apt to default on the car loan and leave the lender with the worthless collateral and a personal obligation that would be difficult to collect.

By adding private seller car loans to a lender’s portfolio, more loans, on otherwise trustworthy vehicles, will be created. With unemployment rates high, and many of the unemployed responsible for large car payments, a private seller used car loan would appear to be a win-win situation. In this transaction, a potential purchaser could easily provide a lender with all of the original documentation for a vehicle, a printout of the vehicle’s accident and repair report, and have the vehicle brought to an independent appraiser to substantiate its value. Add to that a certification from the original manufacturer that the warranty is in full force, and the lender is assured that the private seller car loan is fully collateralized. With a creditworthy purchaser, the lender will be in the same position it would have been with a new car loan. In fact, considering the financial condition of the automobile manufacturers, lenders might even be in a better position.

So think about a private party auto loan if you are looking at getting a car.