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How to Get a Private Sale Car Loan for a Used Car?
January 12, 2021●
5 minute read●
It’s not uncommon for Aussies to sell their cars privately rather than through a dealer. Sometimes, you might get a great deal because the person making the sale is a close family or friend. Still, just because a private contract is better than most of those on the market, it doesn’t automatically mean you can afford to pay for it upfront. If you’re in such a spot, don’t worry, you can still apply for a loan and get approval. So in this article, we’ll be taking you through how to get a private sale auto-loan for a second-hand vehicle.
Why opt for a private sale?
It might come as no surprise to you that many people would instead go for a private sale than negotiate with a dealership. Several reasons inform this preference, like the fact it’s easier to come to a favourable agreement with a private individual. That’s because dealers charge overhead costs that cover their services. Plus private vendors that are eager to get rid of their vehicle for some extra cash can speed up the process.
Well, irrespective of who you get the loan from, the requirements of the lender providing you with the funds to make the purchase, remain the same. In fact, with a private sale, there might even be more papers to sign to make the transfer of ownership legal. Sometimes, financiers increase the rate of the loan because private sales often come without warranties, especially with older cars.
What’s the procedure?
Suppose you’ve decided to go ahead with a vendor instead of the usual car dealership. In that case, the process of applying for a vehicle advance isn’t too different from submitting a request for a regular one. Here’s how you go about it:
Find a suitable car: When submitting a formal request, most lenders will inquire for the details of the vehicle in question. Many financiers limit the age of the vehicle they are willing to fund to about fifteen-twenty years because they are more likely to malfunction. The time frame varies from lender to lender, of course. That doesn’t mean you should list a car that is already eighteen years old. If you intend to take out a five-year loan, the smart way to go about it is to find a vehicle that’s at most ten-fifteen years.
However, some financiers are willing to make provisions for older cars, at the cost of a higher borrowing rate. But the price of the vehicle must fall within your max lend, which is the maximum amount lenders are willing to provide based on your earnings.
Apply: Similar to a traditional loan; you need to do your research to find the right lender. It can either be a financial institution such as a bank, or a credit union. If you’re not keen on doing the homework yourself, you can hire a broker to help you find the right financier.
Once you’ve identified the right lender with attractive rates, the next step is to have your documents ready. Most of them will request some valid identification, as well as evidence of your earnings. Prepare for a credit check as well by making sure there are no blemishes beforehand. An excellent tip to keep in mind is that if you can apply to several lenders within a contained time frame of two weeks, you won’t mess up your credit. Remember that you’ll also have to provide details of the car you want.
Close the deal: After submitting your application, the financiers will consider it and decide whether to approve it or not. If you get an approval, then you or an external loan officer acting on your behalf can close the deal. This step often involves the final evaluation of the car and preparing the official documents you can sign. Ensure you read through the details of the loan carefully, before committing to any agreement. Once the appropriate arrangements are complete, the financier can transfer the funds to you to make the purchase.
Do I require the vendor to do anything?
Yes, of course. Whoever is making the sales need to provide some documentation for legal purposes, whether or not you apply for an advance. One document, they mostly give the lender is a signed invoice that confirms the sale of the vehicle at the agreed price. Preceding the sales, the financier will often require their latest bank report to verify their account details before making the transfer. Other things they need to provide is ID and the car registration papers to prove they are the legal owners of the vehicle. Sometimes, lenders also insist on a roadworthiness test to confirm the car is in good condition.
What if the vehicle is already under finance?
If the car you plan to purchase is still under finance, i.e. the vendor is still paying off their loan, you can still proceed with the arrangement. But there are some things you should do.
First of all, if the person making the sales can afford to, they should pay off the loan ultimately. That will make the process a lot smoother, but if they can’t, they will need a payout letter. The letter should include details like:
- How much the exit fee is.
- The due date for the loan.
- Details of the financier.
- A statement that the financier will remove the remaining interest on the vehicle upon receiving full payment.
Your lender can then make the necessary to transfer to the vendor’s financier, and you will then be able to acquire the vehicle.
However, if the payout is more than the car price, then the vendor must cover the difference before your lender can proceed with the transfer, and close the loan. In contrast, if the payout is smaller, then the lender will send the difference to the current car owner. Once the settlement is complete, you will have a two-week window to transfer the car’s ownership to yourself.
Private car sales are a great way to avoid exuberant dealership markups, but they come with their own risk. It’s in your best interest to shop carefully and check the vehicle thoroughly, before committing. A good way to ensure the legitimacy of the vehicle is through a car valuation.
Written by Jacaranda Team