Since most of us, myself included, don’t have a safe with a big stack of cash in it we need to finance our auto purchases. Most people go with dealership financing but there is another option. Private party auto loans are often a more practical solution depending on your situation. In General here are some of the major differences between the two types of loans.
The Loan Term
Dealership lenders typically offer loans of long terms, between 48 and 72 months. That is four to six years. On the other hand the typical private party auto loan is only 36 months.
The end result is for the same principal you will have higher payments on a private party loan but generally pay only a fraction of the overall interest.
Interest Rates
On average interest rates are higher on private party loans compared to dealership loans. This may be misleading because private party loans accept people with lower credit scores but charge higher interest rates. If you have good credit you can usually find a rate that is comparable to what you could get through a dealer.
Get Approved Before You Buy
In general you go through the loan approval process before you start seriously shopping for a car. Instead of picking out a car and then applying for financing which is the common practice with dealership loans. The result is more flexibility and negotiating power when you are actually shopping.
Another advantage to this setup is that buyers with less than perfect credit can find out exactly how much car they can afford before they decide on one. It sucks to find the perfect vehicle and be told after doing all the paperwork that they cannot actually afford it.
Ability To Buy From Individual Sellers
Unlike dealership financing, private party car loans can often be used to purchase cars from individual sellers. This means you can use it to buy a car from a friend or family member, or from someone on craigslist or Ebay. This can open a lot of possibilities for finding good deals that would not be possible with a dealership loan.
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