Auto loans are a huge market, and they’re getting bigger every day. Car sales are at an all-time high, according to the latest figures from the National Automobile Dealers Association (NADA), and that means more people than ever need to find ways to pay for their wheels.
If you’re looking for an auto loan of your own, you might be wondering: What’s the difference between private party auto loans and typical auto loans? And what kinds of things should you consider when choosing which type is right for me? You’ll get answer to those questions here:
Eligibility
- Private loans are typically offered by banks and credit unions, while typical auto loans are with dealerships.
- Private lenders use a more flexible approach to loan origination, whereas typical lenders follow stricter guidelines. This means that private lenders may be able to offer you lower rates on your auto financing than typical lenders.
- If you have good credit and a stable income, it’s likely that you will be eligible for a private loan. However, if your credit isn’t so great or if you aren’t earning as much as others in your area, then getting approved for an auto loan could be difficult without going through the dealership route instead of working directly with the bank or credit union offering these types of financing options.
Interest rates
This article needs to be honest here. Private loans are not the best choice for your car-buying needs. There’s a reason why they’re called private loans: they are less flexible than typical auto loans and come with higher interest rates. Lantern by SoFi experts suggests, “Private party auto loans aren’t ever free; the interest is charged at an annual percentage rate on them.”
Typical auto loans typically have lower interest rates, making them more affordable and accessible to many buyers who might not qualify for a private loan. If you have good credit, then typical auto loans may be your better option.
Down payments
A down payment is a percentage of the total loan amount that you pay upfront. Down payments are required for typical auto loans but not private ones.
Loan amounts and loan-to-value
The loan amount is the amount of money you borrow. The loan-to-value (LTV) is the percentage of the car’s price that you owe on your auto loan. If, for example, your monthly payment is $1,000 and you have a 10% down payment ($100), then your LTV would be 90%.
The higher your LTV, the smaller your down payment, the lower your monthly payment will be.
Payment processing options
With a typical loan, you’ll typically have the following payment processing options:
- The loan company will collect your payments on time each month and try to apply them to any current balance you have on your account.
- If there is a balance left over after all charges are paid, this amount will be added to the principal and next month’s bill will be increased by that amount.
You can see that there are a lot of differences between typical auto loans and private credit. The most important thing to remember when looking at these differences is that private credit gives you more flexibility in what type of loan you choose, while traditional financing has fewer options available.
