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Person To Person Auto Loans - What You Need To Know
By EchoBay Loans Staff Writer

Many people feel that they can get a better deal if they buy a used car directly from a person rather than a car dealership. This is particularly true if you know the car owner and its history. This helps to ensure there are no hidden surprises in store down the road. Person to person auto loans simply means you are buying from a private party rather than a dealership or another car company.

Overall these car loans share some similarities to other car buying situations but there are a few important differences to know about private auto loans.

Rates will be slightly higher than buying a new car
As with any used car, the rates for person to person auto loans will be higher than that of a new car. As an example, the rates for private party sale car loans from online auto loan lenders will generally be two points or so higher than they would charge for traditional new car loans and one and a half points higher than the interest rate they would charge for used car loans for vehicle purchased at a dealer.

Also, this type of loan is based on you, rather than the collateral, which is the car. Because of this, the rate can vary based on your credit history and other factors derived from your loan application.

Loan term may be shorter than a new car's term
Generally, you can finance a new car for up to seventy-two months. With person to person auto loans, you may not be able to finance your vehicle as long. Generally, lenders will finance private auto loans for a maximum of forty-eight months although there are instances where they will finance for a longer period of time. It is important to finance car loans for the shortest amount of time you can afford. This helps to ensure you don't end up owing more on the car than it is worth (upside down car loan) and keeps the amount of interest you pay to a minimum.

Most do not require a down payment
Many lenders do not require a down payment on person to person auto loans. However, even though it is not required, it is still a wise decision to put money down. This can prevent you from being upside down in your car loan in the future.

You will have to pay taxes, title and registration separately
When you purchase a new car at the dealership, the dealer will generally roll taxes, title and registration fees into the loan amount. On person to person auto loans, the lender will not let you finance these fees. These items must be paid out of pocket.

Transferring the title may take a while
When you buy a new vehicle, the title is put in your name almost instantly. In the case of person to person auto loans, it may take longer. If the person you are buying from still owes money on the car, it could take a week or more to process the payoff. His lender must receive the payoff amount and transfer the title to the car owner before he is able to turn it over to you. The amount of time this takes depends largely on where his lender is located. If it is the local bank, it could be handled in less than a few days. But if the lender is in another state, it could take a while for the transfer to happen.

Credit requirements are usually higher
Many lenders who originate person to person loans only deal with those who have good to excellent credit. Typically, there is a minimum credit score and a minimum income that must be met in order for the loan to be approved. Because this loan is based on you and not your collateral, requirements are stricter.

If you are considering this type of car loan, it is wise to check your credit beforehand. This can give you the chance to clear up any mistakes on your credit report. With this type of financing, a few blemishes can mean not being approved for the loan. It is important to ensure your credit report is accurate.

In a nutshell, person to person auto loans are a great option for the creditworthy borrower. For those with less than stellar credit, your local dealership may be the best place to turn for a car loan.


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