Purchasing and financing cars from a private seller

24 Sep 2021

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Have you found the perfect used car, but it’s being sold privately? If this is the case, you might be looking into whether you can still get a personal car loan.

Put simply, you can use a car loan to purchase a car for a private sale. Sometimes, buying a car privately can be beneficial. Negotiating on aspects of the sale, like the price, can be less complicated in a private sale, as the owner doesn’t have the same overheads as dealerships.

But there might still be a few hoops you need to jump through before you’re in the drivers seat.

Steps involved in financing a used car being sold privately

You might think buying a car from a dealership is easier than buying a car privately, but in terms of finance, the process is relatively similar. There are still some steps you will need to take before the seller hands the keys over.

1. Apply for approval

The first thing you will need to do is apply for and receive finance approval from a lender. An experienced car loan broker can help you find the right car loan for you, and you can submit your application directly through them.

In the application, you will likely need to provide the broker with information about the car itself, as well as relevant personal information.

For example, carLoans.com.au requires information about the type of vehicle, the price of the vehicle, how much you want to borrow, whether you have found the vehicle already, and more in our car loan application.

2. Find the right car

Once you have the loan sorted, you will need to find the right car (if you haven’t done so already). You will need to make sure that the car not only meets your personal criteria, which might be related to the colour or the make and model, but the lender’s criteria too.

One thing you will need to consider is the price, because you will need to find a car that is within your budget i.e. your approved loan amount.

Additionally, the age of the car can play a factor for some lenders.

3. Pay for the car

Once you’ve got the car and the car loan ready to go, the only thing left to do is pay for it. At CarLoans.com.au, our brokers handle the entire private sale process.

All you need to do is provide the sellers' contact details, let them know how you will be financing the car, and that they can expect a call from your broker to arrange the required proof of ownership and inspection. This information could include the following:

  1.  The current registration certificate

  2.  The vendors' drivers license

  3.  Proof of vendors' banking details

  4.  Current financier payout letter (if applicable)

  5.  Vehicle inspection report

  6.  A copy of the sale agreement between the vendor and purchaser

What borrowers should consider

The steps required to get finance is pretty simple, but there are still some extra considerations you could make when thinking of buying a second-hand car.

Interest rates

Compared to new car loans, used car loans often accompany higher interest rates. This is because of two main reasons:

  • Used cars are ‘riskier’ to finance than new cars

  • Used cars are usually cheaper, so the loan amount will be smaller

Another factor that can influence the interest rate is whether the car loan is secured or unsecured. A secured loan will usually have a lower interest rate than an unsecured loan, because of the added security attached to the loan.

Security for a car loan is, usually, the car itself. With this added buffer for the lender, they can usually offer lower interest rates, due to the lower risk.

Age of the car

As briefly mentioned, the age of the car can play a factor in whether your lender-of-choice can provide you with a used car loan. Lenders typically have a maximum age of car that they are willing to finance. In general, used cars can’t be more than 12 years old by the end of the loan term. However, this can vary from lender to lender.

Is the car already under finance?

If you know the car is currently under finance, this doesn’t need to stop the sale. However, if you’re not sure whether the car is under finance, you can complete a title search on the PPSR website to find out.

While you can still proceed with the purchase if the car is under finance, you will have two key choices as to how you settle the amount owing by the current owner.

Vendor to payout the loan

Before you purchase the car, one option is for the seller to payout their loan first (if they have the means of doing so). This is the faster option, and it will also make the purchase process easier. However, if this isn’t possible, you might need to proceed with the second choice.

Provide a payout letter

Alternatively, your vendor will need to provide you with a payout letter. This is issued from the sellers' lender, and contains essential information including:

  • The balance left owing of the existing loan

  • The due date of the payout letter

  • Lender’s bank details

  • A statement that the lender will lift their interest over the car, thereby releasing the interest on the title on the PPSR register, once the full payment has been received

Once your lender receives this letter, they know how much and where to transfer the funds to the sellers' lender to finish the transaction.

Pre-purchase inspection

Lastly, you can get a comprehensive (mechanical) pre-purchase inspection. This goes beyond the visual inspection you would have conducted, and is used to determine the safety, integrity, and condition of the car.

This can avoid any unpleasant surprises, like realising that the gearbox needs replacing, after the purchase has already happened.

Typically, a pre-purchase inspection will check on the engine, interior, exterior, tyres, wheels, and brakes of the car.

The inspector will also confirm there is a spare key, ensure the car doesn’t have any accident damage, ensure it drives well by doing a road test, double check the logbook, and take photos of the vehicle.

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