How to Buy a Used Car on Payments from a Private Party? From Ryan
Hello out there. I received a great question from Ryan. He asked about purchasing a used car from a private party using financing. This scenario, while sometimes a little tricky is quite common. The biggest consideration is the situation of the current owner. Do they have a loan on the car? If so, that is where it gets a little messy. Here is why:
Currently the car has a lien against it, meaning that the loan must be satisfied before the lender will release the title to the buyer. The buyer is looking to use a loan to purchase the car. This lender will require the title to be delivered within a certain number of days. This is often a shorter timeframe than that which the current lender will release title. See where I am going here? Buyer and Seller need to make good on their obligations to their lenders, and they are up against the clock to do so. So in this case it is ideal to have the buyer pay off their current loan, receive title and then proceed with the transaction. You could leave a deposit to show good faith.
If it is not possible for the seller to pay off the loan before you attempt the transfer you have two options. First, try to work with the same lender, that way they can just transfer the title from one account to another. I am not necessarily saying to try to take over the loan, just get a new one through the same bank. You can always refinance it, so if you are paying a little more in rate, that may be okay to get the deal done in days rather than weeks. Just make sure there is no prepayment penalty. State law will dictate this.
I did mention you have two options. Here is the second one: Get the cashiers check from your lender and have it made out directly to the seller’s lender, with a reference to the contract number it is paying off and the VIN number. The important thing here is to get a 10-day payoff from the lender, because there is interest accruing and you don’t want to be held up by this. And never take the sellers word for how much the payoff is.
But what if there was some equity in the car? Have a second check made out to the seller for the remainder. You may even hold this until you get the title. Some lenders may send the title directly to you if the correct paperwork in place. Any overage paid on the 10-day payoff will go back to them, so they are covered. Make sure you mail the lenders check, via overnight with a tracking number. You and the seller can do this together. Just be sure it gets sent.
Okay, so that should cover the scenario when the car you are buying has a loan on it. But what if the car has no loan on it? This is simple, you just pay the seller with the cashiers check from your lender and deliver the title back to the bank.
Now some items for the buyer and their loan. First of all, you have to make sure you have a lender that will finance a used car purchase from a private party. Not all will do this, and many that do will charge a higher rate than purchases from a dealer. Another thing to be on the lookout for is online lenders. Some lenders out there take up to 60 day to pay on their checks. The checks they mail you are not actually bank checks they are vouchers that look like checks. In this case what can happen is the seller’s lender doesn’t get paid on time and doesn’t release the title until they do. And in the meantime the accrued interest is increasing possible in excess of the check they received. So you are in a very frustrating limbo until it works out. Some dealers and lenders won’t accept checks from certain of these other lenders. So do your homework and make sure you don’t get stuck this way. They will expect a payment from you even though you haven’t received the car or the title. I would recommend an actual bank or credit union that has branches you can walk in to.
Well Ryan, I hope this helped answer your question. If you have any further questions or I misunderstood, go ahead and comment below and I will get back to you. Good luck with the car buying process.
