Can I get a car loan for a private sale?

It's no secret that used cars are cheaper than new ones, but that's not to say they're always affordable. Unless you have thousands of dollars worth of spare cash lying around, you'll likely need to take out a car loan or secure finance to purchase a set of wheels. 

That's a simple enough process if you're buying from a dealership (be cautious of dealer finance, however), but what if you're buying on the private market? Well, you can definitely still get a car loan! Here's all you need to know.

How to buy a used car privately using a car loan

By nature, buying a car with finance means there's a third party involved. If you're buying a vehicle privately, perhaps one you found on Facebook Marketplace, Gumtree, or CarSales.com.au, with help from a car loan, here are the steps you'll likely take:

• Find the right car loan
  Finding the right car loan generally comes down to three factors: The loan term, interest rate, and fees. A shorter loan term means higher repayments but less interest overall, while securing a competitive car loan interest rate can help save thousands of dollars, and hidden fees can feel like a financial trap.

• Get pre-approved for a car loan
  Once you've found the loan you'd like, it's time to get pre-approved. Once you're pre-approved, you can shop for cars with confidence, knowing you'll likely be unconditionally approved for the amount you need, when you need it.

• Find your ideal car and apply for unconditional approval
  Once you've found your new ride, pass on all the details to your lender and apply for unconditional car loan approval.

• Pay for your wheels and get them rollin'
  Actually paying for the car will either see the financier depositing the funds either into the seller’s bank account or your own, with the requirement that you pay that onto the seller in a certain amount of days. After that, the transaction will likely be just like any other car sale.

1. Savings.com.au's two cents

Buying a used car privately, whether it’s a classic car or only a few years old, is a popular way to get a good deal on a set of wheels. However, if you need a car loan, keep in mind the interest rate may be higher than if you were buying a new car - particularly if the car is older. All things said, organising finance for a privately-sold used car isn't normally a complicated affair. What can be tricky is due diligence, as anyone buying a used car should do all they can to make sure the vehicle is roadworthy, has a solid service history, and hasn't been written off or stolen.

What to consider when getting a car loan for a used car

Aside from ensuring the wheels don’t fall off as you leave the seller's the driveway, there’re a few things to consider when it comes to used car finance.

Age limits on cars

Many lenders have a maximum age of cars they are willing to finance. Most tend to be around the seven year mark, but some are as low as five years and others as high as 12 years.

If your car is a classic, then it might not fly with many mainstream lenders. However, there are a bevy of financiers that specialise in classic cars.

Interest rates

This is where it gets interesting… pun intended. You may have noticed that when comparing new car loans and used car loans, the used car loans often attract higher interest rates. This is because of two key factors:

• Used cars are often considered riskier to finance than new cars

• Used cars are generally significantly cheaper, meaning  used car loans are typically smaller. For smaller loans to be worth the trouble for a lender, they may need to charge higher rates of interest

You may have also noticed two classes of used car loans - car loans for under a certain age and others for older cars. Some lenders might even label their products as ‘car loans’, when they are in fact personal (unsecured) loans, which we’ll explain below.

Buying an older car: Why you might need a personal loan

If you’re shopping for a used car, especially an older used car, lenders may offer a higher rate of interest than if you bought a new car. This is because both you and the car could be perceived as a higher credit risk.

For example, the car could have a higher chance of being written off in the next few years, as it wouldn’t take much of a prang to write off a $10,000 car. Lenders may also make fair or unfair assumptions about the type of borrower you are, given you’re taking out a loan on a car older than five years.

Lenders may also offer ‘car loans’ that look like secured car loans on the surface, but are actually unsecured personal loans. There’s nothing wrong with a personal loan, but as they don't typically use the car as security, they often attract significantly higher interest rates. The extra interest compensates the lender for the extra risk, as it can't repossess the car to recoup its losses if the borrower doesn't repay their debt.