Getting car finance for private sale
Buying a car privately is the most popular way to purchase a car in Australia. The main benefit of private sale versus car dealerships is that it prevents paying dealership fees and the premium that car dealers charge. Getting a car loan for a private car sale is relatively simple - but what is most important is knowing how to protect your interests when buying from a private seller.
In this guide, you’ll learn:
- The 3 steps to buying a car from private sale
- Where you can get a private sale car loan
- How to qualify and meet lender criteria
- How to avoid buying an encumbered vehicle
- How to get an instant CarHistory report
- Available loan amounts, interest rates, and terms
- Options for business owners
3 Steps to buying a car from a private seller
Buying a vehicle through a private sale means that you’ll be responsible for all checks on the vehicle before finalising the purchase. You do NOT have the same consumer protections as you would if you were buying through a car dealership. Once you purchase the car privately, you assume full responsibility. You cannot take back the car after purchase through private sale.
Here we’ll walk you through the steps - from finding a car to making a purchase.
First, you’ll want to find a vehicle to finance. In Australia, some of the most popular places to find private sale vehicles are online, including:
- Facebook Marketplace
Once you’ve found a vehicle you’re interested in buying that fits your budget, you’ll need to make sure you protect yourself by conducting a PPSR check before applying for vehicle finance with a car loan lender.
Here are the three most important steps when using vehicle finance to buy a car at private sale:
- The buyer will need to conduct a PPSR (Personal Property Securities Register) check. This will reveal whether there is any finance owing on the vehicle. To do this - go here: https://www.ppsr.gov.au/how-quick-motor-vehicle-search
- If there is finance owing on the vehicle, the seller of the vehicle will need to arrange a payout letter from the finance company.
- If you are approved for finance on your private car sale purchase, the lender will pay the amount indicated in the payout letter first to the finance company, then release the remaining funds to the seller.
If you do not perform this PPSR check and you purchase a car with finance owing on it, you become responsible for this debt as well.
Private Sale Car Loan Lenders
You should be able to get finance from your main bank, however, it’s more likely that because this is a private sale car transaction, they will offer you a personal loan. Typically, a personal loan will have a much higher interest rate.
There are specialist lenders who are very comfortable with offering you a secured car loan for a private sale. With some simple checks and balances in place, the risk of fraud can be minimised, and purchases can proceed smoothly. These lenders will also offer you a very competitive interest rate.
There are fewer consumer protections built into the private car sale process, which means you need to be an effective advocate for your own self-interest.
Qualifying for private sale car loans
Lenders have established approvals processes, and your application will be assessed against several criteria including:
- Employment history
- Credit rating
- Earnings capacity
- Disposable income
- Existing expenses (such as living costs, rent, mortgage, credit cards, and other debts)
- The capital (deposit) that you intend to put towards the purchase (your equity)
What makes up your credit score?
|Credit Rating||Lender Assessment|
|720+||A credit score of 720 or higher means you’ll have a good chance of obtaining loans at the best interest rates. These loans may require less documentation and paperwork, and potentially less - or even no - down payment or collateral|
|680 - 719||Score in this range, and you’ll usually be able to negotiate good items|
|620 - 679||Landing in this range will place you under “standard” company rules, giving you less flexibility in deciding on the best car loans or services.|
|580 - 619||You’ll be reviewed with a critical eye and will need compensation factors to be approved by companies for most loans or services.|
|Under 579||Not a happy place to find yourself. You’ll typically be required to provide a substantial down payment/ collateral and/or pay a higher interest rate.|
In many cases, to mitigate the risk of fraud, the lender will require information about the specific vehicle you intend to purchase, such as:
- A copy of the current owner’s driver licence
- The current owner’s banking details
- An invoice from the current owner for the sale
The higher your credit score, the easier it will be to gain access to private sale car finance. You check your credit score by requesting a credit report from one of the credit bureaus in Australia.
How to get a private sale car loan if you have bad credit
If you have bad credit and wish to purchase a vehicle through a private sale, you can still apply for car finance with many of the lenders offering private sale car loans. You will most likely be offered a bad credit car loan, which is a type of vehicle finance designed specifically for individuals with a low credit rating.
If you do choose to apply for a bad credit car loan, keep in mind that they will generally have higher interest rates and fees than a private sale car loan. You may also be asked to provide a deposit or guarantor on a bad credit car loan, as this type of finance presents much greater risk to a lender.
We’ve created a separate guide where you can learn more about how to apply for a bad credit car loan for private sale cars.
Generally, the deposit required for a bad credit car loan will be around 20% of the vehicle price. The deposit amount will vary between lenders, so be sure to research each lender criteria thoroughly before applying for finance.
What if the car I am buying is currently financed?
If a vehicle is still under finance from a previous loan agreement - referred to as ‘encumbrance’ - it will not be approved for vehicle finance. It’s still possible to buy a car that is currently used as the security over the seller’s existing loan, however it is essential to ensure that this pre-existing debt is repaid in full, so that the encumbrance is removed from the vehicle as part of the purchase process.
In this way, neither you nor your lender will be burdened by the previous owner’s loan security - i.e. the ‘encumbered’ vehicle. For this reason, if the car you intend to buy is subject to existing finance, you will need to supply your lender with a payout letter from the current lender.
Your lender will arrange to repay the existing debt in full, direct to the financier, thus discharging the encumbrance. The balance of funds owing - if any - will be separately transferred directly to the seller.
In this situation, never pay the seller the full sale amount direct. If the seller decides to not repay their loan, the car you have purchased may be repossessed to cover the debt - leaving you without a car, and a debt of your own to service.
Make sure you get an independent vehicle inspection and a car history report - you don’t want to end up with a lemon!
How is the loan secured?
Private sale car finance is often secured by the vehicle you purchase. Under this arrangement, the lender is entitled to take possession of the vehicle in the event of a default, with a view to selling it to recover any outstanding funds. This reduces risk to the lender - reduced risk equates to lower interest rates on a car loan.
As a condition of the loan, the lender might also require you to take out comprehensive insurance over the vehicle, and for the lender to be named on the policy.
In some situations, you may be asked by the seller of the vehicle to provide a security deposit on the vehicle before gaining approval for finance and completing the purchase of the car. You may then choose to adjust the finance amount you apply for to include this figure, or ask that it be deducted from the payment made to the vendor following the sale.
- You see a car advertised for private sale at $8,000
- You arrange to view the vehicle and conduct all necessary checks to ensure it is ideal for purchase and is not encumbered
- The seller requests a $500 deposit to secure the vehicle before sale and issues a receipt for this amount
- You then apply for private sale vehicle finance of $8,000 and supply the lender with proof of the deposit amount
- The lender pays out $7,500 to the seller, and you will repay the lender the $8,000 loan amount plus interest over the term of the vehicle finance agreement.
A secured car loan uses the vehicle as security - also known as ‘collateral’. This allows the lender to repossess the vehicle if the borrower is unable to meet their repayments and defaults on the loan.
What are the interest rates for private sale car loans?
Interest rates on all car loans will depend on the level of financial risk presented to a lender. Lenders are particular about risk, and they consider many factors in approving finance to applicants. These factors make up a financial risk assessment for the lender, which allows them to determine the relative risk of each loan they approve.
Car loan interest rates vary in relation to this perceived risk - car loans representing the lowest risk to a lender will attract the lowest interest rate, and vice-versa. This is why it’s important to manage your debts responsibly and do all you can to maintain a good credit history.
Private Sale Used Car Loan Interest Rates
|1 - 3 years old||4 - 7 years old||8+ years old|
Important: This is an example and actual rates will vary.
What is the term on a private sale car loan?
Terms for a private sale car loan will generally range from 12 months to 60 months (one year - five years) - sometimes longer, depending on the applicant’s credit history.
The maximum term is unlikely to be longer than 7 years, as the vehicle you finance will need to be less than 12 years old at the end of the loan term.
Private Sale Car Loan Minimum and Maximum Terms
|Minimum Term||Maximum Term|
|1 year||7 years|
To ensure you pay the least amount of total interest on a car loan, consider applying for the shortest term you can comfortably afford to service through regular repayments.
How much can I borrow?
Most private sale car loan lenders offer loans from $5,000 and upwards. The amount you can borrow will also be dictated partly by your financial profile as a borrower - lenders will need assurance you can comfortably service a loan, and larger loan amounts present more risk to lenders.
Private Sale Car Loan Minimum and Maximum Amounts
|Minimum Amount||Maximum Amount|
How do I protect my interests when buying privately?
Statistically, the incidence of fraud is higher in private sale transactions than when buying from a licenced car dealer, as there are fewer consumer safeguards attached to the private sale process. To avoid fraudulent activity during your purchase, you’ll need to learn how to protect your own interests throughout the process.
Three common misrepresentations by private sellers are:
- The condition of the vehicle (mechanical)
- The finance status of the vehicle - i.e. encumbrance
- Its status as a repaired write-off
However, it’s simple to protect yourself as a buyer if you are comfortable with investigating the vehicle thoroughly before committing any funds to its purchase. Your first step here is to engage a trusted, independent expert to inspect the vehicle and assess its mechanical condition and look for evidence of dodgy crash repairs.
Your next step is to investigate the vehicle against administrative benchmarks by applying for a CarHistory report. A CarHistory report is an easy-to-understand vehicle report and can be obtained for $37 online.
This vital, $37 report will include:
- A PPSR Certificate indicating any existing finance on the vehicle - i.e. encumbrance
- Details if the vehicle has suffered damage resulting in a written-off status
- The vehicle’s odometer history to assess wind-back tampering
- Information relating to any previous write-offs or theft involving the vehicle
- Previous sale listings for the vehicle
- Vehicle safety and emission ratings
- An estimation of the vehicle’s value on the market
You can buy a CarHistory report on your smartphone while inspecting the vehicle at the seller’s premises - it’s that simple and instant to obtain!
How much to pay for a private sale car
There is no ‘one size fits all’ answer to the question of how much you should pay. If you have requested a CarHistory report, the estimated value of the vehicle will be included in the report. You can also investigate asking prices via online classifieds, and make some allowance for the negotiability of pricing.
Another good vehicle price-estimation resource is Redbook.com.au. Redbook pricing is for standard vehicles in average condition for their age and with average kilometres travelled.
If the vehicle you are considering is heavily accessorised, or has more (or fewer) kilometres than average, or is in above average condition, some allowance in the pricing should be made in consideration of that.
Remember that private sellers typically have a target price in mind, and offer the vehicle for sale above that price, thus ensuring a buffer for negotiation.
What if I am a business owner or self-employed?
Business owners or self-employed individuals are certainly entitled to purchase vehicles privately. However, it is generally worthwhile talking to your accountant or financial adviser about this, as an alternative finance structure, such as a chattel mortgage or commercial hire purchase, might offer specific tax advantages in some situations.
If you plan on financing a vehicle for at least 51% business use, then you’ll want to look at business car finance options. Everything you need to know about business car loans, including how to compare lenders and interest rates, is in our guide on financing cars for a business.
It is worthwhile talking to a financial adviser about the potential tax advantages of an alternative vehicle finance structure.
Private Sale Car Loans Summary
Buying a car privately is a popular way to acquire a vehicle in Australia. It’s possible to obtain finance for privately purchased vehicles, however there are strict guidelines put in place to ensure the vehicle meets the criteria for car loan approval. It is the buyer’s responsibility to conduct necessary checks and ensure the vehicle is not stolen, written off or still under finance by the seller.
In summary, if you’re wanting a car loan for private sale, you’ll need to certify that:
- The seller owns the vehicle
- They have the right to sell the vehicle
- The vehicle’s title is free and transferable
- All proceeds of the transaction are going back to the seller
- The vehicle is in good condition
- The vehicle’s odometer has not been tampered with
- The vehicle has not been previously written-off or stolen
Private Sale Car Loans FAQ
Can I get a car loan for a private sale?
Yes. You can apply for a private sale car loan with a number of different lenders in Australia. However, most mainstream lenders - such as banks - will be hesitant to grant approval. You will often find the best options from specialist private sale car finance lenders.
What should I check before buying a used car privately?
If you are buying a car through a private sale in Australia, you should check if there is existing finance - i.e. encumbrance - on the vehicle, its mechanical condition, its odometer history, safety and emission ratings, and its estimated value. You can check if a vehicle is under an existing finance agreement by conducting a PPSR search, or check all of the above by obtaining an instant CarHistory report online.
How can I check if a private sale car is under finance?
When a vehicle is used as security on a car loan, the lender will register its interest with the PPSR (Personal Property Security Register). As a buyer of a private sale vehicle, you must check whether a vehicle is still under finance before purchasing, which you can do instantly by applying for a CarHistory report online.
How do you buy a car from a private seller with a loan?
When you purchase a vehicle through private sale using vehicle finance, a lender will approve an amount of money for you to buy the vehicle from the seller. The lender will then pay the amount directly to the seller or, if the vehicle is under finance and you have organised a payout letter, will pay off the initial finance agreement and transfer any remaining funds to the seller.