Private Party Used Car Loan

by Dylan
(Scottsdale, AZ, Maricopa)

Question: I need a private party used car loan, but my chapter 7 bankruptcy was just discharged last week. Not only am I interested in purchasing a newer used vehicle for credit rebuilding purposes, but my current car is getting quite tired.

I would vastly prefer to secure financing on a private party vehicle as opposed to a dealer car for several reasons.

First, there is an obvious cost savings in avoiding the dealers markup, but also because I'm in Arizona and there is no sales tax on private party vehicles which will save me another 9-10% right off the top.

I do not know anybody that can (or that I would even consider asking) cosign for me. Without one, is there any hope in securing a private party used car loan before I have a specific vehicle picked out?

I gross around $3200 a month and pay $800 in rent. Outside of the rent I have zero debt.

I actually make more each month as I have a second job as a valet, but most of that income is cash tips which means a loan underwriter probably won't take it into account.

I also have a roommate paying me $450/month, but again, there isn't much of a paper trailer on that.

Long story short, affording a modest car loan is no concern. Proving that to an lender is.
As my intention is to replace my current car, I wish there was a logical way to sell that car and use the expected $3500-$4500 as a down payment on the newer car.

However, I can't sell my current car without securing the replacement, so the only logical scenario I'm coming up with is to finance the new car in its entirety and then sell my current car after the fact and turn those proceeds over to the lienholder on the new car in the form of a massive payment.

Problem with that scenario is that it vastly limits my down payment which will surely have an adverse effect on my ability to secure the new financing. It's a vicious circle.
Any guidance would be greatly appreciated!
Dylan

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Answer: Hi Dylan. I wish I had some good news here for you, but I'm afraid I don't.

A private party used car loan is going to be nearly impossible for you to get approved for this soon after your bankruptcy.

I am also in Arizona and am quite familiar with the lenders out here. I don't know of any that would approve a private party loan under the circumstances.

Of course, I don't know all the local banks and credit unions down in Scottsdale, but I'm sure their programs are very similar to all the other lenders I work with in Tucson, Phoenix and nationwide.

I know you mentioned that your current car is getting quite tired and I'm not sure if you mean you are getting tired of it or if it is beginning to have some mechanical issues (I'm assuming the latter).

Either way, if you want to replace it now, then you will need to work with a car dealer to help arrange the financing.

I know this stinks, because you will lose out on the tax free sale and will need to pay possibly more for the dealers car vs. a private party, but you may just have to "bite the bullet" if a newer car is what you want.

The norm after a bankruptcy is going to be 2 years from discharge and some sort of reestablished credit. This is at least the case if you want a decent lender to look your way and/or want a private party used car loan.

A credit union will be your best bet once reestablished. You can also use a credit union in the future to refinance any car loan you may get now.

My suggestion would either be to wait the two years and start trying to do some rebuilding in the mean time, i.e. new credit card (don't run it up though), personal loan (good for installment credit) and/or any type of credit you can get that will report your monthly payments to the major credit reporting agencies.

I know this may not be the way you want to go and in the case of buying a car now, I'd suggest you not get in to far over your head and just buy something that gets you from point A to point B while reestablishing your credit from month to month.

When you get into that 18-24 month range from discharge you can either look to refinance (as mentioned above) or to do as you are planning to do now and go secure your own private party used car loan. Again, a credit union would probably be best for you at that time.

You may even want to try to build a relationship now with a local credit union and get some sort of small secured loan with them to build a lending history with them and at the same time rebuild your credit.

Do this by putting $500, $1000, $1500 or more in an account and borrow against it. Sure you'll pay some interest to borrow money that is already yours, but your rebuilding and it's rarely free to rebuild.

Keep in mind that rebuilding after a bankruptcy is a process and not a race...You have to crawl before you walk and walk before you run.

Hope this helps and please don't hesitate to get back in touch with any other questions.

Justin