How to Owner Finance an Automobile
Vehicle owners get a better value by privately selling a vehicle rather than trading it in to a dealer. However, without a lending company, the seller assumes the bulk of the risk if the buyer defaults. There are steps a seller can take to protect himself. Ensuring that the buyer is financially viable and held in a binding contract will simplify the process.
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Instructions
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Locate the title of the vehicle you wish to sell. If the vehicle is not paid off, the buyer must being willing to pay for the remaining amount of the lien against the title. Only then will the lending institution send you the title. In some states, such as Virginia, if the vehicle is paid in full, the DMV holds the title to the vehicle.
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Decide if you will charge interest for allowing the buyer to finance through you. If you do, keep in mind that these rates must be competitive.
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Arrange for a witness to be present during the sales process. This person can serve as a witness for the bill of sale.
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Go with the buyer when she takes the vehicle for a test drive. If you can't go with her, require her to leave a deposit. Before she goes, make sure you have her contact information, driver's license number and insurance information.
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Have the applicant complete an application so you can run a credit check. This can take a few days. One way to get around this is to request proof of a job, such as recent paycheck stubs.
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Work together to decide on a payment plan and the duration of the payments. The longer the payment duration is, the more you will be required to keep up with the buyer's timely payments.
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Set a date for the buyer to make payments each month.
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Complete a bill of sale. This will include information on the vehicle, insurance and the loan amount. Both the buyer and the seller, as well as the witness, will sign this. All parties will keep a copy of this document for the record.
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Keep the title of the vehicle until the buyer has paid for the vehicle in full. Only then should you mail the vehicle's title.
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Tips & Warnings
Listing that the seller is willing to owner finance could increase the number of prospective buyers.
Make sure that the buyer keeps the insurance information up-to-date.
All information for credit checks is private and cannot be shared. A person has to be notified that her credit is being checked.
Be aware that people who finance their vehicles this way might not have been able to secure a loan on their own.
