How to Buy a Used Car from a Private Seller
When shopping for a car, it can be tempting to go the dealership route. However, there are a lot of benefits to buying a used car from a private seller. First, you can get a car that's in great condition and doesn't have any hidden problems. Second, you can save a lot of money by buying a car privately.
I have personally purchased most of my cars from private owners. If you wanted a quick run down on my used car buying process, check out the free Downloadable Guide on How to Buy a Used Car.
I have financed a used car and also paid cash for the most recent purchases. Paying cash is best since you don't have a monthly payment and you can negotiate a little quicker with fast-transactions of a cash buy. If you don't have enough to pay in full, you can shop around for auto loans.
Currently the rates for used car auto loans starts with 4.5% with good credit and goes up from there. I found my auto loan in the past with a Credit Union. They offered the best rates and the process was simple. I provided the amount I needed and let them know the make and model of the car.
The money was then transferred to my bank and I was then able to get a cashier's check to the buyer upon purchasing the car.
What Are Benefits to Buying From a Private Party
Buying a car from a private seller can save you thousands of dollars compared to a retail dealership. This is why I typically purchase cars from private parties.
Private sellers have their reasons for selling the car. Sometimes they may be in a financial bind and need to get rid of their car. Other times, they no longer need the car since they purchased a new one. Their trade in value was too low and they can make more money selling it on their own.
Secondly, buying car from a private seller allows you to see the person who owns it. You can judge by the condition of the location and how they present themselves. I don't like to judge but you can see if they may have the financial means to have maintained the car or you think they might have skipped some services.
We'll get into how to spot potential problems with the car and the seller.
TIP: Always use your gut feeling and intuition, in addition to the fundamentals on test driving a car before your purchase. If you can at least scan the ECU or have a mechanic friend come with you.
Another benefit from buying a car private is that sometimes, the seller might not even fully understand the value of their vehicle. I recently purchased a car for cheap since the seller was selling their parents car since they no longer drive. He just wanted to get rid of the car and make sure it goes to a good home. I was able to negotiate down another $800 due to the issues I pointed out.
Disadvantages of buying a car from a Private Seller
Financing Options
There are some disadvantages from a private seller. While the sellers can't offer financing, you can't get the best interest rates that would be offered at a car dealership. But you can search around for auto loans to suit your needs.
It will take a little bit more effort on your end but like I said you will be able to save thousands.
Future Repairs
Secondly, private sellers of the car may be trying to unload a vehicle that has a huge repair bill in the near future or some underlying problem that requires more work. Most sellers are honest but I have to let you know that there are some shady sellers out there.
Take a look at the vehicle history report for any recent services or repeat entries. For example, transmission checks that took place 3 months in a row, might indicate a potential transmission problem.
Hidden Issues
One time, I drove a used car for a test drive. However, after the 15 minute test drive, the engine code popped up on the dash. I asked about it but the seller looked with surprise that he's NEVER seen that before. I knew he was trying to hide this by clearing the engine codes beforehand. The vehicle history report was ok and didn't see anything out of the ordinary.
I walked away from that car. There will ALWAYS be another car to purchase, you just have to be patient.
Curb-Side Car Dealer
Another important thing to consider when buying from the private owner. As mentioned in my free guide, if the ownership is less than 1 year, I typically ask why and grill the seller on the reason for selling. There are (2) obvious reasons in my opinion.
1. They might be trying to flip the car that they picked up for cheap and flipping for profit. This is not bad but I like to buy from an owner who is willing to negotiate down. Car flippers have their bottom line price but are looking for profit instead of the car going to a good home.
2. The other reason is that this fixer upper or project car was too much for them to chew on or fix. They are looking to free up their time and want to move on from their project.
Curb-side dealers or flippers can EASILY be identified when the license plate is covered with their finger in photos or the car has no plates. Most of the time private owners don't care or bother censoring it. I don't typically like to test drive or have interest in cars without license plates.
Documents You Need When Buying a Car From a Private Party
If you're looking to buy a car from a private party, there are a few documents you'll need. The most important is the title of the car. Everything else is supporting documents on the transaction. You will want the name and address of the seller as well. This information will have to match up on the title.
If the title information is DIFFERENT, you will have issues trying to register the car. So make sure that this information is correct and matches your Bill of Sale.
Here is a quick run down of the documents that you need:
- Title of the Car
- Bill of Sale - Noting that this is for sale as is
- Form of Payment
Title of the Car
The title of the car provides proof of ownership of the vehicle. If you encounter a title that has mistakes on it or another person's name, you may have problems trying to register at your local DMV.
If the seller states that the bank has the title, no worries, they will have to buy out their existing loan and they will then be mailed the title. DO NOT drive away with your new "used" car without your car title. If you have to wait for the official title to clear, please do so.
Just because you have the car in your possession, does not give you the rights to register the car. The Bill of Sale and/or registration is not a replacement of the title. You need the Title. In all states, it's illegal to sell a car without a title.
Bill of Sale
The bill of sale is a receipt that an amount is exchanged from Buyer to the Seller for the property. You will want to include a VIN, Make, Model, Year of the car. You will want to note the odometer reading as well as any terms or warranty information if any. Finally, you will want to include the price of the car. This will be used to determine any sales tax obligation for the DMV.
You should have TWO copies of the Bill of Sale. One for you and one for the seller, for their records.
Be sure to sign and date the Bill of Sale. Here is an example of a Bill of Sale.
Form of Payment
Depending on your payment method, you should only exchange the payment either cash or cashiers check with the Car Title. Nothing else should replace the title.
If the seller needs to obtain the title from their bank, then they should do so while you are waiting. You DO NOT want to pay their bank directly as they could potentially scam you by getting the title and selling to someone else. Save yourself the headache and wait for the official title to be in their possession.
What to Do Before the Sale
Before you finalize buying a used car from a private seller, be sure that you test drive the car and check that you like the car. While the car might not be in perfect condition, you want to be fully aware of potential items to address and the overall condition.
Ask yourself the following questions:
- Does it drive well?
- Am I ok with the interior and exterior condition of the car?
- Does the vehicle history report match up with the condition of the car?
- Do I have any potential repairs that need to be made? Tires? Brakes? body work?
- Does the car have any weird smells or odors?'
- Have I gotten a car insurance quote already?
Remember a car purchase is the second biggest purchase for most people, with the largest purchasing being home or real estate. Be sure you are happy with your purchase.
Keys
You should ask the seller how many keys come with the car. Most cars should come with (2) sets of keys or more. If there is only 1 key, then plan to spend a couple of hundred dollars if you intend to get a replacement key at the dealership.
Having two keys is a good indication that the owner is not a car flipper. However, this is not 100% absolute.
FYI, cars at car auctions commonly come with only one key. Thus, I used this as a litmus test for the seller. Note: if the car only has one key the other might have been lost at some point.
Insurance
You should definitely get your car insured before you take possession. This will help protect you just in case anything happens during transport. It's as simple as calling your insurance carrier and providing them with the VIN of the car.
They will go through the process of adding it to your account and should be able to print out a copy with you once you receive the keys to the car.
License Plates
Depending on the seller, you MIGHT be able to request to drive the car home and aim to return their license plates. However, most of the time, the car will not come with plates upon purchasing.
Disclaimer: I am not an attorney nor do I provide legal advice. I have borrowed plates on another car just to transport the car home. Please note that I did have the car fully insured but just not registered yet.
As for bringing the car home, if the car is roadworthy and has no major leaks, you should be able to drive the car home safely but I would minimize driving the car if you have not registered it.
Car Insurance
As mentioned before, please be sure you insure your car. It protects you in an unlikely event that you get into an accident on the way home. I personally have full coverage, which includes mother nature damage. You will have to work out the numbers to see if it makes sense to you.
I always recommend that you select the best coverage for your needs.
Smog Certification
In states like California, the car may or may not have Smog certification.
In order to improve air quality in California, the state has mandated the use of smog certification since 1990. Smog certification is a regulatory scheme that requires a certain level of emissions from vehicles. The levels required will vary depending on the type of vehicle, but usually require lower levels of pollutants than federal standards. The purpose of smog certification is to improve air quality and protect public health.
The program requires vehicles and equipment to meet certain emission standards in order to be certified for use in the state. Vehicles that fail to meet the standards can be subject to fines or even confiscation.
If you are in California, smog certification with the car is preferred. Without the certification, you will be required to have this document in order to register the car.
The Next Steps After Purchasing
After your your purchase, you will be very excited on the next steps. However, you need to make sure you have all of your documents ready and prepared.
Insurance without registration
Driving home is possible, but you should make sure that you have your OWN insurance on the car. You definitely want to be protected while you are on the road. The car should still be registered under the seller's information, which should be good enough to transport the car home.
DO NOT DRIVE your car after you bring it home if you have not registered it yet. You do not want to have any trouble with the law if you get caught with an unregistered car. You run the risk of impounding the car.
Registration
Depending on your state, you will schedule an appointment with your local DMV to register your new car. Be sure to bring your ID, title, bill of sale, Insurance and a form of payment to cover any sales tax and administrative fees.
When you register your car, you will also be provided a new set of license plates. If you are nice to the clerk, you might be able to kindly request specific numbers on your plate. I was lucky enough to have a nice DMV clerk to accommodate my request. YMMV with this tip.
Taxes
You are responsible for the sales tax on your car purchase. The Department of Motor Vehicles will review the sales price to determine the sales tax. It will be based on the sale price on the title and bill of sale. Be sure that you understand that this payment is required in order for you to complete your registration.
Inspection
Finally, once you have your new plates, you might opt to get your car inspected if the sticker is expired or overdue. If your inspection is still ok, then you should be able to drive until the expiration date.
If your car doesn't have a valid inspection sticker, then your next step is to get it inspected in order for it to be road worthy.
Congratulations!
In conclusion, buying a used car from a private seller can be a great experience if you take the proper precautions. By following the steps provided in this article, you can minimize the risk of getting scammed when buying a car private party and ensure that you are getting a good deal on your car.
Thanks for reading!