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Buying a car from a private seller can be a good way to save money. A person-to-person transaction means dealing with more paperwork and may make it a little more difficult to get financing, but it could still be a great way to buy a used car.
Advantages and Disadvantages of Buying a Car From a Private Seller
You'll want to consider all the pros and cons of buying a used car from a private party before you proceed. In some cases, you might be better off looking for a preowned car at a dealership, particularly if you want a warranty. However, working with a private party has its benefits as well.
- Potential to save money: You might be able to get a better price from a private party. Sellers might not know their car's true value, or may be in a hurry to sell their car. They also don't have to charge more to cover overhead costs that come with running a dealership.
- Room to negotiate: If you want to negotiate (and you likely should), there may be more flexibility on the price when you're dealing with a private seller. After all, a private seller won't have a boss leaning on them to make a profitable sale. You also likely won't be faced off against someone who has frequent experience negotiating car sales.
- Less pressure: Another benefit of avoiding salespeople—you don't have to worry about someone trying to upsell you additional products or services.
- Fewer guarantees: Dealerships may be bound by federal and state laws that offer some protections and guarantees to buyers. However, private party sales are "as-is," meaning you might not have any recourse if the car doesn't perform as promised.
- Extra paperwork: A dealership may take on the responsibility of registering the vehicle in your name and transferring the title, whereas you'll have to handle that yourself in a private transaction.
Secure Your Financing
If you can afford to buy a used car with cash, that may be the best way to save money and simplify the process. However, some lenders offer private party auto loans if you need financing. Overall, about one-third of used vehicles were purchased with financing as of the third quarter of 2020, according to Experian Automotive Industry Insights.
Before you apply for financing, you may want to check your credit. Credit reports from all three credit bureaus (Experian, TransUnion and Equifax) are available at AnnualCreditReport.com. And, you can get your Experian credit report along with your credit scores for free through Experian. If you don't have a good credit score, it may be difficult to qualify for financing with favorable terms. In that case, you may want to rethink your timeline and budget and focus on improving your credit first or look for a car you can afford to buy with the cash you have on hand.
If you think your credit is good enough to qualify you for affordable financing, look for lenders that offer private party auto loans, which is something not all lenders do. The rates, terms and requirements can vary depending on the lender, so shopping for a loan is an important step in finding the best deal.
Depending on the lender, you may also need to have a car picked out before applying for financing. However, you can sometimes get preapproved for an auto loan if you haven't decided on a specific car yet.
When you're applying for an auto loan, you can take a strategic approach by submitting all your applications within a 14-day window. Applying for an auto loan causes a hard inquiry to be added to your credit report, which may hurt your credit scores. However, credit scoring models count multiple auto loan inquiries as a single inquiry for scoring purposes if they happen during a short period.
Find Your Car
From asking friends and family to searching online, there are many ways to connect with private party sellers. Craigslist and eBay are two popular marketplace sites for private party car sales, and there are car-specific sites, such as Cars.com.
As you conduct your search, you can also use sites like Edmunds, Kelly Blue Book (KBB) and Consumer Reports to research makes and models you come across. Particularly when buying a used car, you'll want to consider the model's long-term reliability and average maintenance and repair prices.
These sites provide an estimated value of used vehicles based on factors including make, model and condition. They can help you decide if you'd be getting a good deal from the private seller—or if there's room to negotiate.
Pay Attention to the Vehicle History Report
Once you've found the car you want to buy, you'll want to take a look at its vehicle history report, also known as a vehicle identification number (VIN) report. You can get some basic information with a free VIN check:
- Safercar.gov to see if there have been any recalls on the model and whether the specific car has been repaired or upgraded.
- National Insurance Crime Bureau to check if the vehicle was reported stolen and not recovered, or if it has a salvage title.
A paid VIN report will give you more details about the vehicle you're looking at. You can learn about its service history, ownership history and whether it's ever been in an accident or stolen. AutoCheck (operated by Experian) and Carfax are two popular VIN report providers. Compare the report to the seller's description and look for discrepancies that may be a red flag.
If you're serious about buying the car, you'll also want to take a test drive and potentially have a mechanic do a pre-purchase inspection. You'll likely have to pay for the inspection, which may run around $100 to $200, but it's often a worthwhile investment as trusted mechanics and technicians can give you the all-clear—or warn you about needed repairs or maintenance.
There are mobile inspection services that will come to you, or you can look for a local shop. Working with someone who specializes in the particular type of car could be a good idea, as they can also tell you about common issues that owners experience.
Finalize the Deal
Once you're certain you want to buy the car, you can negotiate the final price and make the purchase.
Change the Ownership of a Used Car
The details for how you legally change ownership documents for the car depend on which state you're in, whether you're financing the purchase and if the seller still owes money on the vehicle.
AAA provides an overview of the title transfer process in each state on their website. You also can contact your state's motor vehicles department or visit its website to find out what documents are needed and what the process will look like. Your lender, if you're using one, may be able to help as well.
You also can't legally drive a car until you have insurance or some other proof of financial responsibility. You can add the new car to your current policy if you have one or buy car insurance for your new car. Either way, you might use this opportunity as an opportunity to get quotes from several insurers to see who offers you the best deal. If you're financing the purchase, you should check with the lender to see what type of insurance you need to buy.
Watch Out for Private Seller Scams
You may be excited to buy a new car while avoiding a dealership, but you also want to watch out for scams. Scams can take different forms, but some common ones to watch out for include:
- Title washing: Even if it can run right now, you may want to avoid a car that has had significant damage that resulted in a salvage title. Sellers may try to "wash" the title by registering it in a new state. A VIN report can help reveal the car's true history.
- Curbstoning: Curbstoning refers to when a dealership pretends to be a private party selling a car, and it's illegal in many states. The seller may be offloading vehicles that have liens, bad titles or aren't safe to drive.
- Fake escrow accounts: A seller might not let you see the vehicle and tell you there's a lot of demand or they're in a rush to sell. They'll then ask you to send the money to a third-party escrow account to "place a hold" on the car or purchase it for delivery. In reality, however, they control the account and simply take your money once the transfer is complete.
- Fake guarantees: Sellers may also try to push a deal forward by telling you that there's a guarantee from whichever payment platform you use, which might not actually be the case. Some platforms do offer a level of protection, so make sure you understand your rights as a consumer before you agree to anything.
In general, it's best to avoid:
- Sellers who say they're in a rush to sell a car for less than it's worth because of a health issue, move, military deployment or other "emergency." Scam artists tend to ramp up the time pressure so you have less of a chance to think through the decision.
- Sellers who request you pay them with gift cards, reloadable prepaid cards or wire transfers.
- Sellers who refuse to meet you in person or let you have an independent mechanic or technician inspect the vehicle.
While you can save money by buying a used car from a private seller rather than a dealership, set realistic expectations and don't let a seller pressure you into sending money. As with many major purchases, if a deal seems too good to be true, it's often best to move on.