How to Buy a Used Car from a Private Seller

Blog BuyUsedPrivateSeller Opt2@72

By Eric Rosenberg, MBA
Reviewed by Lauren Bringle, AFC®

If you're in the market for a car, truck, or van, you have several options to find and buy a car. If you're looking for the cost-savings of a used vehicle, you can buy one from a car dealership, used car lot, online auto broker, or a private seller. Each has its own pros and cons.

Today, we’re going to look at the process of buying a used car from a private party seller and how to ensure things work out well.

In addition to finding a car, you’re also going to have to figure out how to pay for it and should consider additional steps to ensure you’re getting a quality vehicle that lives up to the seller’s description.

Continue reading to learn how to buy a used car from a private seller.

How to buy a used car from a private seller

1 - Consider your vehicle needs and budget

Before you get started looking for cars, it's important to take some time to think about the car that will best meet your needs. If you’ve decided to go for a certified pre owned car instead of a new vehicle, take some time to research different private sellers in your area. While you may be attracted to a high-end sports car, powerful truck, or luxury SUV, it may not be practical or affordable to buy something too expensive.

I personally drive a Toyota Corolla that’s more than a decade old.

While I would much prefer to drive a brand new Rav4 Hybrid or my dream of a McLaren F1, neither is a good fit for my budget right now. And my trusty, fuel-efficient car still runs just fine even with over 100,000 miles on the odometer.

Buying a well-maintained used car instead of a new car is often the most financially prudent decision, even if it isn’t the most fun option.

The less you pay for a car, the more money you have for other financial priorities. Plus, you may be able to save money by purchasing from a private seller over large dealerships in your area.

2 - Make a plan for how to pay

Cost is one of the biggest factors in which car you choose. Before starting your vehicle search, it's a good idea to line up financing, whether it's part of a private sale or you're buying from a car dealership. It would be a shame to pick a car, negotiate the price of the car, and then get turned down for a loan.

Be sure to understand your auto loan financing options before you shop.

Save up as much as you can for a down payment when purchasing a motor vehicle. If your car costs more than you can afford to pay in cash, you can get a used car loan. The best place to find a used car loan for a private sale may be from a local credit union.

While it may cost more, you could also consider an unsecured personal loan from a credit union, online lender, or peer-to-peer lending marketplace.

Your credit score and financial information play a major role in getting approved for any loan, including used vehicle loans.

With a budget in mind, you can work with your preferred lender to get pre-approved, so you know you’ll have the cash when you’ve picked a car and made a deal.

Learn more: How to build credit fast

3 - Search for the right used car and negotiate a deal

Now comes the fun part as the buyer. Once you've figured out your budget and what kind of motor vehicle you want, you can start hunting. It's a good idea to cast a wide net and search for a car online and perhaps in the local paper.

If you find a car from a private seller, negotiate the best possible purchase price with the current owner. You may be able to negotiate a better deal than the original asking price. It’s also a good idea to look into the vehicle’s history to ensure it hasn’t had any major damage and has a title that’s free and clear.

To get an idea of the car’s value, consider:

  • The overall condition
  • Current mileage
  • Any needed repairs

Kelley Blue Book is arguably the most trusted resource on the value of used vehicles. Edmunds is another valuable resource.

However, as the buyer, try to push to get the best possible deal.

4 - Get the car checked out

Before making a final deal on the price and the purchase, take the car to a trusted mechanic for a detailed pre-purchase inspection, ask about the vehicle history, and get a vehicle history report if possible.

The mechanic may find that the car is in great shape. However, they could also find damage from prior accidents or mechanical issues that you wouldn’t have found independently.

The seller may have no idea that there’s an engine or alternator problem, for example. So even if both sides are working in good faith, savvy buyers have an expert look over the car before buying.

In addition to a mechanical review, you should also check the vehicle’s registration, title, and other paperwork to ensure the Vehicle Identification Number (VIN) matches.

If anything seems shady, it could be a scam. Follow your gut and use trusted professionals that you find on your own, not the seller’s mechanic, to ensure you’re not being misled.

5 - Finalize the transaction

Now you know the car is in good shape and have a deal on the car price. It’s time to get your money together and buy the car!

If you’re pre-approved for an auto loan, it should be fairly easy to contact your lender and get your funds. You should plan on paying the seller with a cashier’s check or money order. These payment methods are guaranteed funds, unlike a check drawn on a personal bank account.

Depending on your state, you may be able to easily complete the transaction on your own. If the current owner signs the title over to you, the car becomes yours. You may also want a contract, such as a bill of sale, to legally record the transaction.

If you have any questions or doubts about this process, it may be worth a small additional cost to consult with a local lawyer or expert to ensure you’re protected and taking the right steps.

Getting a loan for a private auto sale

Like any loan, an auto loan is a big decision and could put you on the hook for many thousands of dollars over a period of time. Consider all of the costs, fees, benefits, and drawbacks of any loan before signing up.

As with virtually all loans, you will most likely go through a financial review when getting approved for the loan. That can include:

  • A check of your credit score
  • A full review of your credit report
  • Verification of your income
  • Calculations on your ability to afford the loan

If you are looking for a traditional auto loan, you will need to provide detailed information about the car to the lender to secure the loan.

Keep in mind that with a secured loan, you lose the asset, in this case, the car, if you don’t pay as agreed. However, a secured loan also usually helps you qualify for a lower interest rate, which makes this type of loan preferable to a personal loan for many car buyers.

If you’re having trouble getting approved or want to qualify for a lower interest rate, consider adding a cosigner to your loan. A cosigner can share their good credit with you to help you get better loan terms, but they are also on the hook if you stop paying.

Red flags when buying a car from a private seller

Many people are genuine and honest, but there are plenty of scammers out there looking to unload a bad car or just make off with your money.

If you notice any of these red flags, the seller may not be acting in good faith:

  • High pressure: If the seller uses high pressure and tries to get you to decide in a hurry, it’s not worth it. They may be trying to hide something.
  • Insufficient answers to questions: If the seller is shifty about answering questions or won’t give you detailed answers to what you want to know, they may be avoiding giving you a real answer.
  • A long title history: If a car has been sold multiple times, it could be because of damage, or even worse, fraud. Title checks are an important part of making sure you buy a car that the seller legally owns.
  • Rusted parts: Rust could indicate that the car sat outside and wasn’t used for a long period of time. Or it could signal that the car wasn’t cared for at some point and could have more serious issues under the hood.
  • Inspection resistance: If the seller resists getting your own inspections, they again may be trying to hide a problem with the vehicle.

Pros and cons of buying a car from a private seller

Pros

Pro 1: potential to get a better deal than you could with a traditional broker or dealer

Traditional dealers have to pay to operate a car lot and make money on each sale. Buying from an individual takes out the middle man and can give you both a win-win deal.

Pro 2: potential for a quick and easy transaction

Once you agree on a price, you can pay and sign over a car title in just a few minutes.

Pro 3: added car selection and inventory

Cars sold by owner may not be listed online. When you’re willing to buy from an individual, you have more options available.

Pro 4: room to negotiate the price

Car lots may be willing to negotiate, but negotiating with another individual may be less intimidating. They may also have less experience selling cars and be willing to sell for a lower price.

Cons

Con 1: higher potential for scams and fraud

When you don’t work with a reputable auto seller, you’re treading into a marketplace where there are some bad actors looking to get away with your money.

Con 2: vehicle inspection isn’t included in the sale

Many car lots inspect vehicles and do basic repairs before putting them out for sale. When you buy from an individual seller, you’re responsible for doing that on your own.

Con 3: little recourse if something goes wrong after the sale

Unless you buy a vehicle that’s still covered by a manufacturer’s warranty, you probably can’t go back to the seller if there’s a problem shortly after you buy. Repair costs will be yours to handle.

And there's no lemon law for cars bought from a private owner, rather than a car dealer.

Where should you get your next car?

Thanks to online marketplaces, you have more options and selection when buying a car than ever before. If you’re set on buying a car from a private seller, you could be on track for a great deal and a car that you’re happy with for years to come.

Just make sure to cover your bases, check into the car’s history, and line up your financing in advance to help ensure a smooth and successful sale.

Need to build your credit before you buy a car? Self provides a step-by-step credit building process that could help you do just that. Learn more at self.inc

About the author

Eric Rosenberg is the creator of the Personal Profitability blog and podcast. He has both an undergraduate degree and a MBA in finance and his work has appeared in various media outlets. See Eric on Linkedin and Twitter.

About the reviewer

Lauren Bringle is an Accredited Financial Counselor® and Content Marketing Manager with Self Financial – a financial technology company with a mission to help people build credit and savings. See Lauren on Linkedin and Twitter.

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Written on December 1, 2020
Self is a venture-backed startup that helps people build credit and savings. Comments? Questions? Send us a note at hello@self.inc.

Disclaimer: Self is not providing financial advice. The content presented does not reflect the view of the Issuing Banks and is presented for general education and informational purposes only. Please consult with a qualified professional for financial advice.

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