Financial Advice

How to Buy a Used Car From a Private Seller

One of the easiest ways to save money, and avoid debt, is to buy used cars instead of new. But once you decide that used is for you, there’s a second way to potentially save thousands of dollars — buy privately instead of from a dealer. There are plenty of potential pitfalls in private sales, which I’ll get to in a moment. But then, buying used from a dealer isn’t a picnic, either.

First, how much can you save from a private sale? Every deal is different, but the savings can be substantial. Here’s two examples: According to Kelly Blue Book, a 2010 Toyota RAV4 with standard options and typical mileage purchased from a dealer should cost $16,400. Buy from a private seller, and you should pay $15,300, a savings of $1,100. Even better: The 2008 Jeep Liberty dealer price is $12,120, but the private-party sale price is $9,775, a savings of $2,345, or more than 20%.

Twenty percent savings should be enough to get you over any fear of private sale negotiations. After all, it’s fashionable: 12.5 million cars were sold privately in 2014, a sizable jump from the 12 million in 2013, according to AutoRemarketing.com. (Overall, 42 million used cars were sold in 2014, compared to 16 million new cars).

Buying privately has other advantages, too. The negotiations are usually simple — you won’t have to deal with typical dealer delay tactics. You’ll probably buy from someone who has about as much negotiating experience as you do, which can be refreshing. Also, you might be buying the car from the only owner it’s ever had, and that driver might have taken really great care of it. It’s always nice to really know where your car has been.

But — and this is a very large but — private buyers are pretty much on their own, with very little protection from consumer law. Private sales are “as is,” period. Even if there’s something that approaches fraud — say, the seller lies about the car’s history — it borders on impossible to get satisfaction, which will probably have to come from civil litigation, like small claims court. With a dealer, which has a commercial reputation to defend, it’s at least possible to get justice by appealing to the state attorney general or making a public stink online.

When it comes to financing, it’s certainly possible to get an auto loan for a private party sale — many banks and credit unions offer them — but it can be pricey. For example, Wells Fargo this week offered used car loan rates as low as 3.57% for purchases from a dealer, but the lowest available private party rate was 5.71%. Also, expect to do a little extra paperwork. If you need financing, you’ll most likely go through a credit check, which will determine your interest rate. With private seller rates already trending higher, you’ll want a good credit score when you apply. You can check your credit scores for free on Credit.com to see where you stand.

There’s no way to guarantee a private sale will go well, but as I’ve said, there are few guarantees at used car dealers, either. So with that in mind, here are things you can do to increase the odds you’ll end jup with a good deal.

1. Make Sure It’s Really a Private Sale

As used-car sales have exploded in popularity, “gotcha” activity has, too. So-called “curbstoning,” is on the rise — small-time dealers who buy cars at auction and sell them on small lots, like gas stations, and make them look like private sales. Curbstoning isn’t necessarily illegal, but the odds that you’ll be outfoxed by a professional offloading cars that might have suffered flood damage or something similar go up a lot when buying from a small-time dealer like this. Remember, one big benefit of private buying is you are taking the car directly from the seller. Here’s a sure-fire way to flush out a curbstoning: When you call, say simply, “I’m calling about the car.” If the seller says, “Which car?” you are speaking with a dealer. For more tips on curbstoning, visit StopCurbstoning.com. The site is sponsored by auto dealers, but it still has good advice.

2. Do Your Homework Before the Purchase

Inspection is obviously critical. Check for leaks under the car, especially if you get to see it in the owner’s driveway or where it’s normally parked. Look for signs of water damage, particularly if there’s been a big flood in your area within the past several months. A water line on the engine, or brand new floor carpeting, or rust under the seats, can be a tipoff. Look for signs of disguised body damage, like slightly mismatched paint. During the test drive, turn off the radio, cut the chit-chat, and listen for unusual sounds. Driving over a speed bump is a good way to get a feel for the suspension or anything else that might be hanging on by a thread. Finally, unless you are very, very confident in your amateur mechanic abilities, it’s worth spending the $100 or so to have a mechanic conduct a full inspection to find other hidden problems. These can be used to bargain, or to back away from a potential lemon. You can also order a Carfax report using the car’s VIN number, but those have limited value, as they cover only incidents about the car that have been recorded.

3. Negotiate & Protect Yourself

Don’t bring cash; bring a bank check instead. It’s unsafe to carry that much cash around and it’s untraceable. If things go haywire in the deal somehow, you might be able to stop payment on the check, or you will at least have additional bargaining power. Some sellers will want to go to the bank with you to confirm authenticity of the check. That’s probably a good sign that the seller is just as worried about being scammed, and just as responsible, as you are.

Negotiation usually isn’t hard. Just use Blue Book value. You’ll probably disagree on the condition of the car, but even then, there isn’t that much variance. It’s more critical that you have a smooth deal and buy a sound car than you save $50 or $100.

The most critical element of the purchase is the state-issued car title, which provides proof of ownership. No title, no deal. Critically, the title should be clear of liens, which indicate there is an outstanding loan on the car. In most cases, the seller will sign the title on the back indicating a sale, and note the odometer reading. Make sure the reading is precise, not rounded. Otherwise, the buyer could end up responsible for a parking ticket or other infraction that happened a few days before the sale.

(It’s entirely possible to buy a car with an outstanding loan, which requires the buyer to pay off the loan first, but those deals can get very tricky. Rules about what happens to the title in these situations vary by state.)

Both parties might also fill out a bill of sale and release of liability; these documents are exactly what they sound like. Forms for those can be found by searching online for your state’s department of motor vehicles.

4. The Sale May Be Over, But Your Job Isn’t Done

The buyer is responsible for a bit more paperwork at the DMV. The car needs to be “retitled,” it needs to be registered, and taxes — such as sales tax — need to be paid. Many buyers forget about the sales tax, which can be a bit of a surprise hit on your discount deal. Sales tax on the Jeep Liberty purchase mentioned above would be $600-$800, depending on local rates. On the other hand, the discounted price comes in very handy at this stage — saving nearly $2,500 on the sale price also saves about $150 to $200 on sales tax.

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This article originally appeared on Credit.com.

This article by Bob Sullivan was distributed by the Personal Finance Syndication Network.

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