When you buy a used car from a private seller, things can be a little trickier than when you purchase from a dealer. But just like with a dealership, you need to have car insurance before you can drive your new purchase home.
Updated August 3, 2021|8 min read
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While many drivers choose to purchase used or certified pre-owned cars from dealerships, plenty of people purchase used cars directly from the owner. Buying a used car from a private seller has its perks: You may be able to get a better deal than you would at the dealership; you can assess whether the last owner has taken good care of the car; and you can ask questions about the vehicle from someone who knows it well.
But there can be some drawbacks to buying a used car from a private seller as well. You’re working with one individual instead of a company, so you can’t read reviews or testimonials to get a sense of how trustworthy the seller might be.
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And unlike a dealership, a private seller can’t offer you any special warranties or perks for buying a car from them — you don’t even necessarily have recourse if the car turns out to be a salvage or was stolen, unless you’ve signed a contract with the seller.
There are also the logistics to consider: Buying from a private seller means you have to figure out both the title transfer and any taxes or fees that apply — this process is easier when you buy through a dealership.
There’s also the matter of car insurance, when you buy a car from a private seller: Do you still need insurance before you drive it home? Read on to learn more about the ins-and-outs of purchasing a used car in a private sale.
Buying a used car from a private owner can get you a good deal, but you should tread carefully to make sure the purchase goes smoothly
Don’t be afraid to ask lots of questions about the vehicle and request information like a maintenance history and VIN report
You’ll need to transfer the title, and, depending on your state, there may be more required paperwork
You’ll need car insurance before you drive your new purchase home, even though the private seller might not make you show proof of insurance like a dealership would
As we mentioned above, buying a used car from a private seller can get you a good deal, but it can also be a little riskier than going through a traditional dealership or a car-buying website.
Maybe you’re buying a car from a friend or neighbor and you’ll need to sort out the paperwork, or you’re buying a car from a stranger you found online and you’re concerned about making sure the sale is legitimate. Here are some simple steps to follow that will make the car-buying process smoother and safer:
Spend some time thinking about what you’re looking for in a car and research models that fit your criteria. Check safety and reliability scores, past recalls, and even seek out online communities of drivers who own the cars you’re considering.
You should also budget out how much you can afford to spend. Are you paying cash or taking out a car loan with a bank or other lender? Check out our guide to figuring out how much car you can afford.
One you’ve determined the make and model of the car you want, you can begin your search. Whether you’re scrolling through a site specifically for car-buying or a general listings site like Craigslist, read the listings for the cars carefully.
A trustworthy ad should include plenty of details about the car, like its odometer reading, trim level, how long the seller has owned it, and any damage. Compare the seller’s price to the car’s Kelley Blue Book value — if it’s priced too far below its fair market value, it might be too good to be true.
If you find a car you like, reach out to the seller and get more information: Why are they selling the vehicle? How often did they take it in for maintenance? Can they share the car’s maintenance records with you? Is there a lien on the car? What about any open recalls?
You should also ask the seller for the car’s vehicle identification number (VIN) so you can look up the car’s vehicle history report online.
Now it’s time to arrange a meeting. It’s best to meet in a public, neutral place where you’re able to inspect the car. Look for any rust, scratches, or dings on the exterior of the car, and test electronics like headlights, taillights, turn signals, and the car’s radio or entertainment system. Make sure the door’s locks, wipers, heat and air conditioning all work.
Once you feel comfortable taking the car for a test drive, drive at varying speeds and take it on the highway to see if the car shifts well between gears. Listen for any odd noises from the engine and don’t forget to put the car in reverse.
If the seller is fine with it, take the car to a trusted mechanic for a pre-purchase inspection. A professional will be able to do a thorough overview of the car’s condition and assess whether it’s in good shape. At an inspection, a mechanic can also let you know if they see anything that might need to be repaired or replaced in the near future.
Once you’ve gotten the car inspected and you’re ready to make your purchase, it’s time to close the sale. You can pay the amount that the car was listed for, or you can try and negotiate a lower price. (If you notice damage or wear and tear that the seller didn’t originally disclose, that could give you negotiating leverage.)
When you both agree on a price, you’ll make the payment and the seller will sign over the car’s title to you. You’ll have to sign it too, and then take it to your local DMV or equivalent agency to get a new one issued. You should also complete any other paperwork that’s required in your state — you can check with your state’s DMV or equivalent department to find out what else needs to be done to transfer ownership and register the car.
The seller will likely retain their license plates and registration sticker, so you should also check with your state’s DMV to see if there’s a temporary permit that will allow you to drive the car home or to the DMV for registration (more on this later).
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Skipping the dealership has its perks, but there are also drawbacks to buying a used car from a stranger.
Here are some advantages of buying a car from a private seller:
It can be cheaper than buying from a dealership - It may be cheaper to buy a used car from a private seller than it is to buy from a dealership. And dealership’s can add charges to your bill of sale, like a dealer or documentation fees, but you don’t have to pay those extra costs when you buy from a private seller
It may be easier to negotiate a price - Dealers spend all day selling cars to interested buyers, so they have a greater chance of making a sale at their preferred price point. But those chances are not as high for private sellers, so they may be more willing to work with you on a price
There are also disadvantages to buying a used car from a private seller, including:
You won’t get a warranty - Unlike dealers who are able to sell warranties on the spot, private sellers cannot, so you would need to find a warranty from a third-party vendor if you’re interested
You take on the risk of repairs - When you’re buying a used vehicle, it may have damage that isn’t apparent right away (or the seller may not disclose all the car’s issues). Before you buy a used car, you should have the vehicle inspected by a trusted mechanic
You won’t be able to change your mind - Some car-buying sites and used-car dealerships may let you test-drive the vehicle and return it if you don’t want it. But once you buy a car from a private seller and sign the vehicle’s title, you’re locked into the sale
Figuring out the logistics of a private car sale can be tricky, especially if you and the seller are both new to the process. When it comes to taxes, you don’t need to pay taxes on the car at the time of the sale like you may need to if you buy a vehicle from a dealership.
Instead, you pay taxes to the DMV when you go to register the car. This is where that paperwork at the time of sale comes in handy — you may need a signed bill of sale to show how much you paid for the car.
If you’ve bought a car out of state, you pay the sales tax in the state where you register the car. So if you bought the car in Delaware (where there is no sales tax) but you register it in Pennsylvania, then you’d pay Pennsylvania sales tax.
However, there may be some tax exemptions for certain situations, like if your car was transferred to you by a family member. Check with your state’s DMV or RMV for more information about the cases where you might not need to pay sales tax.
Your state’s DMV may give you a short window during which you can drive the unregistered car in order to get it home and to the DMV. Your state’s DMV may also offer a temporary registration plate that you can get ahead of time to cover you until you get permanent registration for the car.
Check your DMV website or give them a call to find out exactly what you can and can’t do right after you buy a used car from a private seller (it goes without saying that you need a valid driver’s license to drive off in your new car).
This can be complicated to sort out, but you should do some research before the purchase date so you’re prepared. You shouldn’t drive unregistered and count on not getting pulled over, or get into a messy situation where you retain the seller’s plates and registration.
In addition to sorting out the registration for your new purchase, you also have to get the car insured before you drive it home. In most states, car insurance is required by law, so driving without car insurance can land you in big trouble. Luckily, getting car insurance is fairly easy to figure out.
If you have an existing car insurance policy and you’re buying a used car, your current coverage may include a grace period for newly purchased cars. That means that you have a certain amount of time, usually between one week to 30 days, when your car insurance will automatically cover your new car before you’ve officially added it to your policy.
However, you must add your new car to your policy before that grace period is up — if you don’t, the car will no longer be covered. Adding a new car to an existing policy is usually very simple, and can often be done online or through your carrier’s mobile app, depending on the insurance company. The additional car may affect your rates, however, so be prepared for a slight increase in your premiums.
If you don’t already have car insurance, you should purchase a car insurance policy ahead of time and set it to go into effect the day you pick up the vehicle. It’s actually very possible to buy a car insurance policy before you technically own the car. You just need some basic info, including:
Names and birthdays for all drivers in the household
Drivers license numbers and social security numbers for all drivers in the household
VINs for all vehicles
An address for the insured and an address where the car will be garaged (this is usually the same place)
Your declarations page from your most recent prior car insurance policy
If you don’t know the VIN of the vehicle you’re buying, contact the seller and ask them to send it over so you can get a car insurance policy before you pick up the vehicle.
All loans on a car must be paid off before the title can be transferred to you. If you’re going to buy a used car from a private seller who’s still financing the vehicle, you have a few options: you can pay the lienholder for the loan directly, use an escrow service to handle the sale, or apply for the loan to be transferred to you. You can check to see if a car has an outstanding lien by requesting the car’s VIN from the seller and searching your state’s DMV website to see who owns the title.
It’s recommended that you have a credit score of 660 and above to buy a vehicle from a dealership, especially if you need to take out a loan on the car. But if you’re buying a car from a private seller, your credit score would not be a factor in the sale, assuming you’re paying for the vehicle in cash.
Closing one type of account — be it a credit card, mortgage, or auto loan — can have a negative impact on your credit score. If your auto loan was one of your oldest credit accounts, then closing it will shorten the age of your accounts, causing your credit score to drop. This change is usually not permanent, however, and your credit score can recover in one or two payment cycles.
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