Buying a used car can be a worrisome process. It's easy to get ripped off or fooled into paying more than the car is worth. This becomes even more complicated when you're buying from a private seller, rather than a dealership or business. Private sellers usually don't have existing warranties on their cars, finance departments or experience selling cars -- so an already confusing process can become downright bewildering.
Of course, there are also benefits to buying from a private seller, such as more flexibility in negotiations and possibly even a better price (since a private seller doesn't have fixed business costs to cover). If you plan on skipping the dealership, follow these six steps to ensure you're avoiding scams and getting the best deal possible.
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1. Check the Car's History
To avoid wasting time, your first step should always be to check the car's history. A cursory check could reveal significant problems -- and that means you could save a lot of time by moving on before even test-driving the car.
A Carfax Vehicle History report is essential for any car purchase. It's practically expected for dealerships to provide this important report, which can be accessed online using the car's VIN (Vehicle Identification Number). It shows accident/damage history, title problems (including salvage, junk or flood), frame damage, and an odometer rollback check. Unlimited reports are available for $39.99, although sellers will sometimes provide the reports themselves. AutoCheck, a similar service, offers unlimited 60-day reports for $29.99.
In some states, you can also use the VIN number to access a car's records through the Department of Motor Vehicles. The Virginia DMV, for example, charges a small fee for the records, which must be obtained in person. That may sound like a hassle, but the records contain information that can be invaluable to you when negotiating. They may show the original price paid for the car, contact information for the current owner and any outstanding liens on the title. A lien on the title means that the owner is still making payments on the car and doesn't own it outright. If the seller still has a lien on the car, it may complicate the sale.
Finally, if you want to be really thorough, run simple Google searches on the seller's name and the car's VIN number. You could come across previous ads that give you a hint about the length of time the car has been on the market. Or, if you're looking at a model with a following (such as the Honda S2000), you could find forum postings from the seller and previous owners.
2. Test-Drive the Car and Interview the Seller
Once you're satisfied with the car's history, the test drive is where you assess whether you're seriously interested in buying. Make sure to always test-drive in daylight (and at night, if you can) and to check all components of the car -- everything from the cruise control to strange noises or vibrations. If you can get a hold of the owner's manual before the test drive, it will make things that much easier for you.
The test drive is also your time to ask the seller deeper questions. You may think private sellers are more honest than car dealers, but you never know when someone is trying to pull the wool over your eyes. Try not to take anything a seller says at face value. Important questions to ask include: Are you the original owner (and if not, how many owners have there been)? Why are you selling the vehicle? Do you have service records? How much are you asking and is this price negotiable? Has the vehicle been in an accident or had bodywork? You can easily confirm some or all of this information by comparing it to your history check from the previous step.
3. Conduct a Pre-Purchase Inspection
You should always conduct a PPI, or Pre-Purchase Inspection, before finalizing a used-car sale. This is vital when you're buying a car out of state, since you can't often see the car yourself, but it's also helpful for even local purchases. The PPI is performed by a neutral third party, such as a certified mechanic or automotive technician, and costs about $100 to $200.
The inspection is a detailed assessment of the cosmetic and mechanical condition of the vehicle. It is an invaluable asset since it can alert you to problems or maintenance issues that are hiding under the surface. Among other things, the mechanic should put the car on a lift to check undercarriage components and use a paint meter gauge to catch any accidents not reported to the insurance company. Make sure you choose the party who will perform the inspection, rather than going with someone recommended by the seller. Ask to have the results sent directly to you.
You may be tempted to skip a PPI, but it's almost always well worth it. You're making a large investment in a vehicle, and the price of the PPI is only a very small fraction of that amount. If any problems the PPI shows are deal-breakers, you can walk away from the sale. If not, you can still use them to negotiate a better price. In the end, the PPI, Carfax report and seller should be consistent regarding any issues. If any of the information seems fishy, consider walking away from the sale.
4. Secure Financing and Negotiate
Unless you're planning on paying cash, it's important to line up your financing ahead of time. Get pre-approved for a loan large enough to cover the maximum price you're willing to pay for the car. Check around for the best interest rates on used cars, and consider joining a credit union instead of going with a big bank -- credit unions can sometimes offer better rates.
Now that you're familiar with the car's history, you can propose a price. You should already know what the seller is asking and whether they're willing to negotiate. Make sure to justify your offer -- if it's low because the PPI revealed unforeseen issues, there's no harm in telling the seller that.
You can also determine your price based on other sources, such as Kelley Blue Book, Edmunds and NADA. They each have slightly different assessments of what a car is worth in a private sale. Note that private-party prices are often less than dealership prices, so make sure to look up how much a seller could earn from a dealer trade-in -- if you want the seller to accept your price, it probably has to exceed that trade-in value.
5. Complete the Sale
You usually don't need a contract for a private-party sale because most of the sale is handled by your bank. Once you and the seller have agreed on a price, contact your bank lender with the car's information and the negotiated price. They'll issue you a pre-written check. The next step is to transfer the car's title. You should go to the DMV with the seller to complete this transaction. Do not physically hand over the check until you have the modified title in hand.
An exception is if the seller still needs to satisfy a lien (or loan) on the car, which means the title can't be transferred to you until the loan is paid. Giving the seller a check yourself is risky because they could simply cash it and not pay off their loan. Instead, ask the seller to have their bank lender give them a 15-day payoff amount (which is the money needed to satisfy the loan). Then tell your bank that same information. Using your loan, your bank will pay off the existing lien for the seller and give them any cash left over. The seller's lender will then send you the car's title in your name.
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