When you buy a used car from a private seller, there's a lot less paperwork involved than if you're financing one at a dealership. The required paperwork when you buy or sell a vehicle yourself varies by state, but there's one universal fact: a clean and damage-free title is a must.
Paperwork Required for a Cash Purchase
If you're buying a car for cash, you need two pieces of paperwork: the vehicle title and a bill of sale.
- Your vehicle title – The title needs to be signed over by the owner-seller to you. In most states, you can do this on your own at the time of sale. Some states require a title to be notarized, so be sure you know the law for where you live. Titles should be original and free of liens. You should be able to verify the vehicle identification number (VIN), whether or not the title is branded as anything other than clean, and the document needs to be well-cared for. If a title itself is stained, torn, or otherwise compromised, you may have trouble registering the car you purchase – some states don't accept damaged titles.
- Bill of sale – A bill of sale is always required in a private sale. This must list the buyer and seller, as well as the VIN for the vehicle, and the agreed-upon sales price. This is important because private sellers can't charge tax. However, sales tax – which is typically based on the sale price – must still be collected in most states. This is typically done when you visit your local DMV in order to register the car.
Because all states have their own rules and regulations governing vehicle sales, registration, and taxes, be sure you know what’s required in your state before buying or selling a car privately. Keep in mind that you'll need other paperwork to register your vehicle, including a valid driver's license and proof of insurance.
Financing a Private Sale Car
Not enough cash to buy outright? Not everyone is able to save up the cash to buy a vehicle outright, even an affordable choice like a private sale used car. If you need to finance a private sale, you have to get a direct loan. A direct loan comes from a bank, credit union, or another direct lender, and you typically need good credit to qualify.
When you have poor credit, it might seem logical that a private sale is a way to go – these vehicles are typically more affordable and no one is going to be checking your credit if you're paying cash. But it can be difficult to get financing through a direct lender in these cases. If you don't have good credit, it's more likely you may qualify at a credit union, as long as you're a member in good standing.
When you apply for a direct loan, especially if you're struggling with credit issues, you need to bring in some paperwork as well. What you're required to present varies by lender. Typically, if you're working with a lender for your bad credit situation you're required to provide a valid driver's license, proof of your income, employment, and residence, as well as proof of a working phone and a list of personal references.
Car Buying Tips for Private Sales
Tips for buying in a private sale. Whether you're paying cash or financing a vehicle from a private sale, you should follow these tips to ensure you're getting a good car with a safe transaction:
- Look up an estimated value of the vehicle you're looking at on valuation sites such as Kelley Blue Book or NADAguides.
- Meet the seller in a public place, and bring someone with you.
- Always check out the car during the day when there's better lighting to see the body and interior condition.
- Make sure you can verify that the seller is the owner of the vehicle.
- Test drive the car and check everything. Don't forget that private sale vehicles are sold "as is" and there's no recourse if it breaks down right away.
- Ask for service records for the car, and have it inspected by your own certified mechanic before completing the purchase.
Be sure to know your credit standing, and weigh your options between a private sale and a dealership purchase carefully. Remember, there are some advantages to buying a vehicle through a dealership that you just can't get on a private sale, like a warranty.