If you've decided a used car is best for your budget, you also need to decide whether to buy that car from a private seller or a dealer. There are advantages and disadvantages to both.

Generally speaking, compared to buying a used car from a dealer, buying from an individual saves money in terms of purchase price and sales tax. There are many reasons for this, and the price savings is the primary advantage of going this route.

The primary disadvantage of buying directly from a private seller is that federal and state consumer-protection laws govern sales of used cars by dealers to consumers, not sales by private sellers to consumers. Once you've purchased a car from a private individual, your legal options are limited.

Lower Price

Buyers of used cars can certainly save hundreds, if not thousands, of dollars by purchasing a vehicle from a private party. Here's why:

1. Private parties may choose to sell a vehicle after a dealership has offered them a low trade-in value. When a dealer offers to trade a used car for a new car, the dealer assumes the risk involved with that used car and the required legal documentation. Any business expecting to remain viable must expect to turn a profit when they sell that used car, as well. These factors justify the low prices that dealers offer vehicle owners who trade in a vehicle.

If the car buyer is dissatisfied with the dealership's offer, he or she may decide it is worth the extra effort to sell the car independently. When buying a used car from a private party, knowing that the seller is likely to be happy with an offer higher than the dealership's can help you save a significant amount of money compared to buying from a dealer.

2. Private parties may sell a vehicle because they need money for something else. Individual economic fortunes largely rise and fall independently of what happens at a national level, and sometimes people simply need to sell an extra vehicle because they're reducing expenses, or they need the money for a different purpose.

3. Private parties may choose to sell a vehicle because it is no longer needed, or because the vehicle's owner has moved or passed away. In many cases, there may be nothing wrong with the vehicle except that its owner no longer requires it.

4. Private parties may sell a vehicle after a dealership has decided not to take it as a trade-in. Remember, when a dealer takes a used car as a trade-in, the dealer assumes all responsibility and must earn a profit when the vehicle is sold. If a trade-in doesn't meet the dealer's criteria, he or she might not trade it for a new car, leaving the individual with no choice but to sell the vehicle himself or herself, or donate it to charity.

5. Private parties may sell a vehicle because there is something wrong with it, and they don't want to repair it. As the seller, it's probably better to trade it in under these circumstances. However, knowledgeable buyers who can identify problems and know how to get them fixed, and at what cost, can find good deals on vehicles that are sold for this reason.

In Part 2, we'll explain why it might be easier to negotiate the price with a private seller.

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Christian Wardlaw is passionate about the cars, trucks, and SUVs people actually buy, not the models about which they fantasize. An industry veteran and former editor-in-chief of Edmunds.com, this father of 4 loves to inform and entertain everyday car buyers.

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