Private Seller vs. Dealer When Buying a Used Car

Quick Facts About Buying a Used Car From a Private Seller or Dealer

• Financing a used car purchased from a private seller takes more time than when buying from a dealer.
• Typically, buyers pay less for a car from a private seller than a dealer.
• Exchanging funds for the title in a private-seller deal requires more precautions than with a dealer, except if you use Autotrader’s Private Seller Exchange.  
• Never buy a used car from a private seller or a dealer without seeing the vehicle history report.

As you navigate the rocky path to buying a used car in today’s lopsided market, you may have considered cars offered by dealers and private sellers. There are advantages to both options, but you’ve probably asked yourself, which is better?

First, a little context regarding the current state of the used car market: used car prices reached an all-time high during the pandemic in early 2022. They remained volatile before slowly dropping in 2023 and the first half of 2024. Through June 2024, wholesale used car prices were down roughly 5% compared to the same month a year ago. However, wholesale prices, or what dealers pay for used cars at auction, started increasing again. Wholesale price increases typically precede retail price increases by six to eight weeks. That means used car shoppers will see higher prices this fall. 

Additionally, the market remains tough with tight inventory. You may find yourself making some compromises in what you want versus what is available, whether buying from a dealer or a private seller. Moreover, lenders are tightening their belts and credit requirements. Interest rates, traditionally higher for used car loans than new car loans, remain a pain point. In other words, if you finance a used car, the monthly payments will be higher now than a year ago. 

All of that aside, here’s the truth about our dealer-vs.-seller question. It’s influenced as much by the amount of time and money you can spend as anything else. However, here we will lay out the good, the bad, and the ugly about both buying options.

• Buying a Used Car From a Private Seller
• Buying a Used Car From a Dealer
• What to Consider Before Buying a Used Car?
• Which Is Better?

Buying a Used Car From a Private Seller

You may be reluctant to buy a used car from a private seller (sometimes referred to as peer-to-peer) if you never purchased this way before. It can be more time-consuming than going to a dealership. We’ll explain why below. Moreover, there are more unknowns in a peer-to-peer (P2P) transaction. However, buying a car peer-to-peer through Autotrader’s Private Seller Exchange (PSX) can eliminate many unknowns and save you time. A solid reason for buying peer-to-peer is because the seller has the car you want at a fair price. You can check out a car’s value using our sister site, Kelley Blue Book’s valuation tool.

PRO TIP: Before you get started, you will need the car’s VIN (vehicle identification number). It’s stamped on a metal strip on the driver’s side dashboard where it meets the windshield. Either request the VIN from the seller or snap a photo of it with your smartphone at the test drive. You can also obtain the VIN by getting the license plate number on the used vehicle you’re looking to buy.

Pros of Buying a Car From a Private Seller

• Lower transaction price: Because the peer-to-peer buyer shoulders some of the responsibilities (transferring the title, for example) that a dealer would typically handle in a dealer-to-buyer transaction, a private seller will invest less time in the process than a dealer. Furthermore, a private seller doesn’t have to cover the overhead expenses a dealership generates. A dealer is really a middleman in the transaction, creating the required profit by inflating the purchase price when selling the car. However, at the end of the day, the peer-to-peer deal will only be as good as the buyer’s negotiating skills. It’s up to you as the buyer to negotiate a fair deal.
• Greater bargaining power: Theoretically, a private seller’s original asking price will be lower than a dealership’s price for the reasons itemized above. Consequently, negotiating a transaction price with a private seller should begin at a lower threshold than when bargaining with a dealer. This, however, isn’t a buyer’s only advantage. By the time the buyer and seller reach the negotiating stage, the private seller has invested a lot of time in selling you a car. Standing in front of a seller waving cash or a cashier’s check in the air gives the buyer leverage. The seller can always kill the deal but does so knowing it would be a time suck to start over with another potential buyer. PRO TIP: As the buyer, it never hurts to remind the seller of that to move the negotiation along.
• More control: In a peer-to-peer sale, you can move at your pace as you work with someone who is, more than likely, no more experienced at selling a used car than you are at buying one. When buying from a dealer, the dealer has a home-field advantage. You are pretty much obligated to do things at the dealer’s pace. Moreover, the dealer has decidedly more experience selling cars than you have buying cars. Even if you have a specific car in mind when you walk onto the lot, the dealer may be more interested in selling you a different car. Staying on track and taking the time to make responsible decisions is much more difficult with a professional car seller in your space. Even when the dealer is trying to treat you fairly, the dealer has the advantage.

Cons of Buying a Used Car From a Private Seller

• Time eater: In nearly every case, buying from a private seller will squander more of your time than buying from a dealer. Either way, you must spend some time speaking with the seller or dealer and travel to a location to test drive the car. This may be more complicated with a private seller because you will need to settle on a time and safe place for the test drive. If you can’t pay cash, you will need to find and arrange financing with a third-party lender. When the deal is done, you must go to your local tag office, transfer the car title, and pay the sales tax. When totaled, the extra time burned by the buyer in a peer-to-peer sale is significant.
• Numerous unknowns: Unless you are buying from a friend, neighbor, or relative, chances are you don’t know the seller. This leads to a certain amount of wariness for the buyer and the private seller. Are you comfortable taking a wad of cash to the final transaction? Is the title clean? Such doubts and concerns in a peer-to-peer transaction are legitimate.
• No financing: If you can’t pay cash, you will need to arrange financing. A private seller can’t offer that. On the other hand, most dealers can arrange some on-the-spot financing.
• No consumer protections: One federal regulation protects a used car buyer from fraud: “The Used Car Rule.” It locks a used car dealer into several mandatory actions, like not misrepresenting a used car’s warranty or condition. Unfortunately, private sellers are not subject to this oversight. PRO TIP: Any promise a private seller makes that isn’t in writing is not enforceable. Get everything in writing.
• Handling the paperwork: In a dealer-to-buyer transaction, the dealer handles the title transfer, registration, collecting the required sales taxes, and so forth. In a peer-to-peer sale, the buyer must handle all the post-sale filings and paperwork.
• No trade-in: If you currently own a car and want to trade the car, using the proceeds toward another vehicle purchase, a private seller typically isn’t going to accept your car. The seller would have to turn around and sell it. This means that your current car’s disposal is up to you. You must sell it directly to another private individual or a dealer. You just shouldered more work and will lose more time.
• No warranty: Only if the original new car warranty is still valid will a used car acquired through a private seller have any warranty protection. Some dealers offer a short used car warranty that is only honored at that specific dealership. Certified pre-owned cars (CPO) provide factory warranties for 12 to 24 months, but only franchised dealers can sell CPO cars. What you see is what you get when buying from a private seller.
• Car history report: You should never buy a used car without a car history report. It tracks its owners, mileage, crash history, and so forth. Many private sellers don’t provide them. This means you will need to get the VIN of the car you are interested in buying and obtain one. This will entail more time and expense of between $25-$45 for an AutoCheck or Carfax report.

Buying a Used Car From a Dealer

Most of us are more comfortable buying a used car from a dealer. It’s a safer environment than going to a private seller’s house or a random parking lot somewhere. Dealers typically offer several cars from which you can choose, increasing the odds that you can find something acceptable in your price range.

Pros of Buying a Car From a Dealer

One-stop shopping: The dealer has it all: a multi-car inventory and all the services that go along with being a dealer. For example, you can shop, test drive, secure financing, and close the deal all at the same time and location.

Safe environment: Things can always go wrong, but buying a car at a dealership eliminates many of the concerns surrounding a peer-to-peer transaction. For one, the transfer of funds is more secure.

Available warranties: Many used car dealers offer their own short warranty to handle problems during the first weeks of ownership. Such warranties are restrictive in terms of what is covered and where covered repairs can be made. Beyond that, many dealers also peddle third-party extended warranties that cover more components and for longer periods. PRO TIP: We suggest you fully understand a third-party extended warranty, precisely what is covered, and how claims are paid. Many require the owner to pay for the repairs, submit the receipts, and wait for the warranty company to reimburse the claim. This allows for all sorts of mischief. Make sure the warranty company is reputable before buying the extended coverage.

Regulation protection: The federal government’s “The Used Car Rule” applies to used car dealers, preventing them from fraudulent practices like misrepresenting the car’s condition or warranty.

Reputation: Even if it’s a buy-here-pay-here (BHPH) dealer, the dealer ownership is probably at least somewhat concerned with the dealership’s reputation. This is much more likely to be true with a franchised dealer of a familiar brand like Chevrolet, Toyota, and so on. Major dealers have something to lose if they pass off a beater as a highly reliable car or don’t follow through with their promises. A private seller who might sell a car every two, three, or 10 years doesn’t depend on the community’s goodwill. It’s less likely that a private seller will give a disgruntled buyer much thought after the sale.

Cons of Buying From a Dealer

Price: The dealer is in the business of making a profit, and the only way to do that is to sell used cars for more than their purchase price. In some cases, a lot more. Some of this markup is to cover expenses like the electric bill and payroll. More of the profit goes to the cost of filing paperwork on every sale and the sales commission. These expenses don’t exist for a private seller. Consequently, in theory, buying from a dealer will cost more than a peer-to-peer sale.

Limited inventory: We mention inventory as a pro and con of buying from a dealership because, on the one hand, there is more than one car from which to choose. On the other hand, you are limited to the inventory on the lot. You must travel to another dealer if you can’t find what you want, especially in today’s tight inventory environment.

Uneven playing field: When shopping at a dealership, you are a stranger in a strange land. The dealer has the advantages of negotiating experience and being in control of the environment. You are on the dealer’s turf, playing the dealer’s game. This can be intimidating. PRO TIP: Get online and research the dealer’s inventory before setting foot on the lot. Have a couple of cars in mind and ask to see those. If they aren’t there or are unacceptable, return home and research another dealership’s inventory.

5 Tips: Getting Your Best Used Car Deal at a Dealership

• Know its value: With all the online resources available to you, there is no reason not to have a fairly accurate estimate of any used car’s market value. You can find the latest market value for the used vehicle you are considering using the Car Values assessment tool from our sister company, Kelley Blue Book. It provides the most current average transaction price by model and trim level of most used cars. Armed with an accurate market value, you are in an informed position to negotiate.
• Negotiate trade-in value: If you have a car to trade in, ensure you are getting the best price for it. Here again, we recommend searching My Car’s Value at Kelley Blue Book’s Car Values site to determine a fair value for your trade-in. If the dealer’s offer isn’t reasonably close to that value, you may do better selling it yourself either directly to a buyer or to another dealer.
• Shop the interest rate: Reflecting the level of risk the lender determines you pose, the interest rate will be higher for those with a lower credit score and rating and lower for borrowers with a higher credit score and rating. To score the best interest rate, you must know where you fall on the risk spectrum. A sensible way to determine the risk lenders think you pose is to apply to prequalify for a car loan at a couple of lenders. Unlike getting preapproved, prequalifying is less formal and won’t impact your credit. Yet, it will provide an idea of how large a loan you may qualify for and at what interest rate.
• Buy what you need only: Sitting in the finance office of a car dealership is something akin to shopping in the snack aisle of a grocery store while your stomach is growling. There are lots of extras to choose from, and they all look good. However, each one has a price tag attached and will increase the bottom line amount you pay for a car. The added cost may not sound like much when put in the context of the increase to your monthly payment (“this only adds $3 per month” or “that only adds $5 per month”); however, it all adds up. Moreover, you will be paying interest on the cost of every extra. Not to mention, many of the products offered (GAP insurance, extended service contracts, and so forth) are readily available as aftermarket purchases.
• Question every fee: Every dealer car transaction will have a fee or two over and above the final negotiated vehicle price. Items like tax, title, license, destination charge, and documentation fees are common in car sale contracts. They are legitimate extras you must pay. However, be on the lookout for fees such as loan protection insurance, dealer market adjustment, dealer prep, or any other fee or charge. Many of these extras can be negotiated down or away entirely.

What to Consider Before Buying a Used Car?

Buying a used car requires considering several factors, some of which we’ve already mentioned. However, a few of them are worth breaking out and discussing in more detail.

Vehicle History

We can’t stress enough that when considering buying any used car, you should consult its vehicle history report. It will tell you where the car has been, who has owned it, if it has been crashed, and so on. Dealers often provide these reports; private sellers usually do not. If the seller doesn’t provide one, you must obtain one yourself. You can obtain a vehicle history report from sources like AutoCheck or Carfax.

Seeing records on a vehicle history report of a used car’s scheduled maintenance is also beneficial. A paper trail of scheduled maintenance is evidence of a well-kept car. A dealer may or may not be able to provide such a schedule, but a private seller should. In fact, a private seller should be well-versed in every aspect of the car.

Financing

If you’ve tried to finance a used car, you know it’s not as easy as financing a new car. Interest rates are higher, and some lenders won’t finance vehicles past a certain age or mileage limit.

Securing financing for a peer-to-peer used car purchase is no sure thing. If you can’t pay cash upfront, you will need to take out a personal loan, a home equity line of credit, or a used car loan. For the latter, you must provide the lender with detailed information about the car. In most cases, the lender will require you to close on the car sale in the lender’s presence to ensure the title transfer is conducted properly. Although this will require more of the buyer’s time, it’s actually preferable because all the financial issues are conducted in a secure environment.

Taxes

Whether you buy from a dealer or private seller, there will probably be a sales tax, and, as the buyer, you are responsible for paying it. If you buy from a dealer, it falls on the dealer to collect the tax as part of the purchase price. The sales tax varies by state. If you buy from a private seller, you must pay the taxes when you submit the title transfer and register the car. To avoid a surprise, check with your state to determine the amount of tax you will owe.

Insurance

It doesn’t matter if you purchase a used car from a private seller or a dealer; you will need vehicle insurance. Before closing the deal, you should check with your insurer to find out about your new premium. You don’t want any surprises.

PRO TIP: A new car is an ideal time to shop around for auto insurance to determine if you can get a better rate.

Purchase Price

In the peer-to-peer or dealer-to-buyer debate, you usually trade off getting a better price from a private seller for doing much of the after-transaction legwork the dealer handles when purchasing from a dealership. In the end, you will only get as good a deal as you negotiate. On a limited budget? Try finding a used car for sale from a private seller by these price points:

• Cars for Sale by Owner under $5,000

• Cars for Sale by Owner under $10,000

• Cars for Sale by Owner under $15,000

Which Is Better: Private Seller or Dealer?

There are several potential pitfalls in buying from a private seller. However, many can be avoided or minimized if a buyer finds a car at Autotrader’s Private Seller Exchange. What you get is a fairly worry-free transaction, and you will probably still pay less than a dealer transaction. In most cases, the choice will boil down to where you find the right car at the right price. If it’s at a dealer, you may pay more while saving time and hassle. If it’s a private seller, you should pay less because you make the run to the local tag office to transfer the title, register the car, and pay the taxes. Your decision is: Spend more time or spend more money?

Editor’s Note: This article has been updated for accuracy since it was originally published.