What should you consider when buying a used car privately?

What should you consider when buying a used car privately?

There are many decisions you’ll need to make when you’re in the market for a car. And if you’ve decided a used car is the right choice for you, buying from a private seller may bring on a whole raft of other factors to consider. 

A private seller is the alternative to a car dealership, where an individual who wants to sell their car takes on the task themselves.

This can be a fairly seamless process if you’re purchasing off someone who has been diligent with looking after the car, has a logbook of regular services and hasn’t been in any accidents. The challenge comes with sellers who either haven’t kept up with servicing, or don’t have much documentation to prove they have.

Knowing what to look out for when buying a used car from a private seller can prepare you for the task of finding a reliable car, so you can steer clear of those who aren’t willing to be transparent about the car’s history.

Asking the right questions

Most used car listing websites have a fairly comprehensive template for sellers to use to detail all of the features and specifications of the car they’re selling. This can help you weed out the cars that don’t tick all the boxes on your list, but there will still be questions you might want to consider asking before scheduling an inspection with the seller.

Here are some questions to get you started, but be sure to jot down any that come to mind while you’re shopping around:

  • Is there documentation of the car’s servicing frequency and types?
  • Has the car been involved in any accidents?
  • Have any parts been replaced or repaired?
  • When does the registration expire?
  • Have there been any issues with the mechanics of the car?
  • Is there any damage to the car’s interior or exterior that may not be visible in the photos?
  • Is the car unencumbered or is there existing finance on it?
  • Can I test drive the car?

Have a good read of the listing as often many of these questions will be answered on there – but it’s never a bad idea to get further confirmation of the more important information.

Knowing what to look for

Once all of your questions have been answered, the next step in the process is to schedule an inspection with the seller to view the car in person and take it for a test drive.

Be sure to show up well prepared with a list of everything you need to assess, including the following:

  • Check that the odometer reading reflects what was in the listing.
  • Take a checklist of all the features and specifications that were listed and tick each one off as you view and/or test them.
  • View the car’s paperwork, logbook, current registration etc.
  • Look for any signs of inconsistencies between what the seller has told you and how the car looks and runs.

Keep in mind, some sellers may only allow you to test drive the car as a passenger, due to insurance restrictions. This isn’t necessarily a red flag, but it may be a good motivator to ensure you get a mechanic to have a look at it before you make the purchase.

Meeting the requirements set by your car loan provider 

Buying a privately owned used car on finance is more common than you might think. It works much the same as financing a used car from a dealership, but it’s important to fully understand what the loan provider’s requirements are before you get your heart set on your next vehicle.

The best way to get the ball rolling is to search and compare used car loan options and compile a shortlist of the products that appeal to you most. Next, find out the products’ individual lending criteria, particularly in relation to buying a used car privately.

Generally speaking, lenders will have a limit to how old the car can be at the end of the loan term, rather than upon purchase. This means that you could potentially get away with buying a slightly older car if you choose a shorter loan term. Just be sure that the repayments will work with your budget. You might like to consider using RateCity’s car loan calculator to get a repayment estimate.

 

Weighing up the pros and cons

Before you go ahead with your used car search, it’s worth weighing up the potential benefits with any possible disadvantages of buying from a private seller.

Pros:

  • Including privately listed used cars in your search could open up more opportunity to find exactly what you’re looking for.
  • It could be easier to negotiate the sale price with a private seller than a car dealer, particularly if the seller wants a quick sale.
  • If you manage to find a car that’s in excellent condition, and has a responsible and transparent previous owner, you could end up securing a fantastic second-hand car with minimal risk involved.

Cons:

  • You won’t have the opportunity to trade in your old car to get the price of the new car down.
  • You’ll miss out on the statutory warranty that dealerships are required to provide, potentially making the purchase a greater risk.
  • You’ll be responsible for all of the paperwork that needs to be completed upon purchase, such as transfer of registration.
  • Once you factor in additional expenses, such as the cost of having the car checked by a mechanic, the price you pay for the vehicle may not be any cheaper than if you had have purchased from a car dealership.

Other tips and tricks

  1. Do your research to ensure you know how much the car is worth and how it compares to other used cars of the same make and model.
  2. Consider looking up the car’s vehicle identification number (VIN) for information on its history. Searching the Personal Property Securities Register (PPSR) will allow you to ensure the vehicle is debt free, hasn’t been written off and isn’t stolen.
  3. Once you’ve made the decision to purchase the vehicle and have agreed on the purchase price, transfer the funds through a safe electronic facility, rather than paying in cash.
  4. Finally, remember to arrange insurance cover before you jump behind the wheel.

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Learn more about car loans

How do you get a car loan?

There are four different ways you can get a car loan. You can go straight to a lender. You can get a finance broker to organise a car loan for you. You can get ‘dealer finance’ – which is when the car dealer organises a car loan for you. Or you can organise your own car loan through a comparison website, like RateCity.

Whichever method you choose, you will need to provide proof of identification, proof of income and proof of savings. So you may be asked for any combination of passport, driver’s licence, bank statements, payslips, tax returns and utility bills. You might also be asked to provide proof of insurance.

What is a secured car loan?

A secured car loan is a loan that is connected to a form of security, or collateral. Generally, the security for a car loan is the car itself. If you fail to repay the loan, the lender might seize your car, sell it and then use the proceeds to recover their debt.

What is a CHP?

A CHP, or commercial hire purchase, is an arrangement by which a finance company buys a car on your behalf. You get to borrow the car in return for making regular payments to the financier. Once the final payment is made, you take ownership of the car. 

What is a balloon payment?

Some lenders will offer borrowers reduced monthly repayments in return for a one-off lump sum – or balloon payment – that the borrower has to pay at the end of the loan. Generally, the total repayments on a loan with a balloon structure will be higher than a loan without.

What is compulsory third-party insurance?

Compulsory third-party insurance, also known as CTP insurance or a green slip, is compulsory if you want to register a vehicle in Australia. If you’re responsible for a car accident, your compulsory third-party insurance will be used to pay any compensation due to anyone who might be injured or killed. However, compulsory third-party insurance doesn’t cover you for vehicle damage or theft.

What is a novated lease?

A novated lease is a car lease that is ‘novated’, or transferred from one party to another. Novated leases are often used when companies provide a car as part of a salary package. The employer signs for the lease and makes the lease payments, but the employee assumes the responsibility of looking after the car. While most car leases involve two parties, novated leases involve three – employer, employee and financier.

What is a finance lease?

A finance lease, also known as an asset lease or car lease, is an arrangement by which a finance company buys a car on your behalf. You get to borrow the car in return for making regular payments to the financier. At the end of the lease, you can either buy the car or hand it back. 

What is a chattel mortgage?

A chattel mortgage is a mortgage on a movable item. In the case of a car loan, the chattel is the vehicle. The lender maintains a mortgage over the chattel/vehicle until the loan is fully repaid.

What is equity?

The equity is the share of the car that you own. For example, if you take out a $15,000 loan to buy a $20,000 car, you have $5,000 of equity in the vehicle, or 25 per cent. (The lender has the other 75 per cent.) Equity changes over time as you pay off your loan and your car depreciates in value. For example, two years later you might now owe $10,000 on your car, which might now be worth $15,000. In that case, you would still have $5,000 of equity in the vehicle, but your share would be 33 per cent.

What is a pink slip?

A pink slip is another name for the safety check that needs to be done before a car owner can renew the vehicle’s registration.

What is borrowing capacity?

Borrowing capacity is the amount of money that a consumer is able to borrow from a lender. Each consumer’s circumstances are unique, so different people will have different borrowing capacities. Lenders use their own in-house formulas to calculate borrowing capacity, so the same consumer might have different borrowing capacities at different lenders.

What is comprehensive insurance?

Comprehensive insurance protects you in the event you’re responsible for a car accident. Policies vary from provider to provider, but comprehensive insurance generally covers you for damage to your car and property, as well as the other parties’ cars and property. A comprehensive insurance policy may also protect you from theft, vandalism and natural disasters.

What is vehicle finance?

Vehicle finance, also known as a car loan, is money that a consumer borrows with the express purpose of buying a vehicle, such as a car, motorbike, van, truck or campervan. Vehicle finance can be used for both new and used vehicles.

How much can I borrow with a car loan?

There’s no set number. That’s because borrowing capacity differs from person to person, as well as lender to lender.

Lenders don’t give out car loans unless they’re confident they’ll be repaid. Each person is different, so the amount of money one person can successfully borrow will differ from another person’s number. Also, each lender uses its own formulas to calculate borrowing capacity – so Mr & Mrs Smith might find that while Lender X will give them a car loan for $20,000, Lender Y will offer only $18,000.