Private Sellers versus Dealerships: Which is Better?
Once you’ve narrowed down your preferred range of cars, decided on a budget and considered the best financing option, the pre-purchase excitement should be kicking in. But before you take the plunge, consider whether a dealership or private seller will give you the best chance of securing the right car. Here are some key points to bear in mind.
Lower prices: No matter what car you’re after, you are almost always going to get a lower price from a private seller than a dealership for several reasons:
- Dealerships charge a significant mark up for their efforts to find, register, inspect and repair used cars. Private sellers have no overheads or inventory costs that impact their offer.
- Private sellers are usually more motivated to sell quickly compared to the dealership, which can afford to wait.
- Private sellers are usually less experienced in sales negotiation strategies than car dealership professionals.
Greater potential to negotiate: Dealerships can only reduce the asking price of a car a certain amount before it becomes uneconomical to sell. Private sellers are free to accept any price, leaving you much more room to negotiate.
Make sure you know your exact budget. It’s important to take into account more than just the asking price of the vehicle itself, as you’ll need to have some money left over to cover the ongoing costs of ownership, including:
- Car insurance
- Road tax
Your car seller should also make you aware of any repair work the car may need, no matter how minor. Even if no repairs are required, it’s important to bear this potential future cost in mind when budgeting.
While this isn’t a particularly pleasant part of the car buying process, it’s necessary to help you find a vehicle you can comfortably afford.
Potential problems under the hood: While dealerships are legally required to guarantee the roadworthiness of the vehicles they’re selling, private sellers are not held to the same obligations. Although it’s rare, private sellers may fail to reveal potential mechanical faults or damage. We strongly recommend buyers always inspect the car before agreeing to the sale, just to check everything matches the description and there are no unwelcome surprises.
Sold “as is”: Agreeing to a sale with a private seller means you are accepting the car in its current state and will have no legal recourse to reverse the sale if it develops significant problems later, no matter how soon after the sale.
Paperwork: You and the seller are responsible for completing the relevant paperwork concerning the transfer of ownership, registration of taxation, etc. Fortunately, this is quick and easy with little legwork involved.
Legal protection: Dealerships are under numerous legal and regulatory obligations to ensure their cars have no mechanical deficiencies or faults. They cannot knowingly sell you a vehicle with any such problems and are legally obliged to present you with an entirely accurate description of any car they offer. In short, you should know exactly what you’re getting for your money.
Refurbished vehicle: When dealerships buy a car to resell, they refurbish it both mechanically and cosmetically. This accounts in large part for the price mark up compared to private sellers, but it also offers you peace of mind that the car you’re buying is in good shape.
Simplicity: Buying through a dealership allows you to leave all of the required paperwork to them.
Financing options: While private sellers mostly trade in cash, car dealerships will offer a wider range of options for you to make the purchase.
Warranty: Dealerships may offer warranties of different durations as well as after-sales service options.
Trade-in option: Dealerships will usually offer to accept your current car (if you own one) as part of the payment for the one they’re offering. Such trade-ins with private sellers are rare.
Higher prices: There’s no getting around it, the added legal protection and refurbishment of the car comes at a premium. Not only will you encounter markedly higher prices at the dealership, but you will also be less likely to negotiate any significant discount.
Sales professionals’ agenda: While professional salespeople come in all varieties, just like private sellers, they may advise you against your best interests. Dealership salespeople have quotas to achieve and may try to upsell to you, whereas a private seller only has one car to sell.
Taking out a personal loan
If you need to find alternative funds to cover all or part of the cost of buying a car, then taking out a personal loan with a reputable lender is a safe, manageable way to finance the deal. However, be sure to compare leading car loan options to find the one that’s best for you.
Competitive interest rates: If you are willing to shop around, you can secure a loan for the required amount at a low, manageable interest rate. Many banks and lenders will also offer discounts if you bank with them already.
Improve your credit score: Successfully repaying a manageable car loan will demonstrate your financial trustworthiness and build your overall credit rating. This can be vital for securing more significant future loans, such as mortgages or business loans.
Keeping cash in reserve: Buying the car upfront but spreading the payment out over time allows you to maintain more of your savings.
Higher overall cost: Depending on the length and size of your loan, you could end up paying significantly more than the car’s actual purchase value.
Lender holds an interest in the vehicle: Should you wish to sell the vehicle, the lender will appear on record as holding an interest in the vehicle on a car history report. This can only be removed once the loan is paid off in full. Buyers and dealers will want this cleared before buying the car from you or letting you use it as a part exchange.