Do you buy a car through a car dealer or a private seller?

author-avatar By on April 13, 2021
Do you buy a car through a car dealer or a private seller?

When buying a used car, you’ll usually have two options: buying from a car dealer or buying from a private seller.

What to consider:

  1. Costs of buying a used car
  2. Quality and trust
  3. Private seller vs car dealer: pros & cons

Used cars are experiencing their time in the sun, with some used car segments fetching up to around 40% more than a year ago. This makes it arguably more important than ever to find a good deal, while also not compromising on reliability and other factors.

It’s hard to argue that one mode of car buying is truly ‘better’, and each option has their pros and cons. Can you really trust Steve who's trying to sell his VX Commodore ... but can you also trust Simon the slick car dealer who says you're getting a great deal on the car at the caryard? 

In the market for a new car? The table below features car loans with some of the lowest fixed and variable interest rates on the market.

Costs involved in buying a used car

We’ll cover the cost aspect of buying a secondhand car first and foremost, as dealerships and private sellers can both lead to financial advantages over the other if you get it right.

Buying from a dealership

Buying a car through a dealership is often more expensive than buying from a private seller, at least up front. This is because dealerships will usually have cost margins (e.g. rent and wages) to cover, so they might boost the price of a car slightly to compensate for this. However, the convenience and peace of mind at a dealership can make this cost worth it.

Licensed car dealerships usually feature:

  • Thoroughly inspected and repaired cars (if significant damage was done)
  • Clear title guarantee – no unpaid debts owing on any cars (more on this below)
  • Statutory warranties and cooling-off periods as enforced by state governments to protect used car buyers from major faults
  • Drive-away price tags that include the cost of stamp duty and registration

So while the dealership price might be more expensive than what your neighbour is selling the same car for, you’ll have the surety that it won’t explode on you five minutes after you drive onto the road. If you’ve done your research and compared the price across other dealerships, then you can also haggle with the dealer before finalising a deal. If you’re not happy with the price they’re offering, take your business elsewhere!

Buying from a private seller

It makes sense to think you can get a better price on a used car sold privately: there’s less of a chance that the seller is a car expert and therefore they might not be fully aware of a car’s value. On the flipside, they might have an over-inflated sense of what their car is worth, and could set an equally over-inflated price tag. This means you often have more wiggle room to negotiate a better price and can always walk away if they won’t play ball.

Private sellers may also have less patience than dealerships, because they may be keen to sell the car quickly (e.g. they might be moving overseas or need the money to pay for a new car) – putting you in a better position to get a bargain.

Crucially, when buying through a private seller you should check that there isn’t an encumbrance on the car, i.e. there isn’t a debt on it. You should avoid buying an encumbered car, because if the borrower was to default on the debt, the lender could repossess the car from you, despite the debt not being yours!

It’s entirely legal, if slightly unethical, for someone to advertise a car for sale with finance owing without saying so, but there is a simple way you can check. Search that vehicle’s registration number in the Personal Property Securities Register (PPSR) for as little as $2 per search. If an encumbrance is reported on the register, you can contact the lender to confirm whether or not that debt has been repaid.

If you receive confirmation that there is an existing debt, but you still want to buy the car, you should arrange for the sale transaction to take place in the office of the lender, where they can confirm you unencumbered ownership of the vehicle.

Example: Neil doesn’t check for finance owing

Neil Down wants to buy a BMW off Stan Dup after responding to his ad on Facebook Marketplace. Stan is offering a sweet deal – $1,000 less than the market price and the car appears to be in good condition after an inspection. Neil hands over the cash and after a bit of paperwork, the beamer is his. Or so he thought.

A few months later, a tow truck appears on Neil’s driveway. It turns out Stan has vanished overseas with over $10,000 in car loan repayments still to make on the car, which he has stopped paying. Poor Neil had no idea about this debt. He sobs as he watches his BMW towed off into the sunset.

He vows to always do a PPSR check on future cars.

Quality and trust

Saving money is only part of the equation for buying used cars. You also need to know that you’re getting a car that’s in good condition and if it’s not, it needs to at least be disclosed as such.

Buying from a dealership

It’s true that buying through a dealership can be more expensive, but you might consider this the price you pay for the peace-of-mind that you’re getting something reliable. Cars sold through licensed dealers are typically less likely to break down soon after the purchase date, and if they do, the repairs are often covered by a statutory warranty that guarantees repairs for the affected parts for a period of time.

Also, dealerships are responsible for removing any encumbrances from cars before their sale, so you don’t have to worry about your car being repossessed because of an unpaid debt you don’t owe.

You can be confident in the safety of the car, but there’s a bit of a grey area in terms of trusting the dealership; they’ve been known to overcharge for extras you may not need, such as rustproofing, extended warranties, roof racks – the list goes on. There’s also the possibility the dealer may try and outright sting you with a higher price, but you can combat this by arming yourself with the market pricing information for that car. You can do this through websites like RedBook.

Buying from a private seller

The peace-of-mind offered by dealerships can, unfortunately, be what you sacrifice for a cheaper price by purchasing through a private seller. While some sellers would have done their due diligence and properly valued the car based on its current condition, some others won’t know what’s going on inside and out. Even key info such as the build year and model may be listed incorrectly. It will be your responsibility to check this, so you should always look at the following aspects of the car:

  • The outside: paintwork, damage to the tyres and panels, oil leaks and broken windows
  • The inside: working seatbelts, working lights and accessories, and wear and tear on the seats and carpets
  • Under the bonnet: check the compliance plate (to confirm the build date), radiator cap, battery and cooling fans for signs of corrosion or damage

If you aren’t comfortable doing this, then you can arrange to have a mechanic or inspector do it for you (for a price of course). You should also ask the owner to provide:

  • An accident and owner history
  • A car service history report
  • Information on reported insurance claims and written off records
  • Registration details
  • Records that prove the odometer reading is correct

Never assume that the seller is being 100% honest with you, even if you know them. It’s possible that they just don’t know all of these things about their car, but it’s imperative that you do before proceeding with the sale.

So long as you have your wits about you, there’s still a good chance you can find a regularly-serviced, carefully-driven car for a good price via a private sale. A loving car owner is less likely to part with their pride-and-joy for a low trade-in price at the dealership if they could get a higher price by selling it themselves, so there will be some great value privately-listed cars if you know where to look.

Buying from dealer vs private seller: pros & cons

Dealer  Private seller 
Cons
  • Often more expensive
  • Professional salespeople can pressure you into unnecessary purchases and add-ons through tricky sales tactics
  • The car might be encumbered
  • It’s easier to get it wrong if you don’t know much about cars
  • No warranties or cooling-off periods
  • Less legal protection
  • You and the seller are responsible for the paperwork (bill of sale, registration, transfer of title etc.)
  • Harder to get a secured car loan
Pros
  • Thoroughly inspected cars
  • Guaranteed title (free of encumbrances)
  • Legal protection, warranties and cooling-off periods
  • Additional services (e.g. handle paperwork, accept trade-ins)
  • It can be cheaper than buying through a dealership 
  • You may be in a better position to negotiate
  • Can find better quality, well cared for cars

Savings.com.au’s two cents

There are financial pitfalls to both car dealers and private sellers: you could end up paying too much after getting fleeced by a car salesman, or you could waste money on a car that breaks down the instant you’ve put your name on it.

But private car sales can offer a better opportunity to save big money, so long as you do your due diligence. This includes checking RedBook for pricing information, arranging for a professional inspection of the car and conducting background checks for any past write-offs or outstanding debts.

Do everything in your power to not get taken for a ride.

Article first published 16 October 2018, last updated 13 April 2021.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*The Comparison rate is based on a $30,000 loan over 5 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

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author-avatar
William Jolly joined Savings.com.au as a Financial Journalist in 2018, after spending two years at financial research firm Canstar. In William's articles, you're likely to find complex financial topics and products broken down into everyday language. He is deeply passionate about improving the financial literacy of Australians and providing them with resources on how to save money in their everyday lives.

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