When buying a used car, you’ll usually have two options: buying from a car dealer or buying from a private seller.
Which is better?
What to consider:
It’s hard to argue that one is truly ‘better’, at least if you ask the average Australian car buyer. According to the 2016 HelloCars Australian Car Sales Index, a shade under three-quarters of Australians (74.6%) believe that private sellers are dishonest, and two-thirds (66.7%) admit to feeling unsafe when buying through a private seller.
Dealerships didn’t fare much better – 85% of respondents admitted to feeling anxious or uncomfortable when dealing with car salespeople, and more than half felt pressured to buy something.
You don’t have to feel this way though, not if you know what to expect from each.
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 professionalism and quality of the customer service 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, 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
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.