How To Buy A Car In A Private Sale

Recently, my best friend bought a used Toyota Yaris from a co-worker. Before he bought the car, he asked me for my advice about how to go about doing it. There a few questions to ask yourself before you start looking for a new/used car:

  1. What condition is your current car in?
  2. How much do you anticipate spending on repairs to your current car?
  3. How much money do you have to spend on a new car?
  4. How much of a car can you afford?

My friend owned a 1996 Saturn (don’t know what model), and it’s worth about $1,500. It doesn’t have air conditioning and there are were some major repairs and maintenance possibly looming if he kept the car for another year or two. When considering getting a car loan for the first time, calculate roughly how much you could spend in interest. If the interest is similar to the amount you could put into your existing clunker, it makes sense to purchase the newer car.

My friend and his wife have an above average household inicome, but they live in Los Angeles, so the cost of living is also higher than normal. If he would have come to me and said he was considering purchasing a $25,000 car, I would have told him he’s crazy. If the amount of your cars is anywhere near 50% or more of your yearly take home pay, you’ve got problems. Instead, he wanted to buy a modestly priced Toyota Yaris that is fuel efficient and very reliable. He was not out of line to be thinking about purchasing it to replace his existing car.

My Recommendations

Since it was a private sale, I recommended that he save up enough money to pay for some of the car in cash and cover taxes and registration fees. Then, I told him to find a local credit union with private sale auto loans at a cheap interest rate. So, he did exactly that and more. He found a credit union right near his house, and he qualified for a loan for 4.75 percent. For the life of the loan, he’ll only pay $1,300 in interest, but he plans on paying it off before the end of the loan terms. He coordinated with the seller to come meet him at the credit union, sign the paperwork, and he had a new/used car at a great interest, a great price (because he didn’t deal with a dealership’s inflated prices), and he helped a guy who needed to get out of his existing car loan. The process was much more simple than he thought it would be buying from a private seller. When possible, I recommend buying one to two year old cars from private sellers, because you can often negotiate with less hassle and find better deals than at a dealership.

  • Nate @ Debt-free Scholar

    I still do not think that borrowing money for a car is ever a good idea. If he had just waited a year, he could have bought that car straight out and saved $1,300.

    However, there could be times when it might be necessary – like it you old car stops working.


    • NotMyCupOfTea

      The counterexamples would be.
      -Maybe he needed a particular car in that moment.
      -Even if he had cash, maybe would be able to make more off his cash someone else. I.e. Make 10% off stock market while taking out a 5% loan. It can be better to take out the loan.