Buying a Used Car From a Dealer vs. Private Seller

There’s nothing quite like the freedom of owning your own car. The possibilities are endless: you can take a cross-country road trip, getaway for a weekend with friends, or just hit your town’s country back roads for a few hours if the mood strikes.

Cars are expensive, however, and we here at Ratehub, are in the business of helping you make smarter financial decisions. It usually makes sense to purchase a pre-owned car instead of a new one.

You’ve probably heard the well-trodden warning that new vehicles lose a lot of value as soon as you drive them off the lot. And, as it turns out, that’s pretty close to the truth.

According to CARFAX, new cars lose 10% of their value in the first month of ownership, depreciating a total of 20% in the first year from the date of purchase. They continue to lose value by 10% per year for the next four years after that.

So, assuming that’s enough to sway you toward purchasing a used car, the next decision you’ll need to make is whether you should buy used from a private seller or a dealer.

Buying a car privately vs. a dealer: the price

Buying used is obviously cheaper than buying a new car. But there are some other financial considerations between the two. Generally speaking, you can expect to get the same vehicle a little cheaper from a private sale than you can from a dealer.

Dealers have more overhead costs they need to cover, so they need to make a profit on the cars they sell. Private sellers, on the other hand, are usually more willing to negotiate and get the vehicle off their hands.

Autotrader.ca is an excellent place to compare used car prices. You can filter by car make, model, year to see how various available options stack up against one another. You can compare mileage, location, and get a sense of what you can expect to pay if you choose to purchase from a private seller or a dealer.

Visit Ratehub.ca’s car buying guide: How to buy a car

The financing options between a dealer vs. a private seller

How you plan on purchasing a used car is another important consideration.

While dealerships can offer in-house financing, allowing for monthly, bi-weekly, or weekly payments, private sellers require the entire purchase price up-front.

That’s not to say you can’t finance a used vehicle if you’re purchasing privately. You’ll just need to secure financing from another institution, such as a bank or credit union, before closing the deal. It’s a good idea to get a few car financing quotes regardless of where you’ll purchase your car. A few phone calls, emails, or branch visits could save you hundreds throughout your car’s lifetime.

Read more on our blog: 6 factors affecting your car loan

Peace of mind at a dealership vs. on the private market

Buying a used car from a dealer

One advantage of purchasing from a dealer is the peace of mind with a certified pre-owned vehicle.  A certified pre-owned vehicle ensures you’re getting a licensed and brand-expert mechanic performing a detailed inspection. They also only use original equipment manufacturer (OEM) parts. They also give you the CARFAX report of ownership, accidents, and repairs the car has received.

Purchasing from a dealer can offer peace of mind in the form of a warranty. Many will provide short-term warranties to cover any sort of manufacturing defect. These typically last a month or more, which might be enough for you to feel confident you aren’t buying a lemon.

Dealers also have a reputation to uphold, so they won’t purposely sell a defective vehicle.

Private used car sales

On the flip-side, when purchasing privately, you know who’s owned the car in the past (assuming they’re the first and only owner). Having this knowledge might offer some confidence when purchasing a used vehicle.

Complete a thorough test drive that’s not about how you feel with the windows down. How does it shift from park to drive and don’t forget to reverse – did you hear any funny sounds? Did it feel ok? Test all the windows to make sure each one opens and closes; if not, that’s a sign of electrical problems.

You might be able to score extra bonuses from a private seller, too – like winter tires or specialized mats.

How to protect yourself from private used car sales

Check the used vehicle information package

In Ontario, sellers are legally required to provide you with a used vehicle information package (UVIP) when selling a second-hand vehicle. You should make sure that all information listed in the package matches up with the car you’re buying. Details of the car that can be found in the UVIP include:

• The vehicle condition, year, make, model, colour, body type, cylinders, and power
• The registration history in Ontario (present and previous owners of the vehicle)
• The lien information
• The average wholesale value
• The retail sales tax information
• The bill of sale

Check the vehicle history report 

You should definitely consider buying your own vehicle history report from carfax.ca. It can tell you any accidents in which the vehicle was involved and any unfixed safety recalls which gives you some potential insight as to how well the previous owner cared for their car.

Check for outstanding liens

Along with your vehicle history report, you can also purchase a lien check from CARFAX. If your car has a lien registered against it, that means that an interest in the vehicle has been given to a third-party lender (e.g. bank, financial institution). The vehicle is typically used as security or collateral for a loan, so if the debt hasn’t been repaid, the lender gains ownership of the car. 

That’s why it’s important to check for outstanding liens – you could be responsible for paying off the remaining debt. And you wouldn’t want to lose your newly purchased (used) vehicle because someone else didn’t pay off the financing. 

Check the vehicle identification number (VIN)

One rising trend in car theft is the re-vinning of vehicles – thieves place what looks like a real vehicle identification number (VIN) in the front dash of a stolen car to convince customers of a legitimate sale. To protect yourself, you can actually check your VIN with CARFAX to ensure that the electronic record matches with any hard copies you receive. And you can also look up VINs with the Government of Canada to ensure the car isn't filed as stolen.

A note on insurance when buying used from a dealer or a private seller

You can test drive the car using their insurance, but before you take ownership, you need to have auto insurance in place. In fact, if you haven’t compared car insurance quotes already, make sure to do so – it could help narrow your decision.

Typically, the difference between a model a few years older is about 8-10% cheaper in savings. Still, depending on the model, you could save as much as 50% if the newer model has newer technology or fancy new cameras. An older model car could be more expensive if it’s been in a lot of collisions, prone to failure, or gets stolen a lot.

Finally, don’t just take the owner’s word for it when they tell you about what they pay for car insurance. For one, every driver is different, and driving records reflect that. But, also Toronto car insurance costs more than Burlington car insurance because of things like theft, fraud, and population density. There are fewer accidents with fewer cars on the road.

The bottom line

There are advantages to purchasing a used car – and there are some advantages and disadvantages to buying from a car dealership vs. private owner.

Weigh your options, determine which route is best suited for you, and happy car shopping. One word of advice, regardless of how you choose to procure your used vehicle: Have it inspected by a reputable mechanic. If a seller has nothing to hide, they likely won’t mind you having someone you trust to take a look under the hood.

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