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August 13, 2021 9:38 pm by

Should You Buy a Used Car from a Dealership or a Private Seller?

used cars sign with palm trees and sky


Is it better to buy a used car from a dealership or from a private seller? That’s a tough question. And the answer is… it depends.

Dealerships sell about two-thirds of all used cars, meaning just a third of used car shoppers turn to private sellers when it’s time to buy. It’s understandable. Most of the used cars for sale at any given moment are offered by dealerships. And shopping at a dealership, which has regular hours and a sales staff, tends to be much more convenient than working with an individual seller.

But that doesn’t mean buying from a dealership is always the way to go. Choosing to buy from a private seller has some major benefits. For instance, cars sold by private sellers generally cost significantly less than those at dealerships. Also, the nicest used cars on the market tend to be offered by private sellers.

In this article, we’ll look at five important factors that go into a decision to buy a used car from a dealership vs. a private seller and pick a winner for each one.

The Factors

dozens of cars sitting in a lot


First off, if you’re shopping for a brand-new car, only a dealership can handle that. The same is largely true for used cars that are “near new.” Virtually all of the available inventory for two- to three-year-old used cars is found at dealerships. That’s because most of these cars are coming back to the dealer as lease returns, which the dealership then lists for sale. Private sellers, on the other hand, tend to sell cars that are five years old or older.

Also, while a private seller usually has just one car to sell, the typical dealer stocks dozens. That means if you’re not quite sure what make or model you want to buy, you can visit a handful of dealerships over a weekend to compare numerous options back to back. To do the same with private sellers would take quite a bit longer since you’d have to arrange each visit individually.

That said, you can still use dealerships to test drive lots of different cars and then, once you’ve decided which model you want to buy, seek out a private seller for the actual purchase. Just make sure not to tip off the dealership sales staff about your plan. They probably won’t like it.

Winner: Dealerships

car with price tag in window


This one’s easy. Private sellers don’t have the overhead costs of running a business, so they typically sell their cars for 10-20% less than a dealership would. That’s a savings of several thousand dollars in most cases.

You can see this for yourself if you check the value of a used car on one of the major vehicle pricing sites, such as Kelley Blue Book. They have separate values for “private party” and “dealer retail” purchases. Guess which one is always higher.

Also, private sellers aren’t professional salespeople. That means they aren’t as likely to play the typical sales games, such as going back and forth to their “manager” to see if they can accept your offer. Private sellers usually want to wrap up a sale as quickly as possible and move on with their lives, not to string you along, hoping to eke out additional profit.

Winner: Private Sellers

car loan application


If you’re planning to take out a loan to pay for the vehicle, dealerships can facilitate the process. Most have their own finance managers, who will be more than happy to help you apply for a loan. That means you can go to a dealership, find a car, finance it, and drive away all in a single visit.

Most private sellers, on the other hand, only want to be paid upfront and in full, preferably in cash.

You can still finance a private party purchase, though. You just have to do it in advance. The best way is to visit your local bank or credit union and apply. Once you’re approved, they’ll provide the private seller with a check for the loan amount when you’re completing the purchase.

Some banks do have limits on the age or mileage of vehicles they’re willing to finance — typically around 10 years and 100,000 miles. But there are specialty lenders who work with older vehicles — for more about that, see our article How to Finance an Older Used Car.

Winner: Dealerships (but just barely)

trades sign made from old license plates

Trade Ins

If you have another vehicle that you’re planning to get rid of, most dealerships will gladly take it in trade when you buy a car from them. The downside is that you’re not likely to get a very good price for it.

Worse, some dealerships will tempt you into rolling any remaining balance on your old car’s loan into the new purchase. While convenient, this is not a wise financial move. Many consumers wind up thousands of dollars “underwater” on their cars — that is, owning more than they’re worth — as a result of this practice. We advise against it.

Private sellers don’t take trade-ins, of course. But you don’t need them to. Instead, to say goodbye to your old ride, try selling it yourself. That gets you the most money. Or if you don’t have the time or inclination to do that, you could offer it to one of several outlets that buy used cars without tying them to a new car purchase. These include physical retailer Carmax and online sites such as Vroom and Carvana.

For more details about this process, check out our article The Best Way to Sell Your Car: Trade In vs. Carmax vs. Craigslist.

Winner: Neither

young couple inspecting a used car for sale


Buying the best example you can find is one of the keys to success with any used car purchase, and the nicest used cars on the market tend to be offered by private sellers. That’s because someone who has carefully looked after a car year after year isn’t likely to trade it in when it’s time to buy a new one. Trade-in prices are the lowest out there, so if a car’s really nice, the owner will likely try to sell it on their own and get the most money for it.

On the other hand, the used cars on a dealership lot all come from one of three sources: lease returns, trade-ins, or auctions. That doesn’t necessarily mean they are bad cars. But it does mean that their prior owners probably didn’t think they were anything special.

Learning the details about a vehicle’s past — such as whether it was ever involved an accident, where and when it was taken for service, and so on — is also critical to identifying a high quality example. A private seller is far more likely than a dealer to know and share a car’s full history. And should you have any questions about the car and how it was used, there’s no person better to ask than its owner.

A dealership, by contrast, usually tosses out any records or other effects of the prior owner before they put a used car on the lot. On the plus side, they do typically furnish a free vehicle history report, which may provide some of that info.

But if you’re shopping private party listings, you can also just purchase a vehicle history report for yourself (and we recommend that you do).

Winner: Private Sellers

handing over the keys after the sale

The Bottom Line

If we add up the scores, it’s a tie. And that’s fitting because when you’re shopping for a used car you might as well search both dealership and private party listings. That gives you the best chance of finding the perfect car for you.

Still, be aware that dealerships offer more convenience than private party sales, with a tradeoff of higher prices. And if you’re shopping for models that are just two to three years old, such as certified-pre owned cars, dealerships are where to find them.

Meanwhile, private sellers tend to have the very best examples, especially for cars that are 5+ years old. It may take a bit more effort, but if you’re looking for a nice older car for a great price, buying from a private seller is the way to go.


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