The paperwork and payment are easiest when the seller owes no money on the vehicle and already has the title in hand. But even if this is not the case, there are certain precautions you can take which offer protection no matter the situation.
The following guide offers general best practices when buying or selling a used car to a private party. The specific requirements for transferring a title differ slightly from state to state, so always be sure to check with your local DMV for details.
This is the best case scenario. First, both parties should fill out and sign a Bill of Sale which lists the Vehicle identification number (VIN), agreed purchase price, odometer reading, and name/address of the buyer and seller.
Next, the buyer needs to take care of the payment. The best way is at their bank, in person. The buyer should get a cashier's check made out to the seller for the amount agreed to.
Another option is to use an escrow service. We recommend Escrow.com, which protects both buyer and seller.
Whatever you do, don't agree to wiring money when doing a private party sale - there is simply too much fraudulent activity associated with this.
After the payment has been transferred, the seller needs to sign the title over to the buyer (instructions are normally provided on the back). The seller will then need to contact the DMV within 5 days to transfer ownership and release themselves from any liability for the vehicle.
Again, check with your local DMV as each state has slightly different requirements.
If the seller still owes money on the vehicle, then their lender will be in possession of the title. It will only be transferred when the seller has paid off the loan in full.
In this scenario, there are basically two options. The buyer and seller can both go to a local branch of the lender (if it's available). The buyer can pay the lender directly and provide them with their name and address so they can fill out the paperwork and have the title transferred.
The other option is to complete the bill of sale and have it notarized to help protect the buyer against fraud.
The buyer will then make payment either through check or escrow service, and the seller will use that payment to pay off the loan and get the title. In the meantime, the buyer will have to take the bill of sale to the DMV and get a temporary operating permit so they can use the vehicle while waiting for the title.
Once the seller gets the title from the lender (usually in about 10 days), they will then mail it to the buyer and the sale is complete. This option requires a bit of trust by the buyer since they will have to make a payment without a title.
That's why it's important to get the Bill of Sale notarized and why you should consider using an escrow service.