How To Close a Used Car Sale
Whether you've just sold your used car, or you've just bought a used car, you need to make sure to file all the paperwork and close the deal properly. While the laws governing the sale of motor vehicles vary from state to state, the general outline of the deal is similar. For the specific steps, make sure you check with the department of motor vehicles (DMV) in your state.
As a buyer, you will have to prove you are the new legal owner of the car in order to register it. In most cases, this means you will have to get the title (often called the "pink slip") from the seller or possibly a bill of sale. With title in hand, go to your state's motor vehicle registry, where you may be required to pay sales tax before they will give you the new registration, title and (in some states) new license plates.
As a seller, you will need to make sure you receive the proper payment for your car and limit your liability (in case the new owner crashes the car right after driving away in it). Below, we take a look at the sales transaction from both sides: the seller and the buyer.
Cold, hard cash is the easiest way to collect payment for a used car. The buyer might request a receipt for the cash. If you provide a bill of sale, this will serve as a receipt. When cars are sold for amounts above about $2,000, a cashier's check is recommended. When cars are being sold remotely, an escrow service can be used to facilitate the transaction. The escrow service essentially verifies that the funds are paid and transfers them from the buyer to the seller.
It's unwise to accept promise of future payment from a buyer even if it is someone you know. If the car is wrecked, their motivation to pay you back is greatly reduced. You are well within your rights to refuse to float loan payments and in most cases, the buyer will understand and quietly back down.
Limiting Your Liability
What if someone drives away in the car you just sold and they get into an accident? Can you be held responsible? There are two ways to deal with this concern. Record the odometer reading and sign the car's title over to the buyer. In most states, a release-of-liability form can be downloaded from the registry of motor vehicles Web site. For links to the different registry sites, see "What Fees Should You Pay?"
- Have a smog test performed (if required in your state).
- Fill out a release-of-liability form, including current mileage, and file it with the registry of motor vehicles.
- Provide maintenance records (if available) to the new owner.
- Receive payment either in cash, a cashier's check, or through an escrow service.
- Take the license plates off the car if required by your state.
- Clear out the glove compartment, other interior storage areas and the CD player.
- Hand over both sets of keys to the new owner along with any warranty papers for the battery, tires, etc.
- Cancel insurance for the car.
When You Buy a Used Car
If you buy a used car from a dealer, they will handle all the paperwork and register the car for you. Here, we cover the private-party-to-private-party sale in which the buyer needs to handle the paperwork themselves. While there are many small steps to closing a used car sale, the big picture is this: You need to obtain proof that the car was legally purchased and the amount of money that it cost.
- Get a smog test from the seller if required by your state.
- Make sure that the registration is current or you could be held responsible for late fees.
- Get the title (also called the "pink slip") signed by the seller and with all the information properly recorded. (In some states you might need a transfer of ownership document, which is attached to the title.)
- Have them fill out a bill of sale if required in your state — this can also be shown to the police if you are stopped right after the sale.
- Pay state sales tax when the car is registered.
- Activate or update your insurance policy.
Where To Finalize the Transaction
Most people will sell a used car from their home or office. However, some people might be uncomfortable with this (even though their address is on the title). If you are getting a cashier's check from a bank, you can always meet the buyer there. Then the question of payment is easily resolved and it makes a neutral meeting place. Often, you can also ask the bank workers to make photocopies of the documents if necessary.
If There Is a Lien on the Car
In some cases, the car you are buying might have a lien on it. That means the title is in possession of the bank or lending agency. Banks are set up to facilitate this kind of sale, so you will need to check with the bank to learn exactly how to proceed. Essentially, the seller will need to make sure that the balance of the loan is paid off before the car is transferred to the buyer. This might take some time and delay the sale.
One way to deal with this situation is to conclude the sale at the bank where the title is held. Call ahead and ask them to have the title ready. Then, once money has changed hands and the bank has been paid the balance of the loan, sign the title over to the buyer.
What if the buyer calls you the next day and says he or she doesn't like the car and wants you to take it back? They might even claim that you didn't reveal something about the car or they have discovered a mechanical problem.
Keep in mind that the assumption in most states is that a used car is sold "as is." That means there are no promises or guarantees after the sale is concluded. The time to thoroughly inspect the car is before the sale is concluded. However, you need to let common sense and decency prevail so each problem can be resolved.
Also, be aware that if you are buying the car sight unseen from an online auction, the transaction process is more complicated and you could be the target of scammers. Read this article on avoiding online fraud.
Wrapping It Up
Private-party buying and selling is the best way to save money on your car ownership expenses. While the process involves some trust, it goes most smoothly when you are well acquainted with the laws and common practices governing the process. Take the time to read and follow our checklists and let them guide you safely and quickly through the transaction.