The important details of selling a used car
Buying and selling a car is an exciting process for everyone involved. The buyer gets to drive away with a new-to-them ride while the seller, whether it is an individual or a dealership, gets a whole lot of money handed to them. That being said, there’s some tediousness to the process that needs to be handled. That is to say, you have to transfer the car title.
When you transfer a car’s title, there’s paperwork to sign and fees to be paid. Plus, you’ll have to deal with getting proof of insurance. While the process of buying and selling a car is relatively simple, there are a lot of steps you need to follow, and you don’t want to get any of these steps wrong. Luckily, we're here to walk you through it!
Are you working with a dealership or a private sale?
The process of transferring your title will work slightly differently depending if you’re working with a dealership or you’re buying and selling in a private sale. If you’re working with a dealership to buy a new car, this is going to be a fairly simple process on your part. The dealership will charge you the title and registration fees in the price of the vehicle, and they’ll walk you through all the paperwork.
If you’re financing the car, the title will actually be in the lender’s name until you pay off the loan. Once you’ve paid it off, the title will be sent to you with a release that states you can transfer the title into your name.
If, however, you’re selling or buying in a private sale, things get a little more complex. All of the paperwork the dealership does, you’ll need to do yourself. Let’s dive in depth into what both the sellers and the buyers must do in a private sale.
Make up a bill of sale
Most states require that a buyer from a private sale present a bill of sale at the time of registration. This helps them ensure the sale was made legally. It’s the seller’s responsibility to make up this bill of sale since they’re the ones selling the car. The bill of sale should include the following:
- Purchase date of the car.
- The legal name and addresses of the seller(s) and buyer.
- The purchase price, which must be exact.
- The make, model, year and body style of the vehicle.
- The vehicle’s mileage at the time of sale.
- The Vehicle Identification Number (VIN).
- Statement that says there’s no lien on the vehicle.
- Signatures of the seller(s) and buyer.
- A signature from either a notary public or two witnesses, which is only required in a few states, so ask your DMV or registration office.
Most of the bills of sales I’ve created and received are quickly written out on a piece of paper by hand. But, if you want a PDF example, you can find example bills of sale by state on the internet fairly easily.[2]
What the buyer must do
Fill out the buyer fields on the title
The buyer’s fields on the back of vehicle titles are often a little easier to fill out than the seller’s. For example, in Maine, all the buyer needs to do is sign and date the title. Other states may require your address and the purchase price of the vehicle.
Take the title to the DMV
After you and the seller have completed all of the info on the title and have completed the bill of sale, you have to go to the DMV. You’ll tell them you just bought a new car and need to have the title transferred into your name.
Pay title transfer fees and any sales tax
While you’re at the DMV, you may also have to pay a title transfer fee and sales tax. Alternatively, the DMV may tell you to go to your town’s registration office to pay these fees. It depends on your state. After you pay these fees, you’ll also get new plates you can put on the car, and a temporary title until yours is sent in the mail.
How much do these fees cost? Sales tax is a percentage of the sales price. The exact percentage varies by state.[3] A few lucky states don’t pay sales tax. Those include:
- Alaska
- Delaware
- Montana
- New Hampshire
- Oregon
Other states have lower sales tax rates ranging from 2% - 4%. The states with the highest tax range from 7% - 7.5%. These include:
- California
- Indiana
- Kansas
- Rhode Island
- Tennessee
As for registration fees, these also vary by state. Some states charge a flat rate, some charge a weight-based rate depending on the weight of the vehicle, some charge based on the car’s value and others charge based on the age of the car. Here you can find vehicle registration fees by state.[4]
What if there’s a lien on the car?
Buying and selling a car that isn’t fully paid off poses a whole new set of challenges, and it’s best avoided when possible. For starters, if there’s still an outstanding loan, the lender is the one with the original title, not the seller. Plus, the lender is listed as one of the owners of the vehicles on this title. In order to get the title and have their name cleared from it, the loan needs to be settled and paid.
The seller will need to contact the lender to find out how to handle this situation, which will vary from lender to lender. Ultimately, the buyer can not purchase a vehicle while the lender remains listed on the title. That’s why it’s best for buyers looking to buy in a private sale to avoid these situations. Ask the seller before ever going to see the car if there is an outstanding lien on the car.