Who is cheaper - a car dealer or a private seller ?

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Besides getting Brand NEW cars from the manufacturer, dealers often get late or current model cars for real cheap from many sources. Here is a list where the dealers get cars from :

1.) From Lease Returns or Turn Ins.

2.) From Dealer level auctions for example Manheim Auctions

3.) From Trade-Ins

In all the cases above , the depreciation is heavily worked into the acquisition cost for these dealers. Now consider the same model car for at private party - Usually car payments are 4 to 5 years and the private seller would atleast expect a price on the car close to his car loan pay-off amount. The seller's payoff balance can be higher due to the following reasons :-

1.) He decided to finance his car at the dealer and did not get a good rate 2 years ago

2.) He was up-sold to additional not required services and warranty and gap-insurance that was factored into the cost of the car.

3.) He missed a payment and now his payoff amount has increased due to an increased percentage rate.

 

So for cars around 2-4 years old most time dealers are able to give you a better pricing.They will offer a car at several thousands below the book value as compared to private sellers. The story flips the other way around for cars > 5 years old. By that time the first owner(s) of the car has usually paid it off and when he tries to trade it in , is offered far below it is actually worth. So some sellers wise up and decide to sell it themselves and can give you good deals. For low budget, high mileage  cars for school and daily  use ($1500 to $4000) range the dealers simply cannot sell it as cheap as private sellers, since they need to make atleast couple of thousands on a sale. The dealer is not ripping you off , it is just that they have high overheads like just like any other business , rent,utility,staff,sales commission etc.  So basically at that kind older , high mileage cars , private sellers is the way to go.

The short summary here is : For purchasing newer (2-4 Yr) old cars look at both dealer and private seller. For older cars , deal with private sellers only.