New and Used Car Purchase Agreements 101

Happy couple working on paperwork at a car dealership.

It is not uncommon for consumers to make the mistake of signing contracts without reading them first. However, once you have signed a contract, you are legally bound to adhere to the terms to which you have agreed. This is particularly important to keep in mind when you are signing a car purchase agreement for an expensive new or used car. It is easy to be overwhelmed and excited about your purchase and just go along with what the salesperson tells you, but you need to pay attention to what you are signing.

What Is a Car Purchase Agreement?

Car dealerships use a car purchase agreement, or car sale agreement, to finalize a sale. These contracts serve as a sales agreement between the buyer and seller.

If you are purchasing a used vehicle from a private seller, the seller may ask you to sign a bill of sale, which is a very simplified form of car purchase agreement. It is necessary so that the sellers have proof that the vehicles are no longer in their possession if the vehicles should be abandoned or involved in hit-and-run accidents. It also serves as a “pink slip” for the buyers until the paperwork is complete.

What Is Included in a Typical Car Purchase Agreement?

A bill of sale is the simplest form of buying contract, typically used only during private-party sales where you pay for the vehicle in full upon purchase. A bill of sale is usually one page long and will include the following:

  • The seller’s name and address
  • The buyer’s name and address
  • The make, model, year and color of the vehicle
  • The vehicle’s VIN number
  • The number of miles on the odometer at the time of sale
  • The date of sale
  • The purchase price paid
  • Signatures of both the buyer and the seller

The car sale agreement that you will sign at a car dealership is much more complex, particularly when you are financing the purchase of a new car. You may feel overwhelmed by the document’s length and all the fine print. However, these contracts are not as difficult to understand as they may at first seem. They are nearly always standard forms, as most states require all dealerships to use the same general contract form. The only thing that differs is the information that the parties supply on the form.

The best way to understand the contract is to be aware of what is included in it. The contract generally consists of three parts:

  • Buyer information: This part of the contract will contain your personal information as taken from your driver license and from questions asked by the salesperson. If you have a co-signer or co-owner for the vehicle, that person's information goes on the contract as well. Details will typically include the following:
    • Your name
    • Your address
    • Your birth date
    • Your Social Security number
  • Sale and pricing information: This part will list the overall sales price. It will be broken down into the following:
    • Vehicle sales price
    • Price of each added option, listed separately
    • Fees, which may or may not include the following:
      • Documentation fee
      • Destination fee
      • Advertising fee
      • Dealership fee
      • Registration fee
    • The amount of your sales tax
  • Financing information: This part will document the financing terms if you are financing the purchase of your new car. Information here will include the following:
    • The total purchase price of your vehicle, including fees and taxes
    • The amount of money paid on a down payment
    • The value of your trade-in
    • The total amount you will be financing
    • The interest rate of your loan
    • The term, or length, of your payment period
    • The amount of your monthly payments for the duration of the term
What Are Some Things You Should Look for Before You Sign?

Remember, your car sale agreement is a binding contract. It is important that you review it carefully before you sign. According to Consumer Reports, these are some things to look out for:

  • Mistakes on your personal information: Look over your personal information to ensure it is accurate.
  • Extra fees: According to Edmunds, some unscrupulous dealerships may try to beef up their profits by adding questionable fees. Always review the listed fees carefully. If you see fees that you do not understand, ask about them. If you do not agree to the inclusion of certain fees, state as much and do not sign the contract. You may be able to get them removed or your may find another dealership that does not include them. It helps if you asked about fees prior to sitting down to complete a car sale agreement. If the dealer did not mention certain fees, you will usually be successful in having them taken off.
  • Charges for agreed-on free items: If your salesperson offered you something like a free upgrade on your sound system, check the sale and pricing information to ensure that this upgrade is included on the list and that it is marked as $0. If it shows any other amount, cross off the amount and write “$0” next to it. Then, subtract the amount from the total purchase price before signing. Or better, have your salesperson re-print the contract.
  • Added options that you did not request: When you look through the added options, if you see something that you did not agree to purchase, put a line through the item and the sales price and subtract the amount from your total. Or, you can request that your salesperson reprint the contract. If you feel that the item was included on purpose rather than in error, you may want to take your business elsewhere.
  • The interest rate on your financing: If your salesperson offered you a great interest rate on financing and the amount listed on your sales contract does not match it, question it and have it changed before you agree to sign anything.
  • The amount of your down payment: Make sure that the amount entered matches the amount that you paid.
  • The value of your trade-in: Ensure that the value listed on the sales contract matches the offer made by your sales person for your traded-in vehicle.
Knowledge Is Power

When you understand what is included on a sales contract and know what you are looking for, you can review the contract in a matter of a couple of minutes. Remember, you are under no obligation to sign. If you feel that the dealership is engaging in shady practices, you are free to walk out and shop somewhere else. You will find, however, that most dealerships are very honest. Any mistakes that may appear on the sales contract are usually data entry errors. It is always in your best interest to check before signing.

There are other guides you can find in the world of autos - namely, a guide in the insurance world. Independent agents can help you get the car coverage you need without simply selling you the products of a parent company. Trusted Choice® independent agents work with multiple insurance carriers, so you can compare several quotes before you buy, after just one call, click, or visit to an office. These agents can explain your options and advocate for you when it comes time to file a claim.

Have you ever been cheated by a car dealership? Tell us about it in the comments.

meg stefanac blogger

About the author: Financial blogger and business owner, Meg Stefanac, has more than 15 years experience working in the financial services industry and enjoys helping individuals make solid financial decisions. Meg has extensive experience writing about insurance and finances and is a key contributor to TrustedChoice.com.

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