What is a car purchase agreement?
A car purchase agreement is a legally binding contract between buyer and seller that finalizes the terms of a car purchase. It's sometimes referred to as a car sale agreement or dealer bill of sale. A bill of sale, however, typically refers to a simplified agreement that's used in a private sale as opposed to a sale at a dealership.
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How does a car purchase agreement work?
A car purchase agreement is usually prepared by the seller of the vehicle with input from the buyer on which details should be included. The car purchase agreement typically includes:
- Vehicle make, model, color, and VIN
- Vehicle mileage
- Vehicle condition
- Names, addresses, and signatures of the buyer and seller
- Itemized purchase price, fees, and taxes
- Financing details
- Any other information relevant to the sale
Once the buyer and seller agree on terms, they can both sign the contract. If it's a private purchase, some states may require a notarized signature. Once the car purchase agreement is signed, both parties can proceed with the car buying process, including signing any other required documentation, organizing payment, and completing registration.
What other documents do you sign at a dealership?
The buyer will likely need to sign more documents in addition to the car purchase agreement. Many of these documents will be related to the information in the purchase agreement. Here are a few documents the buyer can expect to sign:
Title
A title establishes ownership and is required to register a vehicle. It includes much of the same information as the car purchase agreement. The seller must sign the title over to the buyer or file the signed title with the BMV or DMV when the sale is final.
Odometer statement
An odometer statement records how many miles are on the vehicle at the time of purchase. Federal law requires odometer disclosure statements for the sale of any vehicle under 16,000 pounds and less than 10 years of age.
Damage disclosure statement
A damage disclosure statement is required in certain states to inform the buyer of any structural damage to the vehicle. It includes the inspection date, a description of the vehicle, its owner, and any major damage that requires repair or replacement. The damage disclosure statement protects the seller from a lawsuit. It also protects the buyer from investing in a vehicle that may require extensive repairs about which they were not made aware.
Loan agreement
This document includes details if the buyer is taking out a car loan, including the loan amount, interest rate, monthly payment amount, term length, and penalties for late payments. Find out what's required to finance a vehicle.
Other considerations after signing a car purchase agreement
After completing the sale, the buyer must register the vehicle and purchase auto insurance or add the vehicle to an existing policy. To register a car, the new owner must provide to their state's department of motor vehicles many of the same documents presented during the sale, typically including the title, bill of sale, personal identification, and proof of an auto insurance policy.
When it comes to auto insurance, nearly every state requires liability coverage, but if the vehicle is financed or leased, lenders typically mandate comprehensive coverage and collision coverage. Use our car insurance calculator to estimate how much car insurance coverage might be right for you.
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