How to become a car trader
Learn how to make money from buying and selling cars
Car trading couldn’t sound more straightforward: buy cars cheap, then sell them for a profit.
The trick to making money when you buy and sell cars is often to sell quickly, with car traders typically fetching anything from £400 per sale depending on the car.
You don’t have to be a car expert to be successful selling cars. What’s more, you can buy and sell cars on a part-time or full-time basis – perfect for an entrepreneur looking for a simple business idea. Follow this checklist to find out more…
Research the market
Where do you buy cars from? How long does it take to sell a car?
Before you can answer these questions, you need to do your research. Find out what types of cars are selling, and for how much, before you buy your first car.
When thinking about the best cars to buy and sell, also think about who your audience is, then decide how you might best cater to that audience. For example, do you want to specialise in selling a particular car make or model you know a lot about?
An excellent source of all things automotive is the Society of Motor Manufacturers and Traders (SMMT). As well as representing the interests of the industry, it provides a wealth of car data and research valuable to someone new to the market, including:
For example, according to SMMT data, more than two million cars changed hands in the third quarter of 2018, with a massive 28.6% increase in sales of ultra-low and zero emission cars. That’s a trend worth investigating.
Don’t forget that there are different ways to price your vehicles. You could start by looking at existing car adverts or car price evaluation sites to gauge how much you should charge.
Write a business plan
Work out your costs compared to how much you might sell the car for. Once you’ve done some market research and have an idea of what kind of cars you want to sell, you should then create a business plan.
This might not seem necessary – at least for your first car – but it is important to assess the viability of buying and selling cars as a business, and not simply as a hobby.
You should factor the following into your car trader business plan:
- Any repair issues the car may have
- Any aesthetic improvements you might want to make
- Legal regulations and marketing considerations you will want to be aware of (see below)
Once you know your costs, you will know how much you can afford to pay for a car, and can assess if you need to raise any finance.
Notify your local council
Selling cars from home is a great way to save money when you’re starting out as a car trader. If this is the route you decide to go down, you’ll need to notify your local council in order to ascertain how many cars you can have parked on the road at one time.
Get Motor Trade Insurance
Once you have the go ahead from the council, you need to get yourself some Motor Trade Insurance, which covers you when driving cars without you having to insure them individually.
Motor Trade Insurance is a great option as, unlike private insurance, it allows you to add and remove as many cars as you like without having to pay additional costs.
There are four types of Motor Trade Insurance:
- Road risk – minimum cover necessary to satisfy the legal requirements of the motor trade. Only covers vehicles registered on the Motor Insurance Database (MID)
- Third-party – covers you in the case of an accident that damages another vehicle
- Third party, fire and theft – covers everything above, as well as in the event of theft or fire damage
- Comprehensive – covers all scenarios mentioned above for any vehicle you own, and allows you to claim for personal injury
Apply for trade plates
Next, you need to apply for trade licence plates. These are essentially mobile tax discs that save you having to tax and register every car that is temporarily in your possession.
Apply to the Driver and Vehicle Licensing Agency (DVLA) for a trade licence to be able to use trade plates.
These plates last for between six and 12 months, and expire on 30 June or 31 December. First time applicants can apply for seven to 11-month licences.
Starting a business? Consider a business bank account to help clean up your finances
A business bank account is an excellent option for any new business owner. Helping you to separate your personal finances from your business expenses, it's an ideal way to keep your accounts efficient.
Of course, there are a number of options available, with many offering different packages and benefits. To find the best option for you, visit this business bank account comparison tool.
Buy a car to sell
There are a few different avenues you can go down when purchasing a used car. The most convenient is on auction and listing websites, such as:
- Copart UK
You can also look at car selling sites, such as:
- Auto Trader UK
Alternatively, you can find cars at auction houses, which tends to be a very cheap option; if you’re not an auction aficionado, make sure you visit a few times before actually making a purchase.
Buying a car privately or at an auction house means you will have less legal protection. Because of this, it’s vital you carry out thorough checks on the terms and conditions and the background of the vehicle.
REMEMBER: You might be going for maximum profit on every vehicle you sell, but don’t just buy the cheapest available vehicle and flog it for an inflated price – it could cost you more in refunds and repairs in the long run.
After you’ve purchased your first car, you need to make sure it’s ready for resale. Make sure the car has passed its MOT, as this will save a lot of hassle when selling it on; make sure it’s clean, and maybe even give it a spray job to make it more appealing.
If you are selling from home, you are not allowed to have any signage on your house, price boards on the cars, or to make any alterations to the premises.
A plethora of car listing websites will allow you to create an advertisement quickly and easily, or you could advertise in your local newspaper or car dealer magazines.
Alternatively, you could create your own website. Website builders such as GoDaddy allow you to create a professional website and choose from a variety of templates.
The best way to get your car noticed is using some good quality images that give a clear indication of what you are selling, and ensuring you have listed all the relevant information in your advert.
Here’s the essential info to include in a good car advert:
- A detailed description, including unique and noteworthy features
- The asking price and negotiating terms (be realistic)
- The mileage
- An honest assessment of the car’s condition and any issues
- Plenty of photos
- Maintenance and service history
Register as a sole trader
Once you’ve sold your first car, you should register as a sole trader (read more in our guide on how to register as a sole trader). It is important that you inform HMRC once you start trading so that you are registered for self assessment tax. You could be fined if you don’t do this!
As you start buying and selling cars more, you may decide to form a company rather than operate as a sole trader (read more in our guide on sole trader vs limited company differences). Even if you don’t set up a company, you may want to set up a separate bank account for your car trading activities to be able to track them more clearly.
Some tips on buying cars
Be sure to check the condition of the car you are buying, and check the car’s history online using the free government site. Make sure there are no outstanding hire purchase or conditional sale agreements, as you cannot sell cars that have either of these.
Once you go and see the car, you should take it for a test drive to get a feel for how it functions. This will also help you suss out any repairs you may have to make should you decide to purchase.
Finally, make sure the car has a V5C registration document. This can be used as proof of ownership, and is a way to keep track of registered keepers. If the person you are buying from does not have this, it could mean that the vehicle is stolen. You should check the vehicle’s history to be sure.
What is a V5C registration certificate?
A V5C registration certificate registers your vehicle with the Driver Vehicle and Licensing Agency. (DVLA)
It includes essential information such as the date the car was first registered, its manufacturer, its engine size, and who is the registered keeper – the person responsible for taxing the vehicle, not necessarily the owner.
Some tips on selling cars
As a car trader, you must observe the Consumer Rights Act (2015). Put simply, it stipulates that vehicles you sell must be:
- Of satisfactory quality
- Fit for purpose
- As described
The consumer has more rights than you, so it is very important that you tell prospective buyers everything you know about the car – if there is anything wrong once purchased, you as the seller will be liable.
The buyer is entitled to a repair, replacement or refund, unless you can prove the fault wasn't there at the time of purchase. You have one opportunity to repair the vehicle before a refund must be issued – in this case, you can make a “reasonable” deduction to the amount refunded to factor in their use of the vehicle.
Once you have a prospective buyer and they want to come and see the car, remember that you don’t know who you are selling to. It might be an idea to have a friend or family member present to ensure that you feel safe when meeting the customer.
Take the buyer for a test drive, and make sure you let them know everything about the car. Have all the documents to hand, such as MOT certificates, service records and V5C.
Both you and the buyer will have to fill out the relevant parts of the V5C and send it to the DVLA, who will then send it to the new owner with updated details. Do not let buyers make copies or take photographs of vehicle documents, but do make sure you hand them over once you’ve reached an agreement.
You can set your own warranty, or not have one if you wish. Remember to provide the buyer with a receipt.
Once you’ve sold your first car, you can go out and do it all over again, and call yourself a car trader.
Taking credit card payments
An increasingly high percentage of car purchases are made using credit cards. They present a range of advantages to the customer, including:
- Avoid paying interest
- Protection by Consumer Credit Act 1974
- Various reward schemes
Not taking card payments could be a major disadvantage for your business. Think of all those high-value sales you could lose!
Here’s what you need to take card payments for cars:
A merchant account
A merchant account is simply a type of bank account that allows you to accept credit or debit card payments.
It automatically authorises card payments made to your business for a small fee, and then deposits the earnings from the sale in your bank account.
Merchant accounts can also protect against card fraud.
Check out our comparison of the UK’s best merchant service providers and start comparing quotes today.
Card machines for small businesses
You’ll also need a card machine to take credit card payments.
Card readers are becoming increasingly compact and powerful, and there are many providers to choose from.
Most have similar functionality, so you’re likely to base your decision on:
- The price
- The transaction fee (usually between 1-2% of the value of the payment)
Not sure which card machine is right for your car trading business?
Not to worry – we’ve compared the 6 best card machines for small business so you don’t have to.