What are Auto Contracts?

When you make an agreement, write it on an official document, and seal it with signatures, said document becomes a contract. It has been practiced by many people for years ever since 1871 by Christopher Columbus Langdell’s idea, which was later polished by Oliver Wendell Holmes, Jr. to Williston. By then, formal agreements get settled thanks to these written forms. If the contract tackles vehicles and automotive services, then the deal is already considered an auto contract. In short, auto contracts are the official forms concerning agreements of vehicle-related functions.

Besides automotive purchase agreements, there are more applications concerning auto contracts too. An example is a seller or owner financing loan contract wherein a car buyer receives financial aid, in the form of a loan, from the seller or owner. Although, monthly payment with interest will be scheduled to cover the loan. The automotive repair contract is another example, and it focuses on the bond between a vehicle owner and an auto mechanic about when a regular car service takes place. And these samples given above are just a few examples of auto contracts.

According to Statista, a consumer survey reveals that around 273.6 million vehicles—motorcycles, cars, trucks, and the like were registered in the US by 2018 alone. Statista also added that the United States had sold around 17 million light automobiles in 2019 alone.


What Makes an Auto Contract Important?

A survey from Statista mentioned that around 273.6 million vehicles—motorcycles, cars, trucks, and the like were registered in the US by 2018 alone. With that many cars and car owners, a lot of auto contracts are at work as well. Why are they important, you may ask? It is all about documentation. Without these official documents, certain agreements could be forgotten and ignored. Having a contract turns necessary for quick reference in case certain parties require evidence about particular details inside such forms. Furthermore, a contract is a reliable source for courtroom proceedings when asked for proof about any claim, agreement, and other factors inside its content. While covering numerous automotive-related services and functions, it is no question that contracts are also essential for setting regulations.

What are the Common Elements of a Car Dealership Contract?

One of the notable auto contracts is the car dealership contract. Vehicle dealerships refer to any seller or company that sells retail vehicles that are either used or new. A contract becomes pivotal in dealerships, particularly in setting the payment plans and terms between the buyer and the seller. When both parties fulfill their responsibilities as stated on the form, the process will end in a mutual agreement. What is inside such an agreement? Here are the basic elements usually found in this type of contract:

Preamble: A contract serves as a formal document and it should begin with an introduction. The formal way of introducing is to provide the preamble, which will prepare anyone who reads the agreement about what the contract is. Without this introductory part, people who check the sheet would still guess what its purpose is.Agreement: A person who writes or creates a contract is called a drafter. While mentioning the agreement information and decisions in the document’s body, the draft must also comply with the state laws. Otherwise, violations against the law can have the contract regarded as void.Deposit Fee: Dealerships eventually talk about finance. And, one of the payments required for most dealerships is a deposit fee. This option becomes taken by buyers who loaned or if sellers require an advance payment in the form of a deposit first. Such a value may cover around 10-20% of a car’s total value.Insurance Coverage: Any new car often covers insurance, and it is even a requirement in most cases. Insurance is a conduit for assurance that compensation applies to car damages, special services, and the like. Auto contracts likely mention the insurance agency involved as well.Interest Rate: Sellers who offer their buyers with loaned cars and purchases that involve a monthly cycle or retail installment will always demand interest. In every payment period, you should track these rates for awareness. Interest rates can be calculated easily via simple interest anyway. Simply use the P x R x T = I formula. That means Principal is multiplied by the Rate, and further multiplied by the time. The answer is your interest.Penalty Fee: Buyers must remain responsible for their financial obligations because there are penalties and policies in car buying too. For example, a customer probably paid late. If the contract stated what consequences follow for late payments, then how to handle that situation should not be difficult already. Some contracts even have vehicles repossessed if buyers failed to pay for three straight months. Thus, penalties require clarification on the form.Guarantor: Recognizing guarantors is essential, so all parties turn aware of who works as the representative for a buyer. This representative is necessary in case buyers cannot pay the loan or purchase already. Additionally, how capable the guarantor can pay will become investigated by the dealer for assurance.

What Are the Basic Parts of an Auto Contract?

Have you signed any privacy policy or checked the full details of some terms and agreements online? Believe it or not, but The Guardian found a study that the majority of people hardly read the terms of service or online contracts. In relating that statement to auto contracts, everyone must take time in reading and understanding what those documents contain. Hence, you might end up signing something you do not practically agree with. The question is, are you familiar with the common parts of these automobile contracts? Take a look at the standard parts you would notice in auto contracts:

Buyer and Seller Background

From a private sale, car repair service, and other related automobile-related deals, it is imperative to identify the buyer and the seller. Without doing so, it will be hard to determine who is signing the agreement in the first place. Indeed, some people plan to keep their full personal information private because 74% of US citizens even observe the importance of controlling their online personal details, according to the Federal Trade Commission (FTC). However, only 9% believed that they are in full control of such information. Back to contracts, only the relevant information must be given anyway for compliance in identifying who agrees to the content inside.

Sale and Pricing Information

Recognizing what is for sale is a must, especially for an auto contract example. The motor vehicle model, identification number, and the like will get stated. The same goes for finalizing if the product is a new or used car sale. Moreover, the prices need clarification. Merely stating the total amount of price is not detailed enough since it is vital to know what causes specific amounts. Pricing details may cover the documentation fees, registration fees, dealership fees, and others.

Financing Details

Besides the pricing information, clarifying the financing terms is essential as well. The down payment fee, trade-in value, loan interest rate, payment plan schedule, and term duration will most likely become covered here. A mutual agreement should occur to both customers and dealers here. Because of car purchase contracts, different financing regulations might happen.

How to Create an Auto Purchase Contract

While many people dream of purchasing cars, there have also been a lot of sales in the automotive industry. The US has sold around 17 million light automobiles in 2019 alone. Many purchasing contracts were used by vehicle owners out there for sure. If you are interested in buying and signing a similar arrangement or being a dealer who plans to make such a deal, then you benefit in identifying the steps of crafting auto purchase contracts.

Step 1: Learn the Basics

Before drafting a purchase contract or car dealer purchase agreement form, there are a few topics worth learning first. Start by complying with the standards from legal services to prevent conflicts. Dealers may need a license first, so there are requirements to comply with. Criminal background checks, state tax numbers, employee identification numbers, inspection tests, license application fees, and the like are some examples to complete. Moreover, you cannot forget that the auto purchase contract is also a bill of sale. Any certification that fails to cover the requirements will only turn null.

Step 2: Download a Template

After learning the basics, you choose a template to download from our collection of sample auto contracts. You concentrate on getting the template involving a purchase agreement to adapt relevance. What else is in store for you? You can freely customize these templates to stick with your preferred format or design. With a template prepared, that means you only input the required information next instead of starting from scratch. Bothering with your time and effort is out of your worries already.

Step 3: Determine All Parties

Any agreement or contract should identify every party, particularly the customer and the dealer. Thus, you provide a segment on the form specifically for background information only. Parties eventually will get identified according to their names, contact details, addresses, ID numbers, and other requirements. Nothing wrong should be present from the spelling and figures, or the entire contract would never be granted, perhaps.

Step 4: Specify the Car Details

Another segment in the agreement which should have correct figures and spelling is the vehicle information. Buyers want the specifics of what particular car they are getting. Maybe the promise in a spoken agreement is entirely different from what got described and mentioned inside the contract. The automobile identification number, color, model, and more about the vehicle shall cover this part.

Step 5: Never Forget the Conditions

Do not end with the signature line just yet if conditions and considerations are absent. Penalties like a breach of contract should even be part of these considerations. Ways to deal with consequences for those penalties must be present on the form as a preparation. If anyone fails to meet the obligations in the agreement, then that person knows what consequences will follow already. You review the conditions for that. Lastly, you provide fair and realistic considerations for those to be honored.


Are contracts needed for selling cars?

Contracts are needed in car selling to comply with the law. Without that contract, there is no proof of sale involved. Contracts even prove if the automobile is in worthy condition to become sold. Therefore, buyers must be hesitant in having no contract or proper documentation in their auto purchases to prevent possible scams.

What if I bought a used vehicle and it broke down?

You check if there is a warranty covered from the purchase despite being a used car. Without that warranty, no maintenance service might be around once the automotive breaks. Nevertheless, you should remember that returning used automobiles merely because you changed your mind is deemed unacceptable by law. This reason is why you should think twice before signing a contract to remain careful.

Is it worth it to sign a car maintenance contract?

Absolutely. That turns recommended if you have a used vehicle. Albeit, those with new cars that have a warranty almost similar to that of the maintenance service contract should no longer find the contract necessary. New vehicles hardly need maintenance for the first few years anyway.

Are you ready to form your auto contract? Just make sure to ask these questions. Do the agreements stated in the contract seem fair for both buyers and sellers? Did you provide enough detail on the document already, or some changes are still necessary? Have you reviewed all information before submitting it or provided an addendum in case of possible additional conditions? With that said, there is a need for assurance in finishing the process of making an auto contract carefully. Otherwise, that typical buyer’s dream of finally driving a car may cease without an introduction to the real deal of automotive contracts yet.