Draft up a promissory notes. Have a lawyer do it use one of those online contract places if you have simple needs. Your promissory note need to cover
- Who the parties are (address, names, contact info)
- Time frame (when must it be fully paid)
- Amount of sale
- Monthly payments
- Due dates for the payments
- The specific car being sold (VIN)
- What will happen if you don't pay as agreed
- What will happen when you do pay as agreed
Be specific. There are probably a lot more items that can be included, and if a quick internet search is any indication it gets deep fast.
(Like @LittleAdv says)
Head to your DMV with the title and the promissory note. The title is signed over to you and held by the DMV. When you pay up, the seller informs the DMV and they send you the title. If you don't pay up, the seller can legally repossess the car. All butts are covered.
Pay the note as agreed. When you are all paid up, your friend notifies the DMV who then mail you the title.
Butt Coverage Wrap-Up
Your butt is covered because your name is on the car, you can insure it and nobody can take it from you (legally) if you are paying the note as agreed.
Your pal's butt is covered because if you stop paying half way through, he can keep whatever you have paid him and get his car back.