Is it illegal to buy crypto currencies off someone instead of an exchange like Binance or CoinHako?

While it is not illegal, you need to be careful of where the source of the crypto is from. Most exchanges are using on-chain analytic tools as part of their compliance practices to ensure anti money-laundering and to counter terrorism financing.

If you are flagged by exchanges, you can risk having our funds locked as part of investigations.

Not illegal ,,, it is like money , but u dont get same security n protection like exchange ... safest by exchange