There are still many myths circulating about the process of buying a used car. Debunk those myths and discover how to buy the right used car that fits your budget and needs.
For most first-time car buyers, the mere idea of shopping for a used car conjures up the types of scenarios that give it a bad reputation. Find yourself on a scrapyard populated with a fleet of rusted-out junkers, as Mr. Sleazy Snake Oil Salesman — his obnoxiousness surpassed only by the garishness of his suit — proceeds to upsell you on a lemon while downplaying (read: ignoring) all of its faults, talking you into an auto loan with a record-high interest rate. Handing you the keys, you drive off, and a block away, your new used vehicle breaks down in a plume of thick smoke. Oh, and it’s not covered under your warranty.
Why do these types of stereotypes still persist in the auto world? We’re here to debunk them for you. Shopping for the perfect used can be a seamless process, getting you behind the wheel of the wheels you want while saving you money. Keep reading to find out how to get the best deal on a used car.
How to budget for a used car
Whether you’re looking for a Lamborghini or a Toyota, there is a method to finding the best deal on a used car. The first step is to set a budget. Finding a used car involves first asking yourself the question, “How much car can I afford?”
The frugal rule of thumb to budgeting for a used car is to spend 10% to 15% of your annual income (or less). So, for example, if you earn $50,000 a year, a frugal budget would be $5,000 to $7,500. But, of course, only you know what you can (or want) to budget for a used car.
Say you don’t want to spend more than $10,000 on a vehicle. Do you have that amount to pay a dealer or third-party seller in cash? Review the amount you have in a savings or checking account. How much can you spare to spend on a car? Will you have enough money left over in reserve for an emergency fund or to pay your other expenses?
Choosing the suitable model will save you lots of money. Avoid fast depreciating cars like luxury sedans and vast SUVs because they become endless money pits right after their warranty ends”
Are you also open to taking out an auto loan at a car dealership? (And have you recently checked your credit to see if you would qualify?) A loan allows you to pay off the car over time, but an interest rate can drive up (no pun intended) the total cost of the used car. One good rule of thumb is to make a 10% down payment on a car. The shorter the loan, the lower your interest will be, and the better your credit score, the lower your interest rate (also known as an APR, or Annual Percentage Rate).
Remember that budgeting for a used car doesn’t only include the cost of the vehicle. Don’t overlook the cost of auto insurance in your budget, which depends on the type of car you buy and your own driving record and experience. Many schools of budgeting thought exist, but one accepted rule of thumb is that your auto expenses shouldn’t exceed 20% of your monthly income.
Consider the certified route
Another automotive myth to debunk is that all used cars are riddled with repair problems that are more costly than they’re worth and have been driven into the ground by their prior owners. However, there is always the risk of buying a lemon. Certified Pre-Owned, or CPO, vehicles are one option to consider to minimize the risk. Here’s why:
- Low mileage: Certified pre-owned vehicles are often those returned to a dealer at the end of a brief lease period, with minimal life on the odometer.
- High depreciation: Most new cars depreciate 20% after the first year and 10% every subsequent year, which should reflect a more affordable sticker price of a late-model CPO car. Low mileage + high depreciation = $$$ saved.
- Like new: To become certified, a pre-owned vehicle must go through a complete, thorough inspection and repair that meets automaker guidelines before a dealer can resell it. If a CPO car was treated well by its previous owner(s), there’s sometimes no discernible difference between it and a new car after it’s been refurbished. (Except a lower cost to own.)
- Warranty coverage: With a third-party or private seller, don’t expect a used car to include warranty coverage; that’s all on you. However, most certified pre-owned cars include a warranty that covers repairs, very similar to what you’d receive when buying a new car.
Buzelis suggests weighing the pros and cons of going certified pre-owned.
Here is a list of the benefits and drawbacks of certified pre-owned cars.
- CPO cars are in very good condition.
- Warranties are usually bumper to bumper.
- Used cars can be 30-50% cheaper than buying new ones.
- More expensive than ordinary used cars.
- Terms and conditions vary with each manufacturer.
- Smaller choice of models.
Things to consider when purchasing a used car
Before starting your engine, you’ll need to start your search for the right pre-owned car. Think about your new-used mode of transportation and familiarize yourself with the different types of sellers. For the purposes of this article, let’s break them into two camps: car dealerships and third-party sellers.
Private seller vs. used car
Deciding whether you should buy from a private seller or a dealership is not an easy choice. Both options provide significant benefits and disadvantages. Let’s summarise the main pros of each option and then cover each one in more detail.
Here is a list of the benefits and drawbacks of certified pre-owned cars.
- Some dealers offer certified used cars.
- Larger selection of vehicles.
- Easier to get auto financing.
- More likely to have a manufacturer’s warranty.
- Private sellers don’t have the overheads of dealerships and can afford lower prices.
- Typically provide a more detailed maintenance history of the car.
More car buyers prefer dealerships and we are seeing a significant growth in digital dealerships. According to a 2020 survey by Zebra, 61.4% of respondentes prefer to buy from a dealership and only 13.5% buy from private sellers. If finding the lowest price is your priority, you may want to go the private seller route. However, dealerships are usually the better choice for buyers who value buying a car with a guarantee and want access to a wide selection of auto financing lenders.
Pros and cons of buying a previously leased car
One in three new vehicle sales are leases. So if you are buying a used car, particularly if you are buying from a dealership, there is a good chance you are buying a previously leased vehicle.
Buying a previously eased car can be a great deal because leases include a meticulous inspection to ensure the vehicle was not severely damaged. For this reason, many drivers will extra careful how they drive their car to avoid being charged extra when returning the vehicle.
Because of the requirements of most lease contracts, leased cars are also more likely to have low mileage and only a couple years old. There is also the advantage that dealerships provide professional maintenance on leased cars, so they are in good condition to resell once the lease ends.
Here is a list of the benefits and the drawbacks to consider when buying an off-lease vehicle
- Lower prices and better value. The firsts “owner” absorbed most of the initial depreciation of the vehicle.
- Most off-lease vehicles are still covered by the original manufacturer’s warranty.
- Likely to be in good condition and have low mileage.
- There is the risk (as with any used car) of hidden issues with the vehicle.
- Higher cost than older used cars with a higher mileage (duh).
The bottom line is that off-lease vehicles can be a great deal for buyers looking for newer cars with lowe mileage that are still covered by the initial manufacturer’s guarantee. Of course, as with any used car, it’s still important to thoroughly inspect it before buying.
Choose the type of used car you want to buy
The next step is to research the type of used car that’s right for you. Start by narrowing down the make and/or model you’re interested in. For example, say you’ve decided you’re in the market for a late-model Toyota Camry. Visit Toyota’s website and search the used and CPO Camry inventory within the distance from your location you select. Your search results should display all the pre-owned Camrys at each of those dealers. There, start taking note of details for each individual car for sale: year, mileage, color, features, and most important, MSRP and any special dealer offers.
Finding a used car from an independent seller may take more time, research, and even luck since lots of cars flood the third-party market. But there are places you can begin your search to find used cars in your area, like CraigsList, AutoTrader, or CarMax. (Full disclosure: Yours truly sold his last car to CarMax, which offered me more money than I had expected, based on my own Kelley Blue Book appraisal of my car.)
Do your research and calculate a ballpark figure using as many details as possible including make, model, year, mileage, options, and overall condition”
How to research used cars
Research, research, research — see them as the three Rs of used car buying. Unlike new cars, used vehicles have different repair and driver histories, wear and tear, mileage, and sticker prices. Checking out online reviews can give you an informative look at highly-rated used makes and models that tend to sell at prices saving buyers money.
Read online rankings and reviews from Consumer Reports or U.S. News, or use Edmunds.com’s Car Finder tool to find the right match car for you. A small Honda Fit, for example, might not serve your needs well if you have a large family, carpool six people a day, or haul lots of cargo. And a used Hummer might not give you the fuel efficiency or compact size appropriate for a daily driver, leading you to spend more than you need.
“Choosing the suitable model will save you lots of money. Avoid fast depreciating cars like luxury sedans and vast SUVs because they become endless money pits right after their warranty ends,” says Matas Buzelis, head of communications at carVertical.com.
Used car price estimator tips
On a dealer lot, in the window of each used car should be the obligatory sticker listing the make, model, year, mileage, and vehicle features, along with the MSRP. Don’t immediately take this price at face value. Download the KBB app and check for yourself if the car you’re browsing, entering everything, from the same condition to configuration, is valued the same … or if the dealer is over-inflating the selling price.
The same applies to used cars sold by a third party. Even when a private seller lists their car on a paid membership site like AutoTrader, it still makes sense to consult the Blue Book to minimize the possibility of overpaying. “Do your research and calculate a ballpark figure using as many details as possible, including make, model, year, mileage, options, and overall condition,” says Chris Muller of DoughRoller.net. “The more information, the better.”
Check the used vehicle’s history report
Acquaint yourself with the vehicle’s history. For example, how many prior owners has it had? Any major repairs? Has it been involved in any major or significant accidents? These are details you need to know as a potential buyer that the potential seller is obligated to provide.
Thankfully these answers are easy to find. “You can get the car’s repair history by ordering a report from a service like CARFAX using the license plate number and VIN,” says Muller. “Well-spaced repairs might be an indication of good maintenance. Many repairs, and you might want to watch out.”
There are, however, some red flags to look out for. If, through CARFAX, AutoCheck, carVertical, or another service, you find the vehicle in question has what’s called a salvage report, steer clear (no pun intended). Often, insurance companies will issue salvage titles to cars that have technically been totaled out due to an accident or other catastrophe, but the car remains on the road. It could indicate that the vehicle has other issues or problems unaccounted for.
“Shady history of a car may also be a key for negotiating success, but it may be a sign to avoid the deal too,” maintains Buzelis.
Once your online research is complete, it’s time to contact the seller to meet them and your prospective new ride. “If you’re lucky enough to have a mechanically inclined friend, bring them with you, but in any case, it’s a general rule of thumb not to go alone,” says Muller. That doesn’t mean meeting in some dark, dangerous alley. But for the sake of safety and to ensure the seller is on the level, schedule your appointment during daytime hours, in a public space, to maximize safety.
Perform a pre-purchase car inspection
You can’t judge a book by its cover, and you can’t judge how well a car runs by a blemish-free paint job. The car you’ve eyed up may have an exterior in great shape but could be full of engine troubles and mechanical errors, not worth the trouble of buying it. If you know your way around a car, you’re entitled to examine the car — no matter whether it’s a car sold by a dealer or a private seller. Here is a list of questions you can work through when performing a pre-purchase car inspection.
Pre-purchase used car inspection checklist
|Pre-Purchase Used Car Inspection||Yes/No|
|Do the brakes make a grinding noise?|
|Does the car favor one side when applying the brakes?|
|Does the parking brake work correctly?|
|Can you see signs of corrosion in the battery terminals?|
|Are there cracks in the windshield?|
|Do the headlights, brights, directional lights and tail lights work?|
|Are there any dashboard warning lights on?|
|Do all the gauges work?|
|Do all the power windows work?|
|Do the hazard lights work?|
|Do the exhaust pipes emit blue or black smoke?|
|Does the engine emit an odor?|
|Does the engine leak oil or fluids when it is on or off?|
|Does the engine make any strange noises, such as knocks, ticks or hisses?|
|Are there any dents or scratches on the body?|
|Do all doors, trunk and hood open and close properly?|
|Is there any rust in the door edges, hinges or trunk?|
|Can you adjust the seats?|
|Do the locks all work from the inside and outside?|
|Do the windshield wipers, blades and fluid work?|
|Does the air conditioner work?|
|Does the heater work?|
|Does the stereo work?|
|Does the owner have a title?|
|Does the sunroof work?|
|Manual used cars: does each gear shift smoothly?|
|Manual used cars: does the car make noises when in reverse?|
|Does the car or steering wheel shake or vibrate at any speed?|
|Does the steering wheel align with the wheels?|
|Is there any resistance from the steering wheel when turning?|
|Do the tires have any cuts or cracks?|
|Is the spare tire inflated?|
|Is the tread unevenly worn?|
|Is there a functional spare tire and jack?|
And speaking of taking someone along to check out the used car you’re interested in, we recommend bringing a mechanic to inspect it, even if it’s a CPO vehicle fixed up. “This is always money well spent to get a third party professional opinion,” says Muller. His further wise advice: “Make sure to use your own independent mechanic and not one related to the seller.”
And if the seller prohibits you from letting your mechanic check out the car, walk away and resume your search for a car. It sends the message that the seller has something to hide … and that they want to saddle you, the prospective buyer, with a problem car. Don’t settle for anything less than a fully transparent transaction — and that goes for negotiating, too (which we’ll get into later in the article).
Used car test drive
Buying a used car means nothing if you’re not comfortable driving it. So, taking the vehicle you’re thinking of buying for a test drive is a must. Again, a dealership or a private seller should permit you to give it a full test run — not just a quick trip around the block, either.
“Always give the car in question a serious test drive,” suggests Muller. “Give it a complete evaluation, including the ‘little things’ like amenities (power seats, steering, windows), the sound system, AC/heat, lights (including emergency blinkers), and how the car’s handling performs.”
There really is no substitute to having a real mechanic look it over with you. However, here is a short list of the things to consider in a test drive you can take with you.
|Used Car Test Drive Checklist||Yes/No|
|Does the car idle well?|
|Does it sound smooth?|
|Does it sound like air is escaping?|
|Does smoke come out the engine?|
|Does smoke come out of the exhaust?|
|Go on the highway and accelerate briskly up to speed. Did the car respond adequately?|
|Brake aggressively. Does it feel like the car pulls in a specific direction?|
|Does the suspension make a lot of thumping noises over bumps?|
|Is there a popping sound when your turn?|
But make sure to pay attention on your test drive to what matters most: Does the car drive well — and handle safely — at highway speeds? Muller recommends hitting the highway for a stretch on your test drive. “Give it a good stress test and get up to a speed above 55 MPH,” he says. “That’s a speed at which you’ll be able to notice and feel more, like a bent rim, compared to the minimal feeling at a slower speed. Does the car shift gears smoothly? Does smoke come out of the exhaust? Make sure to listen to the engine and to check and listen to the brakes. You should listen while the windows are rolled down for any squeaking and/or grinding while making a harder stop.”
Can you negotiate used car prices?
Negotiate, negotiate, negotiate. We may have just used the word negotiate three times in a row, but don’t worry: saving money on a pre-owned car doesn’t require becoming a master wheeler dealer. Follow all of the above tips (crafting your own budget, researching the car’s reliability and market value, inspecting the vehicle, taking it for a test drive, etc.), and your target used car prices will become clear.
How much can you negotiate on a used car?
Be mindful of some of the differences between negotiating with a private seller and through a dealership salesperson.
Third-party sellers benefit from the one-to-one nature of the transaction. Generally speaking, a happy medium for the car’s selling price is where you should ultimately meet. If they offer the car at one price, go lower — as low as you think is fair according to your research. Says Muller: “There are apps that will show you what others in your area are paying for similar vehicles. Let the seller start the price negotiation and return with a figure 30% below the asking price. That’s usually a good place to start.”
For example, if the seller asks for $5,000 for their used car, make a counteroffer of $3,500 to see where the process goes. And so on and so on, if the back-and-forth goes smoothly. Of course, if the seller is immovable and negotiations reach an impasse, compromise by offering a price somewhere in the middle — or with another incentive — to approach your favor.
“You can sometimes try to offer cash,” says Muller, “but for safety, don’t bring the money with you.”
“This holds especially true if you’re buying a used car from a dealership,” adds Muller. “If the salesperson wants to go ‘run the numbers’ or ‘request permission from the boss,’ tell them you’ll negotiate more by phone, give them a contact number, and leave the lot. This way, they’re more likely to call you with an even lower price to get you back in the door. Even so, it’s usually better to sleep on a decision and not make one out of impulse.”
Key personal loan statistics
Negotiating at a dealership may involve a bit more haggling savvy since salespeople work on commission with a vested interest in earning as much profit as possible. But that doesn’t mean you don’t have leverage:
- Always enter negotiations with a cash offer on the table. Even if you ultimately decide to finance, sticking to your cash-only guns can discourage a salesperson from pressuring you into a lopsided auto loan with large payments and costly interest.
- You might be able to more powerfully negotiate for a used car that’s been sitting on a dealer’s lot for a while — with good reason. “A dealership’s goal is to make as much money as possible, and time is their biggest enemy,” says Buzelis. “They won’t drop the price down of a car that’s been in the lot for just a few days. However, they want to push out the cars that have been there for months.”
- Keep your mind and your eyes open to other cars for sale on the lot, says Buzelis. “Researching similar models shows that you’re not dying to buy that exact car, which is good for negotiation.”
- However, adopting a determined attitude about that one used car you’ve got your heart set on can conversely aid you in the negotiation process. “Salesmen are good at identifying committed buyers,” says Buzelis, who notes that the opposite sometimes applies to private sellers. “If you’re buying from a third-party, don’t show excitement because the seller won’t have a reason to drop the price then.”
And as we mentioned earlier, don’t hesitate to terminate negotiations if the seller/salesperson or finance manager tries any strong-arm tactics to upsell you against your financial wishes. Always be ready to walk away if the deal isn’t going your way.