How to Buy a Used Car

The first step to buying a used car is choosing a vehicle, or at least narrowing your options. Ask yourself: How many passengers do you regularly carry? What sort of trunk or cargo space do you need? What is the minimum gas mileage a car has that will stay within your budget? What would your auto insurance be? Are there certain vehicles you feel more reliable or offer a better warranty? Once you’ve decided on the possible makes and models, it’s time to find the one.

Photo by KB35 via Flickr

Before you buy a car you want to know

What are the specifications?

Make sure the car you’re looking at, is the one you researched. Many models have an assortment of engines and options and it’s easy to get confused.

How many miles does it have?

Lower mile vehicles generally mean less wear and tear on the vehicle. Anything above 15,000 miles/year is considered a high mileage vehicle.

How many owners has it had?

A car that’s been passed around the whole neighborhood, or an owner that’s selling after owning only a few months could be a sign of a lemon. This is also a good opportunity to find out the history of a vehicle, for instance, if it’s been in the same family. My current car was bought and traded into the same dealership for an upgraded model; it gave me confidence in my purchase that the previous owners liked it enough to buy a new one.

Is the title “in hand?”

This is generally only a concern for private party vehicles. If the vehicle is financed, the title is held by a financial institution. The money must be paid to the bank or credit union for you to take true ownership of the vehicle. In this situation, I suggest making a deposit with the person, and purchasing the vehicle the next business day at the financial institution so the title can be released to you immediately.

Is it a “clean” or salvaged/branded title?

A vehicle that has suffered damage that was too expensive compared to the vehicle’s value may be salvaged. This can happen through theft, car accident, and other reasons. Some salvaged vehicles are fixed to near perfect fashion and are perfectly safe to buy, but unless you have some knowledge of mechanics and bodywork I wouldn’t make this your first choice. In some states like Nevada, it’s even illegal for a private party to sell a salvaged vehicle.

Has it been in any accidents? If so, how was it repaired?

Accidents do happen. Sometimes they happen more than once. A car accident can range from a small fix to a complete t-bone. The small fix is generally repaired and the owner sent on their way, while the larger incident may result in the aforementioned salvage title.

A rule of thumb is replacement is better than repair. During repair, a bondo fill can be used. This is where a (hopefully) excellent body worker fills in a crush or dent that can’t be pulled out. The vehicle is sanded, painted and sent out the door. Unfortunately, if you don’t have a great body shop, the bondo can warp and looks like putty. It is also a cheap fix and may be indicative of the state of other repairs.

Does it have service records available?

Service records prove that general maintenance has been done and may alert you to any future recommendations from the mechanic.

Why is the party selling it?

There are perfectly rational explanations to sell a car. Someone might need more passenger or cargo space, or need the cash. You may have to weed out some people who are just tired of a vehicle with never ending repairs.

Can you have your mechanic look at it?

While the large franchise dealerships generally have reputable mechanics on site, you should be able to request a mechanic look at a vehicle any other time, whether small dealership or private party. If you like the car, tell the salesman: “At the end of our test drive, if I like the vehicle, I’d like to take it to my mechanic for an inspection. You are, of course, welcome to come with me.” A salesman working on commission is very unlikely to deny your request.

Buying the Car

You can buy a car from a dealer or from a private party. Buying a car from a dealer simply means you are buying from someone whose business is selling cars; a dealer can be a major operation with an automotive franchise, or a single individual who sells cars from his driveway. Buying from a private party means you are purchasing the vehicle from an owner.

Dealership

If you are interested only in a brand new car, a large franchise dealership is where you’ll head. Since they order direct from the manufacturer, in some cases, you can even custom order the options you want. However, the depreciation when it rolls off the lot can be a hefty bill to foot. A dealer can always sell a used car for more than you can. Why? When you buy a used car from a large dealer, the assumption is made that the vehicle needs little or no “reconditioning.” All of the major systems are in good mechanical order, the interior has been detailed or replaced as necessary, and you shouldn’t have to take it to a mechanic any time soon. Some dealers go a step further with “Certified Pre-Owned” vehicles which must pass a specific set of inspections.

Used Car Lot

So where do the small dealerships get their cars from? Almost every town has a street lined with small scale dealerships, or that one guy who’s always selling cars. These are not connected to a manufacturer, and generally do not have a (legitimate) body shop or mechanic on site. When cars are traded into dealerships, the dealer will weigh what they paid for the vehicle against what they can sell it for and how much time and money it will take to recondition. Sometimes the decision to ship out a vehicle can be as simple as, “We’re a Ford dealership, and don’t have a really good chance at selling a Chevy Malibu with our current lineup.”

These cars are sent to dealer or wholesale auctions. They are sold at a great price to other dealers who then sell them on their lots. The quality of the cars available on these smaller lots vary greatly based on the quality of the lot that is selling them. They are still bound by all of the laws that a franchise dealership is, but if after looking at the vehicle you wouldn’t buy it from a man on the street, don’t buy it from anyone else.

Private Party

You can also buy a vehicle through a private party sale. That means an individual who owns a car is selling it for any number of reasons. Individually owned vehicles sell for much less than a similar one at a dealership due to the reconditioning that a dealer vehicle undergoes (theoretically). The real benefit of buying a vehicle from an owner is a chance to know the vehicle’s history. The service records and accident history can tell you a lot about what you are getting into. Even walking up to the owner’s house: if they’re lawn is littered with trash, how do you gauge the upkeep of your potential new ride?

Negotiate

No matter what you do: NEGOTIATE. I have never walked into a dealership that won’t “haggle” and I refuse to accept a price labeled “firm.” A sale in front of a person is generally better than the one that might come in. That philosophy gives you extraordinary power. When I bought my first truck from a dealership I was offered an incredible deal by a friend of the family. The Dodge Dakota that I wanted happened to have sat on the Chevrolet lot longer than they hoped so they gave it to me for wholesale and threw in a warranty for half price. When we sat down to sign the final papers I asked if they would throw in the taxes, title, and registration, too. They said “No” but it would’ve been far worse to me if they would’ve said “Yes” and I never bothered to ask.

Wherever you decide to purchase a car from, you need to be able to pay for it.

Paying for a Used Car

It should go without saying, but you are always better to pay with cash in hand. If the vehicle you’re looking at is too expensive to buy with cash, take the time to assess if there is a vehicle that you can pay for with cash that will meet your needs. If not, your next step is financing.

I purchased my Dakota with dealer financing. Because it was a used truck, it didn’t qualify for the financing that comes direct from the manufacturer. This is the deal you will often see at 0% for 60 months, but you must have great credit, and it usually only applies to new vehicles. Instead, the dealership had a relationship with a credit union association, and arranged for a loan through my credit union. You don’t have to go through the dealership to obtain outside financing, though. On my most recent vehicle purchase, I called my credit union and pre-qualified for an auto loan. This allowed me to figure out what my budget was before I got my heart set on a vehicle with monthly payments that would put me in the hospital.

If there is any way you can avoid monthly payments, please do so. I have never taken on an auto loan that hasn’t gone underwater for a portion of the vehicle’s life span. If you’re heart is set on a vehicle that requires payments, take three months and pull the payment out of your monthly budget. Make sure it doesn’t tighten your belt too much. Check to see if it causes you to put more on credit cards. If it’s not bad, then go ahead with the comfort of knowing you already have three months of “emergency” payments set aside.

Websites to Help Your Search

When you go to buy a vehicle, remember that your buying power is directly related to the information you possess.

  • Kelly Blue Book is a nationally recognized vehicle valuation tool. It will help you to gauge the trade-in value of your own vehicle, and how much you should pay for you next one through both dealerships and private parties.
  • Carfax reports on what has happened to your vehicle. Where has it been titled? Does it have any accident reports? All of these answers and more are available.
  • Autotrader.com has detailed specifications, reviews, safety information and classified ads to help you.
  • Edmunds.com has similar information to Autotrader, along with a True Market Value tool to help better gauge the immediate local value of some vehicles. TMV takes into account how even the color of your car may affect it’s sale.

About the Author

By , on Jan 6, 2010
A. Black writes about graciously building wealth through thrift and putting the stereotypical notion of a "tightwad" on its tush at Modern Tightwad. For frugal tips and money management solutions with a tightwad twist visit her website or subscribe to her feed..

Leave Your Comment (8 Comments)

  1. A.B. says:

    Wow! Thank you for all of the feedback!
    @Mario: Those are some great tips. I knew about bondo, but I was unaware that a simple magnet could be so revealing.

    Thank you Rodger, Kristin, and Nick for your kind words.

  2. Kristen says:

    This post and comments provide a great “buying a used car” guide. Thank you for it – I’ll be sure to recommend it to FiLife users who are dealing with this issue…

  3. Rodger says:

    I think very useful, great tips.

  4. Mario - The Arm and Leg Safe Shopper says:

    I’ve sold used and new cars, working at independent and brand franchise dealers (but I am glad I’m out of the auto business now–too many horror stories). While there’s more prestige in working at the big dealers, I had the most fun and great learning experience at the independent dealers. Worked my way up to the point where I was the one buying cars at auctions. It was quite an adventure.

    Unless you can convince your trusted mechanic to spend time with you at the get go, you can do your own quick initial body and engine inspection… More often than not, a “buyer” visits the dealership on his own or with friends who may or may not have a clue.

    If you find yourself on your own looking at a used car, there are some preliminary checks you can do to assess whether it’s worth your time to stay and take a closer look or give it a pass… it’s important to check for body and engine problems. For the average person, it might seem daunting to figure this one out but if you’re willing to get slightly dirty then you can assure yourself the protection from getting bamboozled.

    Run your fingers between the gaps of the front side panels and the hood. Do the same for the rear panels and trunk and door gaps. If they are uneven (i.e. one side is raised, or gap widths are inconsistent), it usually means the car has been in an accident. You can also use a magnet and do random checks along the body. If you find a spot where the magnet doesn’t stick, that area has been “bondo’d” meaning, it was a former site of a big dent. Any sign of accident is a big red flag. You don’t know the extent of the damage. It may be minor, it may be major… like frame damage which means the structural integrity of the vehicle has been compromised. These things you won’t see unless you strip the car. While it may have survived the first accident, it might not be the case the next time around. Walk away. It’s not worth your peace of mind.

    Engine check. Simply start the car. Check for two things… strong smell of gas and blue smoke coming out of the tail pipe. This could mean an engine block problem. There are additives that can be put in the engine to mask these signs. All you have to do is pop the hood open and pull the oil dip stick. If the oil is thick and sludgy, and/or it’s a color other than brownish, that’s a red flag. Dealers should re-condition their used inventory before putting it on the lot, meaning they should have at least done an oil change. Also look closer, if you see tiny specks of metal, it’s a sign of metal on metal grinding inside the engine, most likely the crankshaft. This is a potential major repair. Walk away.

    Go for a test drive. See if they’ll allow you to get on the freeway. Pick the lean hours so there’s no traffic. Get the car through its motions. Check for signs of pulling left or right, vibrations on the steering wheel. It may be something minor as balancing and alignment problems or it could be major like bent rods or arms, another sign of accident damage.

    More importantly… don’t give in to high pressure tactics. You don’t have to decide right away. If they tell you the deal won’t be there tomorrow, then you’re better off not doing business with them. Go home and sleep on it… but before you leave, jot down the VIN number. Ask the salesperson to show you where it is. There’s two locations, one is a stamped plate at the front windshield corner (seen through the windshield) and one on a sticker at the driver’s side door area.

    With all this information on hand, you can do your history search (CARFAX) in the comfort of your own home.

    Hope this helps.

  5. A.B. says:

    @kenyantycoon: You are right, sometimes people are passing on a car with problems, but sometimes they are selling for other reasons. It may be part of an estate sale. I once sold a car in excellent condition with a full transferable warranty because I couldn’t afford the payment, gas, and insurance with a work change. The only reason I’d advise giving used cars a second chance is the depreciation a vehicle undergoes when you drive it off the lot. Otherwise, stick with your comfort zone.

    @Cents: Congratulations on the triplets, and the great deal! I had a jetta that the insurance company almost salvaged because the front bumper cost $3000, and that was the only damage. Like you said, have it checked out, otherwise a salvaged car can be a great deal, sometimes 50 cents on the dollar.

    @Jon: Yeah, exploding with green liquid is never a good sign. A fluctuating gas needle can be obnoxious, but as long as you have a good working trip odometer, you can estimate within close proximity when you’ll hit a quarter tank. Any good running car with low miles is usually worth a couple thousand. (I’ll see what I can do on the “selling a used car” article.):)

  6. Jon says:

    Good tips- going to be helping my folks buy two used cars this year, so I definitely needed a refresher on how to go about it. You know it’s time for to trade in your used car when it breaks down one exit away from an important interview downtown in traffic and the radiator explodes green liquid…

    On another note, my gramps just passed away (went in his sleep- we were happy for him), but he had a Buck LeSabre with 40k miles on it that I’m now driving. The gas needle fluctuates by about a half tank give or take but it’s a solid drive for the $2500 we will pay for it. Maybe you all should do an article on how to sell a used car as well.

  7. Cents says:

    Good tips. I think cars with a salvage/reconstructed title can be a great deal IF you have them professionally inspected prior to purchase. I have owned 3 cars with reconstructed titles and would do it again.

    A few months ago when we found out we were having triplets, we were set on getting a newer Toyota Sienna minivan but all the used ones were going for $15k+ with high miles. We ended up purchasing an ’04 with only 48k miles for $10k. Had it checked out at a dealership for $150 prior to purchase and everything was like new.

  8. kenyantykoon says:

    while i have never bought a car, i am for the idea that people must take as much precautions as they can because the previous owner is most likely selling the thing because he cannot handle the expense and wants to transfer it to other people. i hope to avoid this by not going to used car lots and buy a new car when the time is right. until then, its the bus and an ipod

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