If you’re in the market for a new set of wheels, you can save big money buying used because, after all, the original owner or lessee already paid the bulk of the depreciation. If you don’t know how to buy a used car, however, you can leave money in the dealer’s cash register that should be in your bank account or, even worse, drive home with a lemon. Do your research, think before you sign and follow these tips for buying a used car.
Last updated: Jan. 5, 2021
Determine Your Budget
Step No. 1, when buying a used car, is the same as the starting point for buying a new car (or buying anything, for that matter) — find out what you can afford. That includes the cost of the car itself, title, taxes, fees, insurance and the principal and interest that constitute your monthly payments if you’re financing. Auto sites such as Edmunds offer budget calculators and other tools to walk you through the process.
Factor In Long-Term Costs
When setting your budget, it’s important to understand the long-term cost of ownership. The cost of insuring a car can vary considerably from one type of car, model or even color to the next. Fuel economy can make a difference of hundreds of dollars a year and thousands over a few years. Then there’s the likelihood of unscheduled repairs and their average annual cost. Sites such as RepairPal offer tools and calculators to help you gauge these costs for all major brands and most models.
Check Your Credit Score
If you’re planning on financing, the process for buying a used car continues the same way it does for buying one that’s brand spanking new, and that’s checking your credit score. Your score — and the financial history it represents — is what lenders use to assess the risk associated with lending you money. Free credit reports from the three major bureaus still don’t come with scores, but you usually can get your score from your bank or credit card company. If not, a free scoring service such as Credit Karma will give you a good idea of what your lender will see when judging your creditworthiness.
When you’re ready to buy a used car, it’s always a good idea to get preapproved for financing before you walk into the dealership. That allows you to negotiate from a position of strength. Preapproval lets you compare any offers from the dealer’s financing division against that of your financial institution so you can walk away knowing you got the best deal no matter which option you choose. As with some of these other steps, this principle applies when you finance a used or new car.
A financial institution like PenFed offers preapproved auto loans for qualified buyers, along with an easy online process. Its used car loan rates can be as low as 2.24% annual percentage rate when purchased through TrueCar. With lower rates, it should be easier to manage your monthly payments. And in the end, all of that adds up to you keeping more of your money and not having to stretch your budget due to high car costs. Before going into the dealership, make sure you’ve sorted through your best financing options.
Never Fall For the Patriot Act Scam
It’s always advantageous for the seller to know your true creditworthiness. Unless you’re financing through the dealership or one of its affiliate lenders, however, you are under no legal obligation to submit to a credit check by a dealer. Consumer watchdogs warn that some unscrupulous car dealers — of both new and used vehicles — will claim the Patriot Act requires them to run every buyer’s credit. There is no such law, and any dealer who tries to trick you into thinking otherwise is almost always a shady broker who is attempting to undercut the financing you have in hand.
Get a Vehicle History Report
It’s hard to imagine that anything about a used car is more important than just how used it is. Carfax and AutoCheck are among the most popular vehicle history report services, but there are many others. Which one you choose is up to you, but you absolutely have to get a car history report, which details things such as major accidents, number of owners and service history.
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Remember That Carfax Might Not Show the Whole Picture
Vehicle history reports are a necessary and good start before you sign on the dotted line, but don’t use a clean report as an excuse not to perform further due diligence. The best report on a car’s vehicle identification number — its VIN — won’t be able to tell you about things such as unreported accidents or self-paid repairs that weren’t handled through an insurance company. A vehicle history report also can make it appear that a car had more owners than it actually did by reporting sales between multiple dealer groups.
Be Wary of Dealers Who Don’t Offer a VIN Search
While vehicle history reports are available for purchase, the truth is that you shouldn’t have to pay for one if you’re buying from a used-car dealer. Most reputable dealers provide one for free and even link each specific vehicle report to their ads. If the ad doesn’t contain one and the dealer doesn’t offer one, consider that a bright red flag.
Run the Car’s VIN Through the National Insurance Crime Bureau
When you find a few used cars you like, plug their VIN numbers into the National Insurance Crime Bureau (NICB) yourself, which allows five free searches every 24 hours per IP address. This service will tell you things such as whether the car was reported stolen or if it’s been totaled or salvaged.
Line Up a Third-Party Inspection
It’s true that some used-car dealers just want to make a buck even if it means knowingly selling a lemon. Most, however, are well-intentioned and do their best to make sure they’re selling a vehicle that’s in good condition. Even in those cases, however, dealer inspections can and sometimes do miss things. Hire a mechanic who specializes in used-car inspections so you have an extra set of eyes, ears and tools checking for hidden flaws. This holds true even for certified pre-owned vehicles.
Research Resale Value
When determining what to look for when buying a used car, remember that average resale value is a key metric. Vehicles with low resale values might seem like a great deal to used-car buyers, but cheap used cars often start having problems right around the time they reach their full depreciation and the warranty runs out. On the other end of the spectrum are the extra reliable vehicles such as the Toyota Land Cruiser. The fact that so many owners keep their Land Cruisers for long periods of time keeps resale values high — so high, in fact, that used ones rarely are a bargain until they’re nearing the end of their runs.
Consider a Credit Union
Credit unions often offer lower interest rates, fewer fees and better customer service than big or even local banks. Credit unions are member-owned not-for-profits that reinvest their earnings to give their members great rates, and that often translates into a better loan than you could gain when working with a dealer.
For example, through PenFed’s Car Buying Service, you might qualify for a rate as low as 2.24% on a used car. And this credit union also offers used car loan amounts up to $100,000, which opens up your car-buying options. And with quick approvals, a credit union like this one might offer the easiest and smoothest process.
Don’t Fall In Love
Cars are like houses in that buying one can be an emotional process. And just as with houses, it’s always better to proceed analytically and resist the urge to fall in love with a used car you’re thinking of buying. Pursuing a vehicle that stokes your passions can cloud your judgment and make you more willing to ignore problems or exceed your budget.
Avoid Import Bias
Popular imports such as the Toyota Camry and Honda Accord are known for their reliability, and rightly so. Many used-car buyers, however, limit their options with the assumption that imports last longer, cost less and are more reliable than their domestic counterparts. While cars such as the Accord and Camry earned their reputations, import bias can keep their resale prices high. Auto site Jalopnik estimates that $8,000 could get you into an Accord with 80,000 to 100,000 miles while that same $8,000 would be good for a famously dependable Chevy Impala with just 50,000 to 70,000 miles on the odometer.
Consider Driving Like a Retiree
Another solid Jalopnik tip for shoppers on a tight budget is to consider cars that are popular with older demographics. Buicks, Lincolns and other near-luxury domestic cars that were lightly driven by retirees often are candidates for great deals as well as long-term value — cars like that were built to last.
Take the Test Drive Seriously
A test drive in a new car can be an enthralling experience that gives you a moment to picture yourself in your brand new ride. (And that new car smell!) When buying used, however, a test drive is a crucial part of your due diligence. Use all your senses. Smell for gasoline or burning oil and listen for knocks in the engine, squealing around turns and whistling from the windows or sunroof. Make sure to go up and down hills and over bumps. Keep an eye on the instrument panel, brake hard several times, and always test all the buttons, dials, controls and features.
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Shop Discontinued Models
There’s a common misconception that discontinued models are hard to service and require parts that are no longer available on the market. The truth, however, is that automakers usually can service discontinued models for decades. Even when the car is brand new, you can enjoy real savings by buying a model that the manufacturer no longer makes. Those savings are magnified even more when you buy one that’s been previously owned.
Check the National Highway Traffic Safety Administration To Make Sure You Get a Safe Car
Before you make up your mind, visit the website of the National Highway Traffic Safety Administration (NHTSA), a division of the U.S. Department of Transportation, at SaferCar.gov. The site outlines important safety factors for specific makes and models, including recalls and investigations, car safety features and, perhaps most importantly, crash test ratings.
Focus On Comparable Car Costs
Dealer invoice cost is a common benchmark for negotiating the price of a new car, but there’s no such thing as a dealer invoice price for used cars. Since dealers can get cars from a variety of sources such as auctions and trade-ins, the only number you should use as a starting point for negotiations is the price that people in your area are paying for comparable cars. The True Market Value feature on the Edmunds website can help with that.
Don’t Rule Out Private Sellers
It’s a common misconception that dealers offer higher-quality used cars for lower prices than you could find for sale on Craigslist or other peer-to-peer sites. The truth, however, is that there is no data to back up this assumption. In fact, dealers have to make a profit on each used car they sell when private sellers are often just trying to sell an older car quickly and could be more willing to negotiate. Also, some states don’t levy sales tax on private vehicle transactions.
Shift Your Strategy for Peer-to-Peer Sales
If you do buy from a private seller, you should expect to put in a little more legwork, although many of the same strategies apply, including getting a vehicle history report, taking a comprehensive test drive and getting a thorough inspection. You’ll also want to ask the seller for service records to prove that the car has been maintained to manufacturer recommendations. Finally, find out if there are any liens on the car and ask an important, but often-overlooked question: Why is the seller selling?
Consider Certified Pre-Owned
Certified pre-owned (CPO) vehicles offer something incredibly valuable that no other used car can: peace of mind. Virtually all manufacturers and many dealers have programs for CPOs, which are preselected, low-mileage, late-model vehicles that are put through rigorous point-by-point inspections. They’re less likely to break down, and when they do need repairs, they’re covered by warranties.
Keep In Mind That CPOs Can Have Drawbacks
Peace of mind isn’t free — and neither are inspections and warranties. CPOs, therefore, cost more than traditional used cars, from a few hundred bucks to more than $1,000, depending on the car and the CPO deal. Also, certification reduces risk, but there’s no such thing as a perfect used car.
If You’re Paying Cash, Keep It to Yourself
Both new and used car dealers make a big chunk of their profits through financing, both in their in-house financing department and third-party lenders that pay them commissions. If you can afford to pay cash, you’ll save big money in the form of interest never paid — but the dealer loses that money. Once you show your hand and reveal that you won’t be needing financing, the dealer is immediately incentivized to stand firm on the price to make up for that loss. The same principle holds true if you’ve already secured preapproved outside financing.
Don’t Get Into a Conversation About Monthly Payments
Another thing you should never tell a dealer is how much you can afford to pay each month. Same as with loans on new cars, used car loans can be strung out longer to make your monthly payments lower. That model of buying, however, means you’re paying more interest over a longer period of time, which makes lenders happy. When you tell the dealer your monthly budget, the dealership can make a loan fit that budget, even if the terms aren’t in your best interest.
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This article originally appeared on GOBankingRates.com: 25 Things You Should Always Do Before Buying a Used Car