First-time buyers, in particular, often have difficulty with the various stages of the process: buying, pricing, negotiating, applying for loans, registering, and getting insurance.
What seems at first glance to be simple turns out to be series of not-so-simple steps. Buying a car is not at all like buying a TV at Walmart.
The most common concerns when buying a used car are the following:
- Where to find cars for sale
- How to know if a car is reliable and in good condition
- How many miles is too many
- How to know what to pay
- Should I pay cash
- Where can I get a car loan
- How to know what to look for and avoid mistakes
These are the questions we’ll answer here.
Where to find cars
Used cars can be found on the Internet, in used car lots, and for sale by individual sellers. There are small used car dealers, large used car dealers (such as Carmax), new-car dealers who also sell used cars, and barely legal buy-here-pay-here dealers than cater to people with credit problems.
On the Internet, look at Craigslist, Autotrader, eBay Motors, UsedCars.com, and Carmax.com, among others. When looking at online sites that advertise cars being sold by private parties (not dealers), watch out for a common scam in which the car has a very low price, the “seller” is not in the same location as his car, only communicates via email, promises to ship the car to buyers, and says the buyer’s money is “protected” by eBay, Amazon, PayPal or some other service. It’s a good and safe idea to always buy cars that you can see, drive, and test before buying.
You can find used cars at local new-car dealers, independent used-car dealers, consignment lots, and by simply watching for cars with “for-sale” signs in the window. Carmax is a reputable national chain of dealers, usually found in and around larger cities. Be wary of buying cars at “buy-here-pay-here” dealers who provide their own financing, sell overpriced cars at super-high loan interest rates. For people with bad credit, this might be an only choice.
Some new-car dealers sell “certified” late-model used cars that have been completely inspected and come with a short warranty backed by the car manufacturer. These cars are a safe buy but may cost a little more. Extended warranties are always a good idea on a used car.
How to find good cars
Most people looking for a car have a limit as to what they can pay. For some it might be as little as $1000 or $2000. For others, it could be $5000 or $10,000 or more. In general, the price of car is related to its age, its mileage, and its condition.
For only $1000, buyers should expect an old car with lots of miles, probably in poor condition. Not that a good decent car can’t be found for that price, but it’ll take a lot of looking and maybe a lot of time to find a “jewel.”
There is no particular place to find good inexpensive used cars. Sources we’ve mentioned above will have a wide range of cars of all ages, mileages, and conditions. It’s just a matter of spending time searching.
We frequently see questions like “Is this car reliable?” or “Is the mileage too high on this car?” or “Is a 1998 Honda a good car?” There is no way those kinds of questions can be answered in a general way.
Sure, Honda and Toyota are very reliable brands but it’s impossible to say whether an individual car of those brands would be reliable or a good buy. If a car has been wrecked, abused, not properly maintained, it really doesn’t matter about the brand of how reliable the brand might be — it’s not going to be a good car. The same goes for mileage and age. There is no such thing as too-high mileage or too-old car. Some newer cars with only 50,000 miles are junk, and others with 200,000 miles are strong and good for another 100,000.
The ONLY way to determine if a used car is in good condition is to test drive it and have it checked by a professional mechanic before it is purchased.
Since used cars are sold “as-is” buyers can’t return them to a seller if he finds problems later, even on the drive home from the sale. Buyers shouldn’t depend on the word of sellers that a car “runs fine” or “has no problems.” Sellers are mostly honest but might not be aware of hidden problems. Even used car dealers don’t do detailed inspections on cars that come onto their lots though trades or auction purchases.
Buyers who unknowingly buy problem vehicles often want to sue sellers or dealers for fraud, which is a losing cause. In short, it is the buyer’s responsibility to make sure they’re getting a good car for their money.
Know what to pay
A couple of the questions we often hear are “Is this car a good deal at this price?” or “How much can I talk the seller down on the price of this car?”
The answer to both of these questions depends on the used-car value of the car, sometime called “book value.” Used car values are published by such companies as Edmunds (edmunds.com), Kelley Blue Book (kbb.com), NADA Guides (nadaguides.com), and others.
A car’s value depends on its age, mileage, condition, style, installed options, and even region of the country.
Buyers are sometimes confused by the fact that the values from different sources are not the same, sometimes not even close to being the same. There is no such thing as “standard” values for used cars, only estimated values. But those values are all we have and we can judge whether a car seller’s asking price is fair, or a good deal, or a bad deal, when compared to those values.
Buyer’s often think that a seller or dealer’s asking price for a car is a fair price and that they should be able to “talk him down” to some other price to feel like they’ve gotten a good deal. However, if a seller’s asking price is 20% too high, based on its book value, talking him down 10% means the price is still too high. Most sellers mark up book values by about 10%, so a good strategy for buyers is to offer, say, a 20% lower price and be willing to compromise at 10% lower. For example, if a car is advertised for $10,000, we can assume the seller will accept 10% less, or $9,000.
The key to knowing what to pay for a used car is price research on the Internet. Not only should you get book values at the web sites mentioned above, but look at sites such as Autotrader.com and UsedCars.com for prices being asked for similar cars in your area.
How to buy a used car
Used cars are purchased either with cash or with a loan from a bank or finance company. Dealers don’t finance loans (except for “buy-here-pay-here” dealers) but help customers arrange loans through an associated bank or loan company.
Contrary to some opinion, paying cash for a car doesn’t get you a better deal. Maybe 50 years ago, but not now. Dealers actually make more money on a deal if he arranges financing for his customers.
Customers can acquire auto loans on their own with local banks or credit unions — or go with a dealer’s finance company.
Loan approval will be based on having a good credit history, sufficient income, and no excessive debt. The amount of loan for which a borrower will be approved will be based on the “book” value of the car he or she wants as well as the above mentioned factors.
A cash down payment may be required if the amount of the loan doesn’t completely cover the price of the car. Once a loan has been approved and the dealer has been paid for his car, the borrower then begins monthly payments to the bank or finance company for the term (months) of the loan. If payments are not paid on time, or payments are missed, the car can be repossessed. After being repossessed, the car is sold at auto auction and the borrower is billed for the difference between auction sale price and the balance of his loan. A negative report is also made to the three major credit agencies, which significantly impacts the borrower’s credit score and ability to get new loans for up to seven years.
If buying a car from an individual seller, the buyer must pay cash or get a loan from a bank or credit union. Smart sellers won’t agree to “take payments” from a buyer. Buyers should make sure the seller has the title to the car, that it’s his name on the title, that the VIN number matches the car, and that there are no outstanding liens (loans) indicated. The seller signs over the title (“pink sheet”) to the buyer and, in some states, gives the buyer a notorized Bill of Sale. The buyer takes these documents to his state DMV (Department of Motor Vehicles) office to get a new title in his own name, a new registration, and new tags. Sales tax and other official fees may also be collected at that time.
The buyer also insures the vehicle immediately, which is a requirement for registration and tags. State laws require a minimum amount of liability coverage, although those laws and minimums are seriously outdated in these days of expensive cars and medical bills. If you finance your car with a loan, the lender may also require you to have collision and comprehensive coverage as well.