How to Buy a Used Car
When it comes down to it, cars just get us from one spot to another. Pretty simple, right?
Of course, simple doesn’t quite define the process of looking for, choosing, and then buying a car. This is where things get complicated. But don’t worry. We’re here to help!
What Should I Consider When Buying a Car?
Got the itch to buy a new-to-you car? Don’t scratch just yet. Let’s walk through some of the foundational decisions you should make before actually making a purchase.
The Benefits of Buying a Used Car
To buy new or not to buy new? That is the question. You may know where we’re going with this one. Take comfort in the knowledge that what we’re presenting isn’t just opinion—it’s fact.
A new car will be worth a full 10% less the second you drive it off the lot and decrease another 10% in value over the following year. And the hits keep coming. By the time a car turns five, it’ll be worth just 40% of the original selling price.¹
Used cars, especially ones that clock in at age two or more, hold their value much better than new cars. That means more money in your pocket in the long run. Used cars also:
- Save you money on registration and insurance.
- Offer dependable transportation at an affordable price.
- Can still have all the bells and whistles of a new car.
What to Look for in a Used Car
Before you decide on a specific ride, take time to think through our suggestions below and add to the list as you see fit.
1. Lifestyle: Take your lifestyle into account. Make note of your daily commute, number of children, preference for compact car or SUV, and need for hauling large items. Be realistic when deciding the type of car that best suits you and look for ways to cut costs.
2. Reliability: Look for reliable transportation. Regardless of your budget, you’ll want to purchase a car you can count on. Do your homework to find a safe vehicle that requires minimal repair above the normal upkeep of a used car.
3. Resale: Find a car that holds value. While the value of most cars decreases by 60% in the first five years, some models may fall by as little as 35%. Give Edmunds Best Retained Value Awards a look for a better understanding of the best brands.²
4. Affordability: Keep an affordable price in mind. With lifestyle, reliability and resale in mind, the most important factor remains: buying what you can afford. But don’t worry. We’ll help you arrive at the right number. For now, commit to paying cash and look only at cars you can afford.
How to Hunt for a Used Car
Hard work and patience pay off. Once you’ve saved up to buy a new-to-you car, it’s time to go on the hunt.
Where Should I Look for a New-to-Me Car?
Start online. You can find extensive inventories backed by thorough research at sites like Carmax and Carvana. Or you can do a little extra leg work yourself (and pocket the savings!) by looking on craigslist, eBay and local buy-sell-trade Facebook groups.
Broaden your search area. If you’re willing to travel a few hours to look at a car, you might just open up your options and increase your bargaining power. Plus, broadening your search means you’ll have more cars to choose from.
Choose the right dealerships. Ask around for recommendations on the best used car dealerships that employ salespeople you can trust. And while you can find used cars on new car lots, you’ll probably pay a premium and you might be tempted to take a new car for a spin. So be careful.
The Importance of Vehicle Inspections
We all love to see the best in others, but this is an area where a bit of skepticism goes a long way. After all, the only one who really needs to earn your trust is the car. So put the car to the test.
1. Do your own inspection. Consumer Reports suggests you start with a walk-around.³ Look for obvious issues with the car’s body, windows, tires, or suspension. Spend some time inside the car and under the hood. Make sure the lights, signals, ignition, and other controls work as they should. Check the condition of the seats, roof and trunk. Consult the owner’s manual for fluid-level guidelines. Be sure the engine looks clean with no unattached wires or corrosion.
2. Take the car for a spin. If you can, drive away without the salesperson and head for the nearest interstate. Notice how the car performs at higher speeds and look for opportunities to put each and every feature to the test.
3. Arrange for a third-party inspection. When you find a car that passes your own inspection and performs well on your test drive, it’s time to visit your local mechanic for a thorough inspection. A reasonable fee is well worth the price for any car you’re seriously considering.
How to Seal the Deal on Buying a Used Car
1. Commit to your budget (and pay with cash!).
Don’t be swayed by clean, shiny cars and a slick salesperson. Enter the buying process with a top number in mind (and cash in hand) and stick to it!
2. Say no to warranties.
Benefits offered through extended warranties usually match what your insurance plan already covers. Talk with one of our Endorsed Local Providers for details.
3. Watch out for surprise fees.
You and a salesperson agree on a price of $10,000, which is right at your max budget, but when the paperwork comes back, fees add on an additional $700. It happens. Ask up front which fees will be included and do some math before making an offer.
4. Negotiate like a professional.
Professionals are smart and kind. You can be both and still get a great deal on a used car. Try these tips:
Be confident in your conversation. You did your research ahead of time. You know what you’re looking for and how much you want to pay. A competent tone lets the salesperson know you can’t be played.
Try to hide your feelings. Go for the straight-face look. Keep excitement to yourself. Don’t fake frustration, but instead take a serious approach to the transaction. When you say a deal isn’t good enough, the salesperson will know you mean it.
Be okay with the possibility of walking away. Know ahead of time you might not find the right deal on the first car you look at. After all, you don’t just want any new-to-you ride, you want a car that you can afford and has everything you need. So don’t settle. In the end, walking away might result in the deal you’re looking for.
5. Value your trade-in.
When you can’t get the price you need on the car you want, consider this powerful backup plan: Ask for more on your trade-in. You can make a difference on your bottom line and get the seller on board with this easy trick.
How to Budget for a Used Car
If you plan to pay with cash (and you do, don’t you?) you’ll probably need to save up.
How Much Money Can I Spend?
Great question! While the number will vary from person to person, we can help you get there by walking you through a few important considerations.
1. Research car costs. Take some time to learn about the cars that interest you based on the factors of lifestyle, reliability, resale and affordability mentioned above. You might compare costs of different brands and well as newer models and older models. Decide based on what fits into your budget.
2. Determine your timeline. How quickly do you need to purchase a car? The more time you have, the more money you can save. If you’re in a bind and need to buy now, that’s okay. Otherwise, see if you can wait a while as you build up your savings.
3. Decide where the money will come from. Can you move some money around in your budget? Sell or trade in your current car? Part ways with a boat, guitar or other large item that holds some serious cash potential? Get creative if you need to!
4. Remember registration fees and changes in insurance costs. Beyond the amount you’ll pay at a dealership or an individual for the car itself, you’ll also need to cover the costs of registration fees and any increase in insurance (make sure to adjust your monthly budget for additional insurance costs).
You can save hundreds of dollars on your car insurance and get better coverage by using one of our Endorsed Local Providers.
Let’s imagine a fictional family called the Smiths working through each step above to determine their total savings goal. It might look something like this:
- We’re interested in a car with a hatchback.
- We’d like a vehicle around five years old.
- Most cars that fit our needs cost about $15,000.
- We plan to save for one year.
- We can allocate $650 each month out of our budget.
- The Kelley Blue Book value of our current car is around $6,000.
- Registering a new vehicle in our state costs $120.
Now for a little math. In one year, the Smiths will come up with $7,800 ($650 x 12 months). Add in $6,000 from the sale of their current car, and that gives them $13,800 saved. Now, subtract $120 of that savings to cover registration fees. This leaves the Smiths with $13,680 to spend on a used car.
Since the car they want is $15,000, the Smiths will come up short after saving for a year. So what should they do? Well, they could save up for another couple of months, look for a cheaper car, or negotiate a better deal. All wins in our book as long as they stick to their budget!
Why Cash Really Is King When It Comes to Buying a Car
Maybe you’ve heard that most folks have a car loan. And you wouldn’t be too far off. Recent numbers show that as many as 107 million American adults carry auto loan debt.⁴
When you buy a car with cash, you pay and drive away. You own your car outright. So instead of sending money to your past purchases every month, you can put that same amount toward the future. You could even start saving for your next car!
How to Build Your Savings Plan Into the Monthly Budget
Determine how much money you’ll need to save each month to buy a new-to-you car. Then, create a fund in EveryDollar to help you hit your goal!
It’s super easy. Open your budget to follow along:
Under the savings category, add a new budget item called “Used Car Fund.” Select your new budget item and look for a box to appear on the right. This box shows the details of your Used Car Fund. Select the drop-down arrow for “Make this a fund” to make it official.
Enter your total savings goal. If you’ve already started saving for a used car, make note of your starting balance. Now your new-to-you car fund is ready! All you have to do is start saving!
When you sit down to make your budget each month, include the amount you’ll put toward your Used Car Fund. Be sure to also move that money from your regular checking account to a savings or money market account. EveryDollar keeps track of how much you save, so you’ll know when it’s time to buy.
Buying a used car? Save even more cash by reaching out to one of our Endorsed Local Providers. You’ll be connected with an insurance expert who will provide top-notch service and help you find car insurance that’s right for you—and your wallet.