How to Buy a Used Car
Category:Toyota Echo sedan (Photo credit: Wikipedia)
On Monday we bought my wife a newer “used” car. She drove her previous car, which was a 1998 Honda Accord, for about 3 years and it was time to replace it. I know firsthand that buying a used car can be frustrating, so here are some tips for buying a used car.
Dont Buy From a Dealer
Often when I find a car on Craigslist that I like, I get excited about it. Mainly because the buying process appears to be almost over. Then I scroll down to the bottom of the ad and realize that it is being sold by a dealer. My excitement is instantly replaced with disappointment. There are 3 reasons why I don’t like buying from a dealer:
1. Sales tax – A dealer is obligated to charge you sales tax, where a private party is not (at least this is true in Arizona). If you were to buy a $5000 car and add 9.3% sales tax, that is an extra $465.
2. They are generally more expensive - While I was searching for a car for Kim, I saw a couple of cars sold by dealers that were about $1,000 more than the private party listings.
3. You don’t know what you are going to get – What I mean is, if you buy from a private party, you can ask them questions about the car and they can tell you. A dealer has no idea how the car was driven because often times they buy it from an auction. A person that actually drove the car for years can generally tell you about every rattle, blemish, or detail about a car where a dealer would have no clue.
Ask the Right Questions
Here are a few that I use:
Has it ever been in an accident?
Is there currently anything mechanically wrong?
Do you have the maintenance records?
Why are you selling the vehicle?
Does it have any leaks?
Do you have the carfax report?
These should give you a good basis on making an educated buying decision.
Do Your Research
I use MSN Autos to see if there is any known issues with the car. It is a great resource to find out if the year, make and model that you are looking at has transmission, engine, or other issues. If it does, then ask the potential seller if they have fixed those issues in the past. If they have, it might still be worth buying. If they haven’t then you will probably want to keep looking.
Have a Mechanic Check it Out
This is one that can be difficult but is worth doing. I took a car to my mechanic that I was interested in and he showed me at least $1,000 in repairs that would need to be done. The engine mounts were shot. I could see the engine rocking back and forth when he put his foot on the gas. It also had multiple leaks amongst other issues. This helped me determine not to buy the car and to move on.
Know What it is Worth
Go to Kelly Blue Book to determine the value of the car. You can generally ignore the excellent price as they say only 3% of cars are in that condition. You really only want to buy a car that is in Good or Very Good condition, so you can use those numbers to make an educated offer.
Negotiate the Price
I know this seems obvious, but there are people out that don’t even ask. I looked around the car and mentioned everything that I saw wrong with the car. These were mainly cosmetic issues, but nonetheless, they reduce what the value of the car is. We were able to get $500 off the asking price by doing this.
Don’t Sell Your Old Car First
If you do sell your previous vehicle first, than you have to figure out how your going to get around. This can be stressful, burdensome, and can be an overall headache. I recommend saving up and paying cash for a used car while keeping your old car. This way you can take your time while you search for the right replacement and not be rushed into buying something.
Paying Cash has it’s Perks
Have you ever had someone tell you how great of a deal they got on something? Well, I do quite frequently. The fact is that sometimes the deal really isnt a good deal at all. Why, you may ask? Because they bought with a loan versus cash. Lets take the car I drive for example. I purchased last spring from a private party for $2500. At the time the guy was selling it, it was worth $3,700 on Kelly Blue Book and he was asking $3,200. Now, my wife and I decided that we had a budget of $2,500 to buy a car, so I knew that this might be a long shot. However, to my amazement, the guy said that if I brought the cash, he would take it.
It turns out that when you list a car online, plenty of people are interested, but not many people are really serious about purchasing. He had fielded so many calls and had several people come to his house, that he just wanted to get rid of it. I just ran KBB.com on it today, almost a year later and it is worth about $3,500! So i have gotten a ton of use out of it and I have not lost much value. That is the type of deal I like.
Now let’s say I purchased that from a car dealer instead. Unlike a Private Seller’, the dealer would not be prone to accept such a deal. After all, they have a huge lot to pay for, lot’s of inventory to upkeep, and not to mention payroll. Because of all these costs, they would more then likely sell the car for $5,000. Now, if I decided to finance this through a bank at 6.85% over 36 months I would have ended up paying $730 in interest. Then you would add tax, title and license fees on top of that, let’s say $495.
So lets review, since I paid cash from a Private Seller, I got the vehicle for $2,500 cash. If I would have financed it paid $6,225. That is a difference of $3,725. Now that is definitely a perk of paying cash!
New Car vs Used Car
I think this is a question that everyone asks themselves at some point in time, “Should I buy a new car or a used car?” In this post I will break down the pros and the cons of both and let you decide.
That New Car Smell
There is something about a new car that appeals to us. The fact that it has never been owned, that it is the latest and greatest, that it has a manufacturers warranty, and let’s not forget that “New Car Smell.” While this is all true, I don’t think it is enough to make someone buy one. The truth be told, a new car loses 10-15% in value each year and up to 70% of it’s value by the 5th year. To test this, I went to Craigslist.com and typed in a 2005 Chevy Tahoe and found that there was one for sale for $13,500. Then I went to Autotrader.com and typed in a 2010 Chevy Tahoe and the cheapest one I could find was $41,000. This is a $27,500 depreciation in 5 years which comes out to about 67%!
The Truth Shall Set You Free
Now, you might be thinking, ‘That is great to know but what about all of the repairs that you will have to do on a used car?’ Well, I am glad you asked. Let’s say you paid cash for the 2005 Tahoe. If you were to own the vehicle for another 5 years, it would have to cost you more than $5,500 per year in repairs to be in a worse position then buying it new (27,500/5= 5,500). I don’t know about you but I have NEVER paid $5,500 for repairs, not even over a five year time frame. So if you intend on purchasing a used car soon, here are 3 things you can do to ensure the lowest repair costs on your used vehicle:
1. Buy from someone who keeps good records and is honest about what the car has been through
The best thing to do is to buy from someone who has take good care of there care. Generally speaking, because they took good care of the car, it should have less future repair issues than someone’s car that has been trashed.
2. Make a cash offer that is respectable and will allow you to make any necessary initial repairs
Take the car to a mechanic and have them do a diagnostic to see if there is anything that needs to be repaired on the car. If there is, subtract that amount from the asking price and the seller should be willing to accept if they hadn’t already factored that into the price.
3. Buy parts yourself online or at a local parts store.
Repair shops generally put mark up on these parts and you can avoid this by just purchasing them yourself
You might be saying, “How do I pay for these repairs when something inevitably happens?” I recommend you have an emergency fund of at least $1000 to start. That way if something happens, you will have enough to fix most repairs. A fully funded emergency fund should be 3-6months of your expenses and I will talk about that in my next post.
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