As with most things in life, knowledge is the best weapon, bargaining tool and protection that you can have when entering a frightening or unknown situation. In this section, you will learn about all of your options for buying a used car and then read our recommendations for making the process as easy and pleasant as possible. Doing some initial research and arming yourself with knowledge will help keep the used-car buying process an empowering situation.
Where to Buy Used Cars
There are many outlets for buying a used car, and it can be confusing trying to determine where you'll get the best price. Choices include auctions, new-car dealerships, independent used-car lots, private sellers, rental car companies or used-car superstores.
1) New-Car Dealerships
On a per-vehicle basis, new-car dealerships make most of their profit from the used-car lot, not the new-car lot. The reason for this is that, though the prices themselves may be lower, the mark-up on used cars is actually higher than on new cars. Dealers buy used cars at a price that is much lower than what the car is worth from new-car buyers excited about their new purchase. Dealers then turn around and try to sell that exact car at a significantly higher price (sometimes triple what they paid for it), turning a nice profit for themselves. Because many people trade in their old cars when they buy new, car dealerships usually have an extensive selection of used cars on their back lots.
Most reputable dealerships will have made sure that the cars are mechanically sound, they will provide you with valid titles and they will offer financing through the dealership. For this peace of mind, though, you are likely to pay more than market value for the car and will have to deal with tough-minded car salespeople during the negotiation process.
2) Independent Used-Car Lots
Buying from a used-car salesperson presents the same risks as buying from a new-car salesperson, except that 100 percent of the company's profits come from used cars. They may have a large selection of cars to choose from, though many will be older models. If you are searching for a specific, hard-to-find vehicle, a used-car lot is a good place to look. If you choose to go this route, be prepared for high-pressure sales tactics and be diligent about checking out the car thoroughly and getting every promise from the salesperson in writing.
3) Auctions
Auctions are probably the least reliable source from which to buy a used car. It's difficult to get into an auction, since most people attending are car-dealership representatives, and some of the cars that are sold at auction have been involved in serious accidents that required the vehicle to be rebuilt. It is possible to contract with a dealer to buy a car for you at auction, but you'll have to pay a fee to the dealer for performing this service, you won't be able to see or drive the car before you buy it, and you won't know much, if anything, about the car's history. You will also likely have to pay with cash. Auctions can be risky propositions and we advise against them. Finding a good deal at an auction is like winning the lottery. It's certainly possible, but the chances are too slim to justify the cost and effort.
4) Private Sellers
Though it takes a bit more time, buying a used car from a private seller is often the best way to find a quality car at a decent price. Whether you shop for the car via newspaper classified advertisements, the Internet or word of mouth, private sellers usually price their cars somewhere between trade-in and market value, they know how the car has been treated, stored and serviced, and they are willing to answer questions about the car's background. You still need to be careful, however, because some used-car dealers place ads in the newspaper that are designed to make him look like a private seller (a practice called curbing). Also, private sellers may conveniently forget to mention undesirable things about the car unless you ask them outright. Below is a list of questions you should ask the seller when you call her:
- How much are you asking for the car? (Look for any sign that the seller may be willing to negotiate on the price.)
- Can you describe the car?
- What condition is it in? (Take notes, then compare them when you see the car for yourself. If the seller left out any description of damage, note that and reduce your opening offer.)
- How long have you owned the car? (Determine if you're talking to the original owner.)
- Why are you selling it? (Any answer will do. As a buyer, you're trying to determine whether or not the car is reliable.)
- How long has it been for sale? (This question may lead you to ask if they've lowered the price, and it may show how eager the seller may have become to get rid of the car.)
- Have this car ever been in an accident?
- Where did you get the car? When?
- What problems have you had with the car? Any repairs?
- Do you have service records for the car? (If not, you're not talking to the most responsible owner, or they may be hiding its history of breakdowns.)
- Are you a dealer or working for a dealership?
- What are you wearing? (Oh, never mind, that's advice for a different type of call.)
The main drawback to buying from a private seller is that you are unlikely to get a warranty. A warranty can still be purchased through other new- or used-car dealers, the manufacturer or private warranty companies, however. Overall, buying from a private seller is the best way to get a fair-priced used car, and it is the method Edmund's recommends. Better yet, buying from someone who you know--a friend or relative--is another excellent venue for used-car purchasing. You probably already know the car's history, how it was treated and where the person lives if they pull the wool over your eyes (and you can subsequently take them off your holiday shopping list). In any event, be sure to do your homework and follow our guidelines to ensure that you come away from the deal a happy, new used-car owner.
5) Rental Car Companies
Rental cars are usually high-mileage vehicles that have been driven by many different people and may have been subjected to hard use. However, they often come with service records showing that they were properly maintained and are usually sold at reasonable prices. To find used cars being sold by rental agencies, check the Yellow Pages in your phone book under Autos-Used Cars (do not call rental agency reservation numbers; they will not be able to help you). Hertz and Budget, for example, commonly run their own lots to dispose of used vehicles. Also, keep in mind that many new- and used-car lots will be selling cars that were purchased from rental car agencies, too.
6) Used-Car Superstores
Like everything else these days, some automotive retailers are going the way of the "superstore." AutoNation USA and CarMax are two of the nation's biggest superstore outlets for automobiles. These types of companies usually have a large selection of low-mileage, late-model automobiles and they buy them in volume, which means they can pass the discount on to the consumer. Most of these megastores are no-haggle lots, but that doesn't necessarily mean you can't find a good deal. Still, be sure to compare prices because some retail stores come with high retail prices. On the upside, used cars sold by these large retailers have usually been thoroughly checked for mechanical problems and many offer warranties.
Dealership vs. Private Seller
The two most common places people look for used cars are dealerships and private sellers via newspaper classified ads. But which is better? As you can see from the text above, both sources have advantages and disadvantages. Edmund's recommends first trying to buy from a private seller through the classifieds or from someone you know. This is often the most stress-free way to buy a used car because the seller of the car doesn't think, talk or act like a car salesperson. Most of them are offering a fair price for their cars (somewhere between market and trade-in values), will provide you with information on the car's history, will not try to sell you add-ons like rustproofing, and will keep the negotiations to a minimum (they don't like it any more than you do).
If you are seeking a hard-to-find make and model, can't seem to find the car you want on the open market, or are one of the few souls who actually enjoys haggling (and have achieved a reasonable degree of success at it), a used- or new-car dealership may be a good option for your used-car purchase.
Purchase Price
When buying a car, new or used, a simple, extremely important rule to remember is: Never fall in love with a car you are considering buying. When buying used, the latitude in price negotiations is much higher, so losing your bargaining power by deciding you just have to have a specific vehicle can cost you a lot more than making the same mistake when negotiating for a new car. If you can honestly be ready to walk away from the table (or in this case, the dealer lot) without buying a vehicle, and if you make that attitude clear to the dealer, your ability to get a great deal will increase dramatically.
When it comes to specific car values, always know the market value of a vehicle and make your first offer considerably lower, even as low as the trade-in value. You can always go up from a low offer but if you start too high (this will be obvious by the dealer or seller instantly agreeing to your offer), it's tough to go down from there. "Edmund's Used Car Prices and Ratings" or the Used Vehicles section on the Web site is a good place to find information on pricing of used cars. Our used-vehicle section provides:
- trade-in and market value of used cars
- ratings on reliability, safety, performance, comfort and value
- standard and optional equipment
- fair mileage and equipment adjustments
- possibly a road test or review of the car from first-hand experience
Using the Internet
There are two ways to utilize the Internet in the used-car buying process: research and purchasing. Since you are reading this, you have probably already realized that the Internet is a great way to do some pre-buying research. After you have found the fair trade-in value and market price of the cars you are interested in, adjusted for mileage and options, and perused Edmund's ratings on different aspects of the cars, you should do a bit of comparative pricing.
Web sites like eBay.com, traderonline.com and classifieds2000.com are good places to start shopping for used cars. Even if you have already seen the exact car you want to buy down the street on a dealer's used-car lot, these sites can help you get a more accurate idea of what that car is selling for on the street. Used-car prices can also fluctuate due to geographic region and current trends or popularity. Searching the Internet for other cars with similar features in your area allows you to comparison shop without talking to anyone or having to deal with a salesperson when you're just browsing. It also enables you to get a more complete idea of what the real-world value is for the vehicle you want to buy. The Internet provides a huge selection of vehicles in virtually one place.
If you happen to find the perfect car--or what sounds like the perfect car--online and available in your city, it is easy to move to the next step of the shopping process: the test drive. Simply contact the seller and set up an appointment. If, however, you want to purchase the car online from a seller in another city, you may have to pay additional fees to have the car shipped to you or travel to the city where the car is being sold.
Financing and Loans
Once you have narrowed down your choices to three or fewer cars you can afford, you are ready to move on to the next step. But before you run out and sign a contract, there are certain financial issues that must first be resolved. You should get at least two quotes for a car loan, one from your bank or credit union, and one from another source. These quotes can usually be given over the telephone. Using the best quote you were given, look at your estimated monthly payments and insurance costs. If the monthly payment is somewhere around 15 percent of your monthly income, congratulations--you have used good judgment. You are ready to move on. If the monthly payment is higher than 15 percent of your monthly income, you should reevaluate what types of vehicles will fit into your budget.
Leasing Used Cars
Just as new cars may be leased, or "rented" for a period of time, used cars may also be leased or "re-leased." The used-car lease is not as common as the new-car lease, but the idea is the same. The consumer pays the dealer for a "portion" of the car's value. The lease is calculated based on the car's anticipated depreciation over the term of the lease, and you pay for the depreciation and interest.
Leasing should appeal to buyers who want a new car every few years, as leasing offers lower monthly payments than financing over the same term. However, leasing a used car eliminates the "new car" part of the equation. If you're considering leasing a used car to get lower monthly payments, you should probably consider looking at more affordable used cars. Used-car leases are not backed (subvented) by the vehicle's manufacturer, so leasing a brand-new car for the same term may turn out to be just as affordable.
Other drawbacks to leasing used cars include the fact that you are still responsible for maintaining the car. At the end of the lease, you must return the car in complete working order or suffer additional penalties. Used cars usually require more maintenance than cars that are bought new, so any perceived savings may be cancelled out due to higher month-to-month maintenance costs.
Certified Used Cars
More and more, manufacturers are offering consumers factory-backed used cars. It works like this: a manufacturer acquires low-mileage vehicles (usually off lease), puts them through an extensive inspection, then offers them for sale with a factory warranty. Generally, the powertrain (engine, transmission) and rust-through protection warranties are offered along with roadside assistance.
Strict mileage limits are also common with certified used cars, so check with your dealer to find out more about factory-backed certified used cars. Often, certified cars are sold with a one-price, no-haggle policy, so if you prefer to negotiate prices, a better value may be found elsewhere along with an independent insurer's extended warranty for that extra peace of mind.
What to Do with Your Current Car:
Trade-in vs. Sell it Yourself
Unless you are so strapped for cash that you need the money in your pocket this second, NEVER trade your car in to a dealership. Dealerships will not give you what your car is worth, and most will grossly underpay you for it. You can certainly use your old car as bait during negotiations, saying things like, "Well, I might have a trade-in, but let's discuss that at the end of negotiations." Then, thinking they'll stiff you on the trade, a dealer might agree to a lower price on the new used car you're interested in. But when the trade-in comes up again, you can simply say you've decided to keep it for your 16-year-old son, that your sister wants to buy it from you or that you simply changed your mind. Use any excuse you want to get them off your back, but sell your old car yourself on the open market and get a fair price for it.
How to Sell Your Car
There is an opposite yet equally depressing force to new-car sticker shock, and we call it trade-in shock, or post-traumatic trade disorder. It happens when you least expect it: you've just negotiated a great price on a new set of wheels, and then you get the quote on your trade. It's ridiculously low. They're offering you $3,000 less than you know the car is worth. Still, the deal on the new car is so tempting...
Selling your own car may take a little bit of time and planning, but it will most likely pay off in the end. The first thing to do is figure out how much your current car is worth. Using Edmund's used-vehicle information, you will be able to find accurate trade-in and market values for the last 10 years of most makes and models sold in America. Then, adjust for high or low mileage, the car's condition (be honest!) and optional equipment.
You may also want to peruse your city's classified ads for cars similar to yours and see what prices are being asked. If the price you calculated is way off base, look at your figures again. Perhaps you have attached sentimental value to the car that others will not understand (just because it was the car you drove on your first date doesn't make it the gem of the marketplace), or perhaps you are underestimating the squeaky-clean condition of your vehicle. Resale values also vary according to geographical region (convertibles don't sell so well in Alaska) and the car's current popularity.
Once you have determined the value of the vehicle, place an ad in the classified section of the largest local newspaper ... and wait for the phone to ring. When the phone does ring, be ready for all the questions that you'd ask if you were buying a car. Be ready to discuss the car's history, mechanical record, failures and attributes. Try to accentuate the positive aspects of your vehicle and turn perceived negatives into positives, if possible.
For example, when our editor-in-chief was selling his Ford Escort GT, he knew that the likely buyer (young and strapped for cash) might not want to pop the premium for the GT over the LX model. So, our editor explained how the four-wheel disc brakes on the GT improved stopping ability, how the sport suspension improved responsiveness, and how the reliable and stronger Mazda engine made freeway merges easy and stress-free. The car was sold for the asking price to a man who was looking for a safe, trouble-free car for his daughter to take to college.
It's often wise to meet the prospective buyers at a public place and always take a spouse or friend along for safety. Take down pertinent information about the consumer, such as name, address and driver's license number. Ask to see a driver's license before allowing anyone to test drive the car, as most insurance companies will cover only licensed drivers in the event of an accident.
CLOSING THE DEAL:
If they like the way the car drives and decide to make you an offer that you can accept, ask for a deposit (usually about $100) and a purchase agreement. This agreement can be typed up ahead of time and should list the year, make and model, the car's VIN number, amount of deposit the buyer has provided and a place to fill in the agreed-upon purchase price. Both you and the buyer should sign and date the agreement and retain copies of it. By accepting the deposit, you have entered into a contract with the buyer and cannot sell the car to another party--even if they offer you more money.
When you are ready to complete the transaction, the buyer should present you with a cashier's check from a financial institution and you should present them with the vehicle's title and car keys.
If you don't yet own the car free and clear and the title is in the hands of your credit union or bank, the buyer should make the check out to the financial institution instead of to you. (Be sure to check with your lending institution for specific procedures.) Both parties should travel to your bank to pay off the loan, settle up the paperwork and transfer the title. Also, be sure to cancel your insurance on the car so that you aren't paying for insurance on a car you no longer own.
There, that wasn't so bad, now, was it? If an offer is made on your old car, it will almost always be more than you would have received from a dealer. And you can sleep better at night safe in the knowledge that you didn't get robbed.
