The Debt-Free Car Project

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The Debt-Free Car Project

Chapter 1: Finding and Buying an Affordable Used Car


A recent study by ICF International, commissioned by Ways to Work, concluded that struggling families who have access to an affordable vehicle are 82 percent more likely to get off public assistance programs.

Unfortunately, many people in that situation assume a reliable and affordable used car is out of reach or can only be bought at a dealership. And if they have bad credit, which people with strapped budgets often do, they may believe they have no choice but to use a dealership's own car-financing plans.

That's where the trouble can begin. Some dealerships, known as Buy Here, Pay Here lots, charge interest rates that approach the state maximums. In one instance recounted by the Los Angeles Times, a woman made a down payment of $3,000 on a 2007 Ford Focus and had monthly payments of $387, reflecting a 20.7 percent interest rate.

It doesn't have to be this way. Or does it? To find out we went car shopping.

Setting a Target Price
According to one industry association, Leedom and Associates, the average down payment at a Buy Here Pay Here car lot is $792 for a car that's 3 to 7 years old and costs about $5,800. Clearly, $800 isn't enough to buy a car unless you're someone who can handle a lot of DIY repairs. The majority of people can't do that, and so we decided not to take that route.

As we researched other Buy Here Pay Here transactions, we saw that buyers were making down payments in the $3,000 range to acquire cars that would not require reconstruction or constant repair. Based on that, we decided to pay no more than $3,500 for our used car, including taxes and fees. And we wanted a car with no more than 165,000 miles on it.

If someone told you that he'd bought a used car for less than $3,500, how would you picture it? You'd probably visualize a beater with mismatched doors and torn seats, riding on wheels that were missing hubcaps. Such is the stigma attached to cars in this price range. And it's this stereotype that leads many people to purchase cars that they may not be able to afford.

But we were determined not to buy a beater. We wanted a car we would not be ashamed to drive. After two weeks of Internet research and test-drives, we went a little over budget and spent $3,800 for a 1996 Lexus ES 300 that we found at an independent used car lot in Pasadena, California.

Over the next year, we will track the car's fuel, maintenance and repair costs, not to mention our experiences while driving the car on a daily basis. We'll drive to and from work, run errands around town and take cross-country trips. Our goal is to keep the car for one year and drive it 15,000 miles, which is about what the average person drives in a year.

In monthly feature stories and in our long-term test blog, we'll describe what we're doing and what we're learning. The goal is to help you see that it's possible to get the transportation you need without risking financial security under the threat of high monthly payments and ridiculous interest rates. This is our Year of Debt-Free Driving.

Shopping With the Internet
To find our car we used three popular online search tools: AutoTrader, eBay Motors and Craigslist. At the outset, we had only a price in mind and used this as the basis for the search. But it gave us too many results and we quickly realized we needed to refine the search criteria.

The best way to get a list of viable candidates from an Internet search is to set up a few parameters. For this debt-free car project, we searched for used cars with a maximum price of $4,500 — $1,000 over our top price. We included these pricier cars in the hopes that the owners would come down during our negotiations.

Most of the Web sites we visited have search engines that let you narrow down your choices by year, price and model. We had a model-year range of 1993-2008 and set our sights on a few models (and brands) that have a reputation for reliability. We searched for Honda Accords, Honda Civics, Toyota Camrys and Toyota Corollas. But we quickly learned that this reputation for reliability comes at a cost. The majority of the Hondas were pricey, roughly $1,000 more than a non-Honda with similar mileage. And their mileage was above our 165,000-mile ceiling.

This meant we had to open up our search. We hunted around for the sort of car that might have been overlooked by the crowd — something that was reliable, but from a lesser-known brand. We looked at cars from Infiniti, Lexus, Mazda, Mitsubishi, Subaru and Volvo.

We then bought a $45, 30-day subscription to Experian's, a report service that provides vehicle history. AutoCheck allowed us to run an unlimited number of vehicle history reports on cars that caught our attention. The reports provided a quick, helpful first pass through the selection that we used to weed out any cars with issues, such as those with salvage titles or cars that had been in accidents. To use vehicle-history report services, you have to have a vehicle identification number (VIN). Not every listing on a car-sale Web site shows them, so in those cases, we called the owner and asked for the VIN.

Pricing Variation
Next, we compared the asking prices of the cars with their value according to Edmunds True Market Value (TMV®). And we saw a huge variation.

There were a couple of factors at work in the discrepancy we saw between TMV and real-world prices. First, not everyone uses TMV as a pricing guide. For example, other pricing guides have rosier pricing that tends to favor the seller.

Second, we also realized that in this low, low price range, the market value of cars meant little to independent used-car dealers. They often set the price based on what they paid for the car at auction and what they spent to recondition it.

Once we knew that a car on our short list had a clean vehicle history report, we called the seller. We wanted to verify that the car was still available and ask a few basic questions. Our used car worksheet reminded us of what to ask and helped us get the information organized.

Kicking Tires
We replied to both dealer and private-party for-sale listings. In general, we recommend dealing with car owners rather than car dealers, since private-party sellers are easier to negotiate with and will know more about the car's past. But don't be afraid to consider a dealership. After all, that's where we ultimately found our car. And since you are paying cash for the car, you won't have to worry about a finance officer in some high-pressure dealership leading you into a bad deal.

About a week into our research and some wacky experiences with a curb stoner and some sellers who turned out to be Internet scammers, we encountered a car that we could take seriously: a forest-green 1996 Lexus ES 300 with 135,000 miles on the odometer. It looked good in the photos and the vehicle history report showed a clean record. There had been no accidents on record and the car had made multiple service visits to a Lexus dealer.

A tiny independent dealership was selling the Lexus. Its sole signage consisted of a vinyl banner on a chain-link fence. We found the Lexus covered in a layer of dust and boxed in by the roughly 10 cars that made up the rest of the dealer's inventory. The car was slow to start and smelled like oil when we fired it up.

The salesman, Fred, said the smell was not a problem. A valve cover gasket had recently been changed and some oil had leaked onto the exhaust manifold. We could see that the car's body was in great shape and the seats had normal wear for a vehicle of this age.

"What price do we have on this car?" Fred asked us. It was an odd question for a seller to put to a buyer. The AutoTrader ad said $3,995, but the dealer's own Web page had it listed for $3,700. And that's the price we told him. He seemed satisfied with our answer and never bothered to verify it.

The Lexus was nice, but we didn't want to jump on the first car we looked at, so we moved on. Next we looked at a pair of Volvos. The one being advertised was out of commission, since it had been used as a loaner and the radiator went bad while it was in use. The second one ran well enough, but the driver seat had a huge tear and there was a white crusty substance on the window switches that looked like dried Bondo body filler.

We continued to shop. And the next few cars we found (including a red Lexus ES 300 almost identical to the green one) were in decent shape, but the salespeople were unwilling to drop the prices into our range. The asking prices were well above TMV, yet the salespeople felt justified in holding the line, because they had invested some money into reconditioning the cars.

After a week and a half of assessing various used cars, the green Lexus was looking better and better.

The Negotiation
We called Fred and made an initial offer of $3,100. "That's how much we have in the car," Fred said. He assured us that the car was in "perfect condition," and that he wanted $3,700.

Then we learned that the dealership could handle the DMV paperwork, which not all small independent dealerships can do. Our discussion shifted to the "out the door" price, which added tax and registration. We made a new offer of $3,700, out the door. Fred countered with $3,900.

We hung up and took a closer look at the numbers. We were able to back-calculate the sales tax and DMV registration and found that the $3,900 out-the-door price wasn't all that bad. According to our calculations of tax and registration, we'd actually be paying about $3,500 for the car. Keep in mind that these numbers were based on California sales tax and DMV fees.

We were willing to pay the $3,900, but decided we'd make a last-ditch effort to get the price down further. We called Fred back about an hour later. He sounded happy to hear from us. We told him that we had discussed this purchase with our boss (you can substitute "significant other" here during your negotiations), and we were willing to pay $3,800, out the door.

"OK," he said. "That's fine. You can have the car for $3,800 out the door." We discussed a few other details and arranged to pick up the car the next day.

Closing the Deal
As the contracts were being drawn up, we realized that the selling price of the car was actually $3,286.16. After all the number-crunching we had gotten an even better deal than the one we had negotiated. The finance person noticed it, but we were so far into closing the deal that he just chalked it up to his colleagues being absent-minded.

We drove home on pins and needles, wondering if there was anything we might have missed. But there wasn't. This 1996 Lexus ES 300 started fine the next day and ran smoothly. We breathed a sigh of relief and took a moment to pat ourselves on the back. We had just bought a car for under $3,500 and it wasn't a beater.

Related Articles:
The Debt-Free Car Project Chapter 1: Finding and Buying an Affordable Used Car
The Debt-Free Car Project Chapter 2: Preventive Car Maintenance
The Debt-Free Car Project Chapter 3: Curbstoners and Internet Scams
The Debt-Free Car Project Chapter 4: Dealing With Repairs
The Debt-Free Car Project Chapter 5: Driving Cross Country in a 1996 Lexus ES 300
The Debt-Free Car Project Chapter 6: Midyear Check-In
The Debt-Free Car Project Chapter 7: Sailing Past 150,000 Miles
The Debt-Free Car Project Chapter 8: Wrap-Up

To find a dealership that knows how to treat shoppers right, please visit's Dealer Ratings and Reviews.



  • Interesting story, but one question pops up--what, if anything, did you do to verify the mechanical condition of the car before you bought it? Authorization to do a pre-purchase inspection with an independent mechanic might be tricky to get from a used car lot like this (one more reason to do a private party sale), but did you read up on any particular issues with this model? Did you have someone with mechanical savvy at least give it a once-over, to see if Fred was telling the truth about the oil smell? It would be interesting to hear what kind of options there are at this price point for ensuring that you aren't buying a $3500 car that's days away from needing $3500 (or more) in repair work.

  • cincygt2009 cincygt2009 Posts:

    For that money, I could buy a 1997 Grand Marquis with 35,000 miles on it from Craigslist. Seriously! 35,000 miles!! You could put 200,000 more miles on that with just basic maintenance!

  • vt8919 vt8919 Posts:

    Looks like a great buy! Just noticed in the photo gallery that you have a picture of a tan 97-99 Camry, but it is captioned as a 1994. Just so you know.

  • rm2008 rm2008 Posts:

    prefcustomer, We did get it inspected. We’ll talk about this in detail in our next chapter. -Ronald Montoya

  • autobahnsho autobahnsho Posts:

    I used to buy my cars with my tax refund- usually under $3k. Be careful with the mechanical details, examine them closely, and most will run well for several years. My current ride is a 97 Subaru I bought in 2009 for $2500. It had 120k miles on it. $1300 for complete A/C overhaul, an alternator, two axles, and battery later, it's got 153k miles and still gets me to work every day. That's about $125/month, I didn't drive it for a year when I was overseas..

  • clarence6 clarence6 Posts:

    Absolutely excellent article and great idea to cover this type of real-world experience. I hope this series doesn't get buried in the Edmunds/Inside Line maze of blogs.

  • stever stever Posts:

    Paying an extra $100 to have your own mechanic check out a used car is cheap insurance. That's no guarantee that you won't wind up with a problematic car, but it'll help weed out candidates that have obvious problems (obvious to a mechanic but perhaps not to the average car buyer). And if an AutoCheck or Carfax report misses an accident (not all get reported), a mechanic might spot a repair that a consumer would overlook. The accident may have been minor and the repair fixed expertly, but just knowing about it could help in your negotiations.

  • stingray454 stingray454 Posts:

    While this kind of car isn't my cup of tea, I can see the appeal here, and I'm looking forward to this long term series to see how this car holds up. It is a nice alternative to new or near new econoboxes, which I personally hate. I would much rather drive this car with its age and mileage than say a brand new Honda Fit, Toyota Yaris, Chevy Sonic, Hyundai Accent, etc. Even if it needs a transmission or engine rebuild during the next year or two, you're still at a cheaper price point, and driving a nicer car with more luxury, more features, and MUCH better safety.

  • vbresheare vbresheare Posts:

    Hey folks, good job, glad you're considering the 40+million unemployed or underemployed in these times. I'd like to summarize: 1. Set Parameters: Price [$1000 over for nego.], models [expanded to Infiniti, Lexus, Volvo, Mazda, mileage under 165k. 2. Subscribe to Autocheck to verify accidents, repair history, salvage title. 3. Use the Buyer's Worksheet to inquire of vehicle history, specs. 4. Short List: See the vehicles, drive them, make initial offers. 5. Negotiations: Out the door price: sales tax, registration fees ask to have them included. Note: Preference for private over dealers for easier negotiations. Does this about sum up what your strategy was?

  • PROJECT FUNDAMENTALLY FLAWED! Mr. Montoya, while your project here is admirable, it is fundamentally flawed, and I thought we had explained this to you when we spoke at the BHPH convention earlier this spring. Here's the flaw: Edmund's, I take it, paid the $3,800 for the Lexus. Unfortunately, the 3 million or so consumers who must turn to BHPH dealerships across the country have no access to someone who will give them $3,800 to buy a car without having to pay it back. Saving up is an option, true. At $350 a month, a consumer would have to save up roughly 11 months to purchase the vehicle you opted to buy. During that 11 months, how did the consumer get to work, take their kids to school, go to the doctor or go shopping. Public transportation, may be just dandy in California, but in Oklahoma, Arkansas, Texas, Florida, and just about everywhere, not so much. Consumers are willing pay for the freedom and convenience a BHPH used vehicle contract affords them from profit-motivated retailers that offer a valuable and legal service. Unless Edmund's is willing to give $3,800 to some 3 million consumers, then I see little value in your project other than as an academic exercise for those capable of putting up $3,800 in cash to buy a car.

  • rm2008 rm2008 Posts:

    Mr. Salinas, at some point a person will have to make a sacrifice in order to break the cycle of financing a car. Public transportation in Los Angeles isn’t the most convenient, yet thousands of people use it every day as their means of transportation. Finally, if saving up for the vehicle causes such an intrusion, we would suggest an amount that the person is comfortable with. It may take longer, but it will be worth the wait. -Ron Montoya

  • lexapower lexapower Posts:

    Is there any reason why you don't list the dealership where you bought the car? Maybe you don't want to give them free advertising or they did not want to be included in the article in case you said something negative, but I seriously would be ever so grateful to know about this place. I'm a 24 year old full time college student living in Los Angeles and have been looking for a used car on and off for about 2 years now with no lucky. My price range is the same as yours (under 4000, cash saved up over 6 years of taking the horrible bus to school and work and not having a car) but I have horrible credit so I can't get financed and want to avoid buy here pay here nightmare at all costs. Every single dealership I've read the yelp reviews for in Los Angeles that has cars in my price range has only 1 star and they all say STAY AWAY and I've read the reviews for over 100 dealerships now. I am starting to lose hope. I'm nervous about buying from a private party. If you could please tell me either the name of this dealership or at least the cross street in Pasadena near where their small lot is located I would be very grateful and would like to give them my business. Thank you.

  • laesquire laesquire Posts:

    I really would like to have heard more about the purchase process and how Edmunds TMV pricing was used or not used and accepted or rejected by the dealer during the purchase. Based on the subsequent mechanical issues, it sounds as if the car was in average condition. If so, then per current Edmunds TMV, with 165k miles, the purchase price should have been no more than $2,700 + tax, etc. But since the mileage and condition have not been specified, it's impossible to say. Any more detail you can provide?

  • sharpend sharpend Posts:

    Buying a car with a known history from a private-party probably would have been better thing to do, especially with an all cash deal. You just never know for sure what you are getting buying from a tiny little used car lot like you did. The bad smell and slow starting should have been a pretty good clue that Lexus repair costs were in the future. Heck, there really are good people out there selling their well-maintained cars. It takes time and effort but it can eventually save you money - and may even keep you from getting stranded.

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