How to buy a used car

Updated: August 4, 2013

How to choose the 'right' car? What mileage is too high for a used car? What to look for when buying a used car? There are many questions when it comes to buying a used car. Over the years, I have helped many people with their car purchases. In this article, I will answer to some of these questions and hopefully make a used car buying process easier for you.

• Decide on your budget
• What monthly payments can you afford
• What kind of car to look for
• What type of a used car will fit into my price range?
• Car value and price
• Choosing the right car
• Cost of insurance
• What mileage is too high for a used car
• How old is not "too old"
• Buying 1-2 year old used cars
• Is it worth to buy a car 'as is' or in need of some repairs?
• Who sells used cars
• Buying a used car from a rental car company
• Making a list
• Questions to ask a private seller
• Questions to ask a dealer
• Checking the used car history
• At the dealership
• Having the vehicle inspected
• Negotiating the deal
• Legal aspects and paperwork
• Buying an extended warranty
• Do's and Don'ts when buying a used car

Decide on your budget

The first step when buying a car is setting your budget. A car buying process can be overwhelming; there is a good chance the dealership sales people will try to sell you something more expensive than you had in mind. You just don't want to be distracted by cars that you cannot afford.
When shopping for a car, always consider the total price. Often it could be hidden behind low monthly payments stretched over the long time: "Only $189 a month!" sounds great, but if you calculate the total price, it could be way too high. Often, car buyers just don't have enough time to think their decision through; that's why thousands of people search the internet for 'How to get out of a car loan'. But if you know your budget ahead of time, you will be able to focus on what you need and won't be distracted by more expensive cars. If you can buy a car or truck for $12,000 instead of $27,000, I'm sure you can find better ways to use the $15,000 you saved, be it for kids' education or something else your family needs.
Avoid long-term contracts. The economy is still shaky. Look a couple of years ahead: If your company is solid and your job is secure is one thing; but when you don't know if you will have a stable income next year, buying a car that you can pay off sooner is a wiser choice. The basic rule is, if you cannot pay off a car in full within three years without straining your family budget, it is too expensive.
Consider fuel, repair, maintenance and insurance costs. For example, you can buy a used Audi or BMW in good condition for only $15,000, but it will cost you a lot in maintenance, repairs and insurance. Similarly, for the same price, you can buy a nice used V8 truck, but it will cost you around $4,000 a year for gas alone.

What monthly payments can you afford

Financial experts recommend that your total debt payments should not exceed 36 percent of your gross income (total income before taxes and other deductions). This means that if you are making $50,000 a year, your total debt payments should not exceed $18,000 a year, or divided by twelve, $1,500 a month. If you are already paying $1,300 a month for all your debts, including mortgage or rent, credit cards, loans and other installments, all you can afford for a car is $200 a month.
Here is a good article from the FTC: Understanding Vehicle Financing, it explains many aspects of vehicle financing, including determining how much you can afford.

What kind of car to look for

When buying a used car, look for a model that has good reputation for reliability and won't lose its value too quickly. Check the gas mileage and safety ratings. Avoid used luxury cars, as they could be very expensive to maintain. Read more what to research here: choosing the right car. Your best bet is a 3-5 year old used car, as a new car loses most of its value during the first two years. Your goal is to find a well-maintained car that didn't have major mechanical problems or accidents in the past. A one-owner car is even better. It's great if the seller or a dealer can show you the service records to verify that the oil changes were done regularly. The lower the mileage the better, but don't put too much value on the mileage alone; the mechanical condition of the vehicle is more important. Don't be put off by minor cosmetic issues, like dents or scratches, unless it really matters for you. It's more important for a car to be in a good mechanical shape, and if it has some minor blemishes, you can use them to negotiate the price down.
The condition of the interior usually says a lot, so watch out for excessive wear of the driver's seat, steering wheel, driver's door, controls and switches. Avoid cars with engine or transmission problems, even if it seems like something minor; often, this type of problems could require expensive repairs. Avoid badly rusted cars even if the major corrosion spots have been repaired; once the corrosion process starts, nothing will stop it. Turbocharged cars often have more problems when used; not all turbocharged cars are bad, but in general, an average car without a turbocharger will be more reliable in a long run. Avoid overly-modified cars; if you like modifications, buy a regular car and modify it yourself. Read more: how to check a used car before buying it.

What your money can buy?

For $10,000-20,000 you can buy a nice 3-4 year old vehicle in good condition that can last for another 4-5 years without major problems. SUVs, pickup trucks and luxury cars are usually priced in the top portion of this range; family sedans are in the middle; small cars are at the lower end. Often you can find this type of vehicle under Certified Pre-owned program at a new car dealership, possible with some warranty. Often a dealer may have service records, so you can verify that the car was maintained regularly. This would be your safe bet.
For $5,000-10,000 you still can find a used car in decent condition, although it will be an older vehicle with higher mileage. It also takes more time to find a good car for this price, although there are still plenty of choices. More likely, you can find a vehicle in this price range sold by an independent used car dealership or a private owner; some new car dealers also may have a few cars within this price range on their lots.
Even if your budget is limited by $5,000, you still can find a decent car, although be prepared to spend more time. For this price range, it might be a good idea to look for a small or mid-size car, as a pickup truck or SUV with average driving of 15,000 miles per year will cost you more than $4,000 a year in gas alone. For comparison, an average fuel cost for a small car is about $2,200 per year with 15K miles per year. Be prepared that a car for under $5,000 will need some repairs to keep it on the road. A car in this price range is typically sold privately or by independent used car dealers.

Used car value and price

When it comes to used cars, the "best deal" doesn't mean the cheapest one. Your goal is to find a well-maintained used car in good condition for a reasonable price. You will simply save on repairs and enjoy driving it. The rule is, if a car is priced too low, there is probably something wrong with it. How to know the 'right' price for a certain vehicle? You can check the black or blue book value as a reference, but they just give you an average price. The actual value of any used vehicle depends on its condition, options and other factors. Two cars of the same model may only look the same. One might have been maintained poorly, with noisy engine that consumes oil, cheap tires and corrosion underneath. The owner of another vehicle might have been religious about maintenance, was using only synthetic oil, has done the rustproof and so on. In this case, you would be right to pay more for the second car.
To see how much you will have to pay for a certain model you just need to see what is available on the market in your area. For example, if you want to buy a three-four years old Toyota Camry, search the Autotrader website for a used Toyota Camry in your area limiting the search within your year range. The search result may give you a few hundred cars priced from $10,000 to $20,000. Ignore those that are too expensive and those that are too cheap. To do that, you can do a new search selecting the price range, for example, from $12,000 to $17,000. Now, try narrowing your search further. For example, you only want a 4-cylinder model with the mileage under 60K. Modify your search selecting only 4-cylinder models and your desired mileage. Your search result could return for example, around 70 cars with the average price of around $15,000. If you know how to bargain (read further) you can probably negotiate that price down to around $13,500-14,000. So this is roughly what you will have to pay for the 3-4 year old 4-cylinder Camry in your area, of course, plus registration, taxes, etc.