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How to Buy a Used Car

Buying a used car offers shoppers the opportunity to purchase a quality vehicle at an affordable price. Whether you’re planning to purchase a used car from a dealer or a private seller, you should be prepared to thoroughly research your purchase and explore the used car market. Below, we offer a how-to guide with information that answers common questions shoppers have when researching for a used car.

What’s the best used car for me?

The make and model vehicle that individual shoppers require varies widely. Variables like mileage, reliability and safety rating all affect every used car decision, and individual buyers should prepare a list of important features to guide their search. Do you need your car to be extremely fuel efficient? Do you need it to seat several children comfortably and safely? Constructing a list of these and other questions will help you distinguish the right vehicles for you.

Once you’ve identified your search criteria, investigate sources like kbb.com and Consumer Reports. These sites routinely evaluate vehicles on a range of qualities like safety, comfort, quality and reliability. Use these reports to narrow your preferences to a few makes/models that meet your specifications. Narrowing your search results will make navigating the ocean of online car listings much easier.

Dealership used cars

Most dealerships have several used cars in their inventory, and many specialize in used car sales. Many dealerships maintain a website that lists their inventory, so be sure to spend plenty of time surfing the web before you walk onto the lot.1  Additionally, there are third-party sites that allow consumers to view vehicle listings from several dealerships, making comparisons between dealership offers easy and effective. Use the specifications you uncovered during your research to filter your searches on these sites, so you can more easily find your desired vehicle. Once you’ve found a vehicle you’re interested in, you can call the dealership to schedule an appointment.

Used cars can be purchased more cheaply than new cars because of vehicle depreciation. Practically all cars depreciate in value, with depreciation beginning the moment a new vehicle is purchased. Cars depreciate at different rates, with some vehicles losing their value more quickly based on factors like demand and make/model reliability and mechanical longevity. Of course, a vehicle’s condition strongly affects its value, and vehicles that have undergone significant wear, have faulty mechanics or have been damaged in an accident should have a lower price to reflect any damage. When dealerships acquire a used car, they typically purchase it from an auction or procure it through a trade in for below its market value.2

Searching for quality used cars

While many shoppers appreciate the savings that comes from purchasing a used car, some fear the possibility of unknowingly buying a damaged vehicle or a “lemon.” The possibility of purchasing a faulty used car can never be completely avoided, but dealerships should take a number of precautions to ensure vehicle quality before posting that vehicle for sale. By the time a vehicle has been posted for sale on a dealership site, it should have been inspected, detailed, and repaired if necessary. On average, dealers invest about $650 in each used car they acquire.3

Dealerships care about their reputations, so, it’s unlikely that they would risk negative online reviews or bad press by intentionally selling lemon vehicles. Additionally, the Lemon Laws - laws prohibiting the sale of defective vehicles passed in every state during the 1970s and 1980s - have largely curtailed the sale of faulty automobiles.4 That said, it’s still a good idea to check observable signs of wear when inspecting a used vehicle you’re interested in purchasing. In particular, look for the following when buying a used car:

Additionally, you should always ask to see a vehicle history report, which will detail the vehicle’s history and, in many cases, mention any structural damage it has incurred. Be sure to take a test drive of no less than twenty minutes, get the car on the highway and test the car’s electronics and heating/cooling components.

Once you’ve determined that the used car is in good working order, you can begin the negotiation process. These days, dealerships usually list their lowest price online, so you might not have as much room to negotiate as you expect.5  Still, you can inquire if the asking price can be lowered and see how they respond. While searching for cars by price or negotiating the price, you should know that the sticker price does not include taxes and fees for titles, registration, and license plates unless otherwise stated.

Used car financing

The dealer will likely attempt to have you finance through the dealership, which is how dealers make a significant amount of their income.6 When a dealership handles financing, it often involves an outside lender who actually provides the loan. As a buyer, you will probably have limited contact with your actual lender if you finance through the dealership, with the dealer acting as the intermediary between you and the lender.

The lender will offer a wholesale interest rate based on your credit history to the dealer. Instead of giving you this rate, though, the dealer will sometimes negotiate the APR you’ll actually be paying, which will be higher than the rate offered by the lender. The dealership will then be paid a kind of commission, sometimes called “dealer reserve” or “dealer participation,” by the lender as compensation for the increased interest that the lender will collect over the life of the loan.7

An alternative to dealer financing is to get a preapproved loan. Preapproved loans are quick, easy and practical. By securing a loan before you buy, you can plan your monthly budget and know exactly how much you’ll be paying each month.

Used cars from private sellers

Dealerships offer a wide selection of used cars at great prices, but you can sometimes find a good deal from a private seller, too. Private sellers routinely list their vehicles online, and you can potentially save money by purchasing from a private seller. While you may save money with a private transaction, purchasing from a private seller does have several caveats. For one, a private seller will not be in a position to offer any extended warranties, and the seller may not be able to guarantee the quality of the vehicle unless he has taken it to a mechanic. For information on buying a used car from a private seller, you can read more here.

Do I need a used car warranty?

Sometimes, if you buy a used car that is only one or two years old, the car may still be under the original manufacturer’s warranty, depending on the mileage the vehicle has accrued. That said, a dealer may be able to offer another warranty to give you peace of mind about the car’s mechanical condition.

Finalizing the sale

After your make your used car purchase, be sure to:

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