It's sad but true. Today, the average new car will cost you more than $20,000. But the minute you drive that car off the dealer's lot, depreciation kicks in and your new car becomes a used car, suffering a substantial loss in value (sometimes as much as one-third of its original price in the first year alone).
But you (and your wallet) don't have to get caught in this catch-22. Smart car shoppers know they can save a bundle by buying a used car instead, and there has never been a better time than now.
Today's vehicles are generally more reliable than their predecessors. They last longer and require fewer repairs. That means that you can buy a used car--even one with significant mileage--and still expect years of reliable service.
The current popularity of leasing has also been a boon to used-car buyers. Since most leases run only 2 to 3 years, there is a steady stream of high quality, well-maintained, low-mileage vehicles entering the used-car market.
Of course, getting a good deal on a good used car does require some work. So sit back, buckle up, and let us show you how to find a second-hand cream puff (and how to avoid the lemons).
Determine What You Can Afford
Smart shopping begins long before you take a test drive. Start by setting a budget that you can live with. Few of us can afford to pay cash for a new car, but--depending on the car and your savings account--you may be able to buy a used car outright and avoid finance charges. Whatever the case, figure out exactly what you can afford based on your monthly income and expenses. Remember to factor in registration and license-plate fees, sales tax, and insurance.
Determine the Kind of Car You Need
Next, narrow your choices by determining the type and size of vehicle that best suits your lifestyle. Balance your needs, wants, and wishes. If you currently own a car, how well does its cargo and passenger space meet your needs? Do you haul groceries, people, pooches, or lumber? Is a sedan adequate, or do you really need a minivan, station wagon, sport-utility vehicle, or maybe even a pick-up? Any family or career changes on the horizon?
What about engine size? Does your current car have sufficient power, or do you want more acceleration and/or towing power? What kind of driving do you do--stop-and-go in the city, cruising on the highway, or four-wheeling off the beaten path?
How about weather conditions? Are you frequently facing snow-covered or icy roads? (If so, you'll want to avoid rear-wheel drive. Fortunately, most cars today are front-wheel drive, but four-wheel or all-wheel drive may be even better for your specific needs.)
What about options? These days, you have a lot to choose from: power windows, power door locks, anti-lock brakes, air bags, CD players, air conditioning, sunroofs, etc. Which options do you want or need, and which can you live without? (Remember, more options means more things that can break.)
And finally, how long do you think you will keep the vehicle? (The longer you intend to own the vehicle, the lower mileage it should have when you purchase it.)
Choose a Car
Once you've determined your budget and needs, it's time to identify specific cars that fit the bill. Consumer Reports Buying Guide and the annual auto edition of Consumer Reports (the magazine) recommend specific makes and models and advise against others based on their "frequency-of-repair" ratings. The Kiplinger Report annual automotive issue is another good source of information.
You'll also want to determine a fair price for the vehicle(s) you're considering. Check out the National Automobile Dealers Association (NADA) appraisal guides for current retail values, or visit their website at www.nadaguides.com, which offers free pricing information. Other good sources include Kelly's Blue Book retail reports (www.kbb.com) and Edmunds Used Car Prices & Ratings (www.edmunds.com).
You should also check the classified section of your local newspaper for the vehicle's local market value. In some cases, it will vary considerably from the guides' values. (Most newspapers have websites where you can search classified ads for specific makes and models.)
In general, the older the car, the lower the price. In other words, a 1996 Honda Accord will have a lower retail value than a 1997 Honda Accord in similar condition. If you identify a car that you like but it's too expensive, keep checking older models of the same make until you arrive at a year that fits your budget. If the model year that you can afford is too old for your taste, you'll likely need to consider a different make or model.
And remember, insurance rates vary based on make, model, and year. Once you've identified a car you want, get an insurance quote to make sure the premiums are still within your budget.
Where to Buy Used Cars
Okay. You've identified a few cars that fit both your budget and your needs. Now it's time to go shopping. Basically, you can buy used cars from three types of sellers: new car dealerships, independent used car lots, or private individuals.
1. New car dealerships are your best bet if you want peace of mind and don't mind paying for it. New car dealerships that sell used vehicles often charge the highest prices, but they're more likely to offer a warranty and to stand behind the vehicle they're selling. Many dealerships offer "certified" used cars--vehicles that are inspected by the dealership's mechanics and repaired according to the manufacturer's standards before they are offered for sale. In many cases, these vehicles come with factory warranties. You'll pay a premium for a dealer-certified used car, but you may save a bundle in repair bills down the road. Be sure to carefully examine the warranty, though. In some cases, there are limitations or fees attached to transferring the warranty from one owner to another. Also, dealer-certified used cars tend to be late models (often former leases). If you're in the market for an older model, you may be out of luck.
2. Independent used car dealers may or may not offer warranties, and unlike new-car dealerships, they usually lack repair facilities. Newer to the scene are used-car superstores with huge inventories and often no-haggle pricing.
3. Private individuals usually offer the best deals on used cars because they aren't constrained by a profit margin, but if you buy from an individual, you're really on your own. Unless you have a written contract indicating otherwise, the sale is likely to be "as-is." On the plus side, you'll meet the car's owner face-to-face and get a sense of how well they've maintained the car, why they're selling it, etc.
If you plan on buying from an individual, be sure to first familiarize yourself with all the paperwork requirements of a private sale, namely the title transfer. Some states require that the seller's signature and mileage verification on the title be notarized. Call your local department of motor vehicles for the specifics. And be prepared to pay for the car with cash, a bank check, or a cashier's check. Individual sellers are reluctant to accept personal checks.
Evaluating the Car
Regardless of where you buy, always ask to see the maintenance and repair records for the vehicle you're considering. The value of a vehicle is not just in its make, model, and year, but in how well it's been maintained. Even the best cars aren't likely to hold up in the long run if the previous owner hasn't had regular oil changes and maintenance.
Ask the seller about the car's maintenance history, previous owners, and whether the car has ever been involved in a wreck. A conscientious individual seller will have a stack of receipts to document the car's maintenance history. Don't expect as much from a dealer. Also, check to see if the original owner's manual is still in the glove box. Drivers who take care of their cars keep the owner's manual.
You should also take the car for at least a 20-minute road test. Drive in as many different conditions as possible: on the highway, in town, up and down hills. If the vehicle has air conditioning, be sure to turn it on (it causes the engine to run 20% hotter and harder). Find a safe area to test the brakes with sudden stops.
If the seller refuses to allow a road test, don't buy the car--it's a simple as that. (Keep in mind that a dealer may ask to make a photocopy of your driver's license, and an individual seller may ask to come along for the ride. These are both reasonable requests on the seller's part.)
After the road test, if you're still interested in the car, you should arrange to have it inspected by a professional mechanic. Regardless of who you're dealing with, NEVER buy a vehicle--no matter how much you like it, no matter how good a deal it appears to be--until you've had it inspected.
Ideally, you should line up a mechanic even before you begin shopping for a car. A complete mechanical inspection will cost you around $50 (roughly one hour's labor charge). This is a small investment compared to the price of a car. (Hint: if the mechanic finds minor problems, but you still want to buy the car, you can use the mechanic's findings as leverage to negotiate a lower selling price.) Always get a written inspection with estimates for any necessary repair work.
Be sure to tell the technician about any problems you've discovered during your discussions with the seller or during your test drive. In addition to the mechanical inspection, the technician should also try to determine if the vehicle has been involved in an accident. (Telltale signs include irregularities in the sheet metal or paint job, and signs of paint in places where it shouldn't be--on chrome, lights, wires, under doors, in wheel wells, etc.) The technician should also be able to identify rust damage, which may be hidden by quick-fix bodywork that will begin to deteriorate shortly after your money leaves your wallet. (If the vehicle is dirty, have it washed before it's inspected so that body damage will be more easily identified.)
For additional peace of mind, you may also consider running a "lemon check" on the car. (Smart sellers--especially dealerships--will provide you with a lemon check on the spot.) Using a car's VIN number, companies such as CarFax (http://www.carfax.com/) will check government records and generate a report on the car's history. Such reports can reveal problems such as odometer rollbacks and prior salvage titles (indicating that the car has been in a major accident). The reports also determine if the title is "clear" (i.e. that there are no outstanding liens against the vehicle).
When shopping for a used vehicle, remember: the key is preparation. The more homework you do, the less likely you are to wind up buying someone else's problem, and the more likely you are to find a second-hand gem with lots of useful life left--at a price you can afford.