Opting for a used car is a cheaper alternative to financing or renting a new one. But they can come with several problems, from mechanical to electrical.
Imagine that you buy a vehicle in a batch of used cars that seems to be fine for a week and, suddenly, the doors fall off. According to the mobile car repair company YourMechanic [1], this has happened to customers on some previous occasions. And that’s not all you have to take into account when it comes to saving money when buying a used car.
The best way to save money when buying a car is to buy a used model instead of a new vehicle or a lease. New cars depreciate as soon as they leave the dealership. However, when buying a used car, the original owner bears the burden of seeing how the car depreciates during its first years. This is in his favor, since he ends up paying much less than he would have paid for buying the same new car. How to save money when buying a used car
Consequently, when buying it used, the car may require more maintenance. Therefore, it is essential that you choose a vehicle that has a good reliability index, low maintenance costs, and good kilometers per gallon of fuel.
Smart financing
Financing for a new car can accumulate quickly: the total number of car loans in the United States amounted to $1.1 billion in 2017, according to the business news publication Quartz [2], and the average loan for new cars reached a record of $31,455 in 2018, according to Experian.
But buying a used car can give your savings account a break.
“For most of those who live in the United States (USA) and Puerto Rico (PR), the price and monthly payment remain important decisive factors, since they often look for a vehicle that fits a certain budget. Second-hand cars offer a great price advantage and are great for those who are less demanding in terms of having the most current features. But used cars usually have fewer incentive from the dealership, such as low-priced financing, to attract buyers,” says Mike Ouyang, of LendingTree’s car division. How to save money when buying a used car
When financing used cars, you have to take into account some things…
Step 1: Set your budget
If you do not have a set budget for your monthly payments, you risk paying more than you can afford: car loans account for about 9% of all U.S. debts, according to Forbes [4].
The consumer financing company Bankrate says that a good general rule is not to spend more than 15% of the household’s monthly income on the monthly payment of the car [5].
Before you start looking for the right second-hand car, start by establishing a budget that will help you. It is rare for someone to pay for a car in cash, but it does happen when they buy a used car. So start by seeing what car you can buy with your savings. Then you can decide if you will need additional financing with a car loan. How to save money when buying a used car
Establish a budget to buy in cash
If you are going to use your savings to buy a car in cash, make sure you don’t spend all your savings at once. Remember to reserve some money for other expenses, such as tuition, insurance, future maintenance, and maintaining an emergency fund for unexpected mechanical repairs. It is also convenient to leave an extra margin in your savings for emergencies, so be practical in terms of the amount of savings you use to buy your car.
How to prepare for a new car loan
The most common method of buying a car is to ask for a car loan. Getting a car loan can help you avoid spending all your savings and can allow you to buy a more expensive car brand or model that is still within your means. How to save money when buying a used car
Obtaining the pre-approval of a car loan can simplify the purchase process. You will know exactly how much vehicle you can afford to buy. In addition, this puts you in a stronger position to negotiate with a dealer or a private seller, since it shows that he has not come to make a detour. You can consult Step 4: Direct Loan for more information. How to save money when buying a used car
As a general rule, the total of your monthly expenses in cars should not exceed 20% of your monthly salary. We recommend that you use an auto loan calculator to help you prepare your budget. It is common for consumers to give 10% of entry and finance the car at 36-72 months.
Keep in mind that choosing a longer term in a used car can be risky, although a longer term will reduce your monthly payments. You may want to replace the vehicle before paying off the loan. In that case, he would have to pay the remaining balance, which could consume part of the funds he would use to buy a new car. How to save money when buying a used car
Step 2: Reduce the brand and model
This is where you can and should be demanding. Take your time to think about the uses it will give to the car. Making a checklist can help you in your search:
- How long do you plan to have the car?
- Are you going to use the car on a daily basis or is it more for leisure or for a specific use?
- Will it be a car to share with the family?
- If the car is for work, how many miles per day/week are you going to drive?
- Are you going to make a longer trip, such as a road trip, in the car?
- How many passengers do you need to be able to carry?
- How much space do you need in the trunk?
- What features are important to you? (Think about everything, from the sunroof and seat heaters to Bluetooth and security features.)
- What is the maximum mileage you want the car to have?
- Are you looking for a specific color or is there a color you don’t want?
Use the web pages that are there to guide you. If you are most concerned about safety, check the website of the Institute of Road Safety Insurance [ING] for details of car crash tests. Next, search for brands and models and create a list of at least three cars that you think are suitable. Examine the different reviews of the cars you have selected and compare them even more using reliable auto review aggregation websites, such as Edmunds reviews.
Step 3: Decide where to buy a used car.
Now that you have a list of cars, go find the right place to buy a second-hand car. Thanks to the power of the Internet, there are many websites that sell or list used cars. We recommend that you consult some of them:
- AutoTrader [ING]: AutoTrader is an online vehicle listing service that acts as a portal for sellers and buyers of new and used cars, gathering information from several different car batches in your area.
- AutoList [ING]: AutoList is a practical website because it extracts vehicle listings from a wide range of online car shopping websites and presents them in a single and practical location. In addition, AutoList offers a “Listimate” function that tells you if the price of a car is fair or not.
- Carvana [ING]: Carvana removes dealers from the process and operates almost entirely online. Therefore, they do not have traditional dealers or test drive options. However, they give you the option to return your purchase seven days after the sale without asking questions.
- CarMax [ING]: CarMax is a car dealership with a policy of buying and selling used vehicles without haggling, which aims to simplify the purchase process for people who want to make their purchase and leave. And unlike Carvana, CarMax has physical batches scattered throughout the country, so you can see the vehicles and test them before buying.
- Craigslist [ING]: Craigslist has been around for years and is the best option to find low-end cars in your area of private sellers. However, be careful with scammers.
Step 4: Determine a fair purchase price.
When you start to reduce your search, look for the car model in a price guide such as the Kelley Blue Book [ING]. You can use the guide to check the market value of the car you like. And you can customize your search based on factors such as mileage, status, brand and model, etc. Once you have determined the fair price of the vehicle you want, you will have the information you need to negotiate successfully.
When looking for prices, keep in mind the following to try to narrow your searches:
- Year
- Brand and model
- Options
- Millaje
- Condition
Since most price guides will give you several prices, be sure to adjust the price type accordingly in your search. For example, if you are going to buy from a dealer, be sure to look at the “Dealer Retail” price. And if one of your neighbors is selling a car, look at the price of “Particular.” In addition, you will realize that price guides usually indicate what a trade-in is worth, so be sure to put a price on your current car and the one you want to buy if you plan to redeem it at the dealership.
It is also important to know the history of a vehicle when buying used cars. Dealers usually provide this history in advance, or you can order it. Some dealers also have “semi-owned certificate” policies, which mean that the car has undergone a rigorous inspection. Be sure to check what the pre-owned certificate policy means since some dealers may use the term to make buyers feel better about the purchase.
If you are going to buy from an individual, ask for the vehicle’s chassis number (VIN) and check its history on the Internet. Services such as CarFax [ING] make it easy to search for the complete history of a car or van for free. How to save money when buying a used car
Credit Karma [ING] also recommends negotiating each part of the transaction separately so that dealers cannot incorporate hidden charges into the contract. Focus on the general picture rather than the monthly payment: a dealer may agree to reduce your monthly payment, but this would lengthen the repayment period of the loan and make you pay more in interest as a last resort, the company says. Carefully review each decision you make. How to save money when buying a used car
And if a dealer is not willing to work with you, don’t be afraid to leave.
Step 5: Find affordable financing for a used car
When it comes to finding affordable financing for your car, you have two options to choose from:
- Direct loan
- Financing at the dealership
Direct loan
Direct lending is the process of borrowing money from a bank, a financial company, or a credit union. With this type of loan, you agree to pay the amount financed along with the interest that will be returned within a certain period of time.
In addition, you can apply for pre-approval financing before you start looking for a car. This is enormously beneficial for negotiations since the credit conditions are known in advance, including:
- Annual Percentage Rate (APR)
- Term (duration of the loan)
- The maximum approved amount you can borrow
With a pre-approval, you can identify and negotiate the best offers and financing options because you have something to compare the dealer’s offers with if you are going to buy from a dealer.
If you buy from a private owner, you will only have one financing option: a direct loan.
Financing at the dealership
On the other hand, financing at the dealership is the process of applying for financing through the dealership. Therefore, he is signing an agreement with the dealership to buy the car and undertaking to pay the amount financed plus interest over a period of time. How to save money when buying a used car
Dealer financing can offer you multiple financing options since the dealer’s relationships with financial companies and banks allow them to offer you a wide range of financing options. For example, they can offer you 0% APR for 36 months on certified pre-owned vehicles (CPO).
However, keep in mind that the concessionaire almost always makes a benefit by offering him financing; therefore, they may not take into account their interests. Be sure to obtain the loan veracity law (TILA) declaration of any offer from the dealer you receive so that you can compare total costs, interest charges, and payments with a direct loan offer.
Step 6: Make sure you have the right vehicle.
The best way to get all the information you need about a car is to simply ask questions. Start by verifying the information you have seen or read in the ad.
Here are some important questions you should ask:
- Can I see the service records? (CarFax [ING] is a great source of reports on the vehicle’s history.
- Do you have the property title? Is it clear? (The clear titles show that there are no levies on the
- What factors have been taken into account when deciding the sale price?
- Are there any important details that have not been mentioned in the ad and that you should know?
- Can I have a mechanic of my choice check the car?
- How old is the battery? Has the battery been replaced? If so, when?
- For the automatic transmission: When the car is running, does the transmission make noise when entering it?
- When you press the clutch on a manual transmission, do you feel the transmission stiff or with pulls?
Now that you have a basic idea of some important questions that you should ask, It’s time to create a checklist of your requirements and any serious mechanical concerns.
- How safe and reliable is the car? Does the bottom of the engine have any signs of liquid leakage?
- When accelerating, does the transmission pull at the points of change?
- Do the undersides of the car have any dents or metal bumps?
- Are all the tires the same size and brand?
How to inspect the car
Although you can ask the above questions and check the car for yourself, you must make sure that it is really in good working condition by taking it to a mechanic. Private sellers are usually quite lax when it comes to the inspection, while some dealers can refute it by arguing that “the car has already been inspected.” But we urge you to insist that a trusted mechanic check the condition of the car if you have any questions.
Now, a small clarification on the meaning of “certificate.” In batches of independent used cars, this does not mean anything about the condition or reliability of the car. It is a ploy to attract gullible customers. However, in new car batches, “certificate” refers to the fact that the vehicle is part of a certified pre-owned (CPO) program.This has become a popular method to facilitate the purchase of used cars as a whole. Therefore, it should not be necessary for a mechanic to check the car.
Try the car.
Even if you are not an expert mechanic, you can inspect the car yourself by doing a test drive. If possible, try driving the car on several routes and a stretch of highway. And be sure to drive the car without the radio on so you can pay attention to the following:
- Listen to any unusual noise that may indicate a defective mechanical condition.
- Check for blind spots.
- Do you like the steering and acceleration of the car?
- And most importantly, make sure that the brakes work properly.
Once the driving test is over, analyze the rest. Check the legroom, the load capacity, and the different options added. And, finally, turn on the radio or connect via Bluetooth and ring the sound system to make sure that, again, it is to your liking.
Step 7: Negotiate the best price
And now let’s go to the essentials: negotiate. For some people, this can be stressful since they don’t want to haggle. But with a little research, you can get the average market price of the car, which you can use as a price guide. The seller will almost always ask for more than the market average in order to obtain the maximum possible benefit.
Let’s say, for example, that Honda asks for $15,000 for a used 2016 Honda Civic, but his research has shown that the car is worth $12,000. From there, start by pointing out any concerns you may have to try to lower the price, and then cover them with the book value of the car.
For example: “The car drives well, but I am a little worried about the fact that it has had some electrical problems with the dashboard and the fact that the value of the car is $20,000.” With this in mind, I think $10,500 would be a fair price for him.
Now it is up to the seller to accept his offer or make a counter-offer, and so on until he reaches an agreement or leaves. Also, keep in mind that salespeople know all the tricks of the trade and will be able to discover their strategy, so stay firm. Finally, make sure you know if the dealership is giving you the “exit” price, which includes all taxes and fees, or if it is simply giving you the sale price of the car.
Here are some tips to help you get the best deal on a batch of cars:
Take your time to negotiate. Start with a low offer, but stay at a reasonable margin. Otherwise, the dealer could consider it a low offer and stop taking it seriously. Instead, try to make a low offer that remains attractive. If the deal is not attractive enough for the dealer, improve your offer by $300.
If you are approved for a loan, it is as if you were buying with cash. Therefore, negotiate the price of the car and not the size of the monthly payments. It is common for sellers to try to convince consumers to buy a car by showing them the low monthly costs instead of the total cost of the car.
If the seller walks away to “talk to his boss,” get up and walk around the showroom or get a cookie or coffee. This will keep the seller alert, which will help him in the negotiations.
Make sure that all taxes and fees are broken down before saying yes to a deal. Sometimes, sellers will include filing fees or other expenses to get the most out of what they may have lost during the negotiations.
You are the buyer; therefore, you have the greatest power. Always be willing to leave if you do not progress in the negotiation of a deal or simply because you do not like how you are being treated. A simple goodbye will be enough.
Step 8: Last Steps in the Purchase of a Used Car
Finally, after having tested the car of your dreams and having committed to the purchase, there are still a few more tasks to take care of before the fun begins. To help finalize your budget, add the cost of the insurance, the title of the car, the license plate, and any necessary final repairs.
You must also perform these steps:
Transfer the title and register the car.
To transfer the title of the car and the sales bill, or the dealer’s invoice, you may have to go to your county tax office with the seller to transfer the property. Once you have finished the registration information, be sure to keep it in the glove compartment without the vehicle title. Keep the title under lock and key in a safe place at home that you can easily find later.
Securing the car
If possible, insure the car before leaving the dealership. If you have the vehicle identification number (VIN), you can provide it to your insurer so that you have adequate coverage. Dealers do not usually allow you to leave the lot without proof of insurance. In addition, choosing your insurance plan in advance will help you with your budget plan. Be sure to include insurance in your budget from the beginning.
Read the owner’s manual.
Even if it is tedious, it is important that you read the owner’s manual. Not only will it give you a clear idea of the car’s maintenance program, but it will also teach you the ideal degree of gasoline and tire pressure, as well as tips and tricks on how to use the different tools of the car that you have at your disposal.
Check the pending repairs.
Before buying a car, it is advisable to carry out a pre-purchase inspection. However, it is also a good idea to recheck the filters, liquids, brakes, and tires after the purchase. Keep in mind, however, when looking for a mechanic, that some specialize in maintenance and others in repair.
