How to buy a used car in 7 steps

The last time I bought a used car, I thought I had done my research.  I thought I was prepared.  I felt I was sure to get a good deal.  But just a few weeks later I ended up out over $2000 and still without a car.  What did I do wrong?  As it turns out, quite a lot!

My lemon. Looks innocent, doesn't it?

In this article, I’ll lay out a method for buying a used car that will help you avoid many of the most common mistakes people make when trying to buy a used car.  A long the way, I’ll point out some of the things that you can avoid by following this advice, and similarly, some of the traps you may fall in to if you’re not careful.

This 7 step system is adapted from an article written by a former used car salesperson, but I have greatly extended the explanations of points and also included many new great resources to help.  With that said, let’s get started!

1) Determine your needs and your desires, and make sure you can tell the difference between them

First start with the financial questions.  How much can you afford to spend?  Are you planning on buying with cash, or are you going to need financing?  What can you afford with insurance?    Are you going to want to hedge your bets on repair costs by purchasing an aftermarket warranty of vehicle service contract?

One question may seem a bit obvious, but is worth considering: do you really need a car?  If finances are tight, it may make more sense to take advantage of public transportation options or car pooling until you have more cash available.  After buying my lemon, I decided that the cost of insurance and gas alone meant it was cheaper to get rid of the car at a loss and take a bus to work than hold onto it.

If you are planning on financing, it may be best to go through a local credit union.  These sources will often have better rates than big banks or car dealerships.  For insurance, use some free online tools to get a quotes for some of the models you are interested in.  The same goes for warranties.

Once you’ve at least thought about these questions, you can start asking yourself about what makes and models may work for you.  What type of car do you need?  A reliable daily commuter?  A car for road trips?  A caravan to transport your hoards of children?

There are a few excellent tools to guide you in your decision.  My personal favorites are the MSN auto selector tool and the CarMax car chooser.  Both of these tools help you narrow down your choice of makes, models, and years by asking you a series of questions about your needs and desires.  Everything from number of passengers to trunk space is taken into account in these tools.  I found the MSN tool to be a little faster and easier to use, but the CarMax tool has better features and allows you to look further back at older makes and models of vehicles.  I suggest using both and seeing what each tool suggests.

2) Locate prospects

Once you’ve narrowed down your list of models, you can do a bit more research by reading reviews and checking out test drive results.  The easiest way we’ve found to do this is using the review search tool provided by AutoTempest.  If this is not enough for you, there are several other places to look for reviews.

• MSN autos has a great review feature built in that analyzes cars based on repair frequency data for several different automotive systems.
• Cars.com has a similar system with reviews available for many makes and models of cars.
• JD Power reports are often flouted in new car commercials, and you can look most of them up for free on their website.
• CarTalk has reviews both from consumers and from the hosts themselves.  The set of cars included is a bit limited, but the information is helpful if your car is featured.
• MotherProof has reviews targeted at working moms, meaning extraneous mechanical data is usually ignored in favor of more practical concerns.
• Consumer Reports provides unbiased and very informative reviews, but requires a paid subscription.  Currently the rates for this are $26 yearly, or $5.95 for a month long subscription.

There are many great places to look for cars, and now, many of these are online.  Although local newspapers and classifieds can still yield some excellent deals, most traffic has turned to the internet as a way for sellers to increase exposure and hopefully command a higher price for their cars.

My favorite tool for a quick search is AutoTempest.  This site allows you to search Craigslist, Cars.com, Ebay (both classifieds and auction listing), CarsDirect, Vehix, AutoTrader, and Automotive.com simultaneously.  It is a great way to quickly gather leads and see what is available in your price range.  Another similar tool is claz.org, which can search even more classifieds sites, but doesn’t include some of the car specific sites covered by AutoTempest.  If you want even more broad and powerful search tools specifically for Craigslist, crazedlist and searchallcraigs are nice tools to use for searching listings in many different areas simultaneously.

Deals can appear and disappear rapidly online, and this often makes it hard for the busy buyer to jump at the newest hot deal.  Thankfully, several great tools have been developed to address this problem, especially for Craigslist.  My favorites are Craigslist Notify, HeyCraig , and Craigslist buddy.  Each of these tools will find listings matching your search criteria and send you emails or text messages when listing matching your criteria appear.  The tools differ in their options for searching and their flexibility in how you are notified of matching listings.  If you want to avoid clogging your inbox or racking up large phone carrier charges with text messages, you can set up rss feeds in Craigslist itself, or by using a tool like crazedlist.

Now that you have the deals pouring it, make sure you consider some of the differences between sellers.  Private sellers usually offer lower prices than dealers, but private sales are always as-is and leave you little recourse for dealing with a deal gone sour.  Another option is certified pre-owned (CPO) cars, which provide many of the benefits of buying a new car with a (usually) reduced price tag.  Realize that this additional assurance, either when buying from a dealer or going for a CPO car, will usually cost you extra money.  I personally recommend trying to find good candidates in the private sale market first.  Generally due diligence on your part will provide you with as much protection as any warranty or guarantee.

Take the time to reach out to sellers of the prospects you’ve located as quickly as possible.  Although you may feel ahead of the game because you were able to find a listing 5 minutes after it went up, this doesn’t do you any good unless you contact the seller quickly.  When you do make contact, make sure you remember to collect important information about the car from the seller that may have been missing from their post.

3) Check the history of your prospects

Vehicle history reports are a great tool for screening prospects and helping you avoid big problems such as stolen cars, accident damage, flood damage, and title liens.  Check out some ways to get these reports for free and our suggestion for which vehicle history report to purchase in our article “Why a vehicle history report isn’t enough“.

4) Test drive

If the car you are looking at is at a dealership, it is almost always a good idea to not buy a used car after the first test drive.  (I made this mistake when buying my lemon.)  While sellers on craigslist may legitimately need to get rid of a car in just a few days and thus price aggressively, a dealership is rarely willing to price a car this way.  They won’t stay in business unless they are making money selling cars!  Instead, try test driving the car again in a few days for a fresh perspective to give yourself a chance to catch anything you missed on the first go round.

Aside from this tip, there are many other things to consider when test driving a car.  Excellent guides to test driving a car can be found at AskMen, Car and Driver, Edmunds, and US News.  The tips that kept showing up are provided below.

• Do your research beforehand.  Make sure you know about the particular make and model you are looking at before you get there, so your expectations are in line with what the car is capable of.
• Give yourself plenty of time.  Don’t feel rushed to get the test drive over with.  If you buy the car, you will be stuck with it for a while, so make sure that’s a good thing!
• If at a dealership, tell salesperson you want to enjoy the ride, and just have him answer questions.  This will allow you to focus mainly on the car and avoid having to maintain a conversation at the same time.
• Adjust your testdrive to your usual driving scenario.  Ask for permission to go off the usual route (if at a dealership) to test the car under a more varied set of conditions.  Take it on the highway, on a bumpy road, around tight corners, etc.  If there is something in particular you want to test, ask the seller (or dealership rep) and they may be able to recommend a stretch of road that can showcase that aspect of the car’s performance.
• If at a dealership, ask if you can take the car home overnight to evaluate it.  Not all dealerships allow this, but it is the very best option for really observing the car’s performance in the full range of driving scenarios.
• Test drive multiple cars back to back.  This will allow you to make a more accurate comparison between cars.

5) Negotiate

Finding a winner is sadly only half the battle.  The second half is settling on a price.  Check out our article on negotiating tips for some advice in this area.

6) Take it to a mechanic

Many people recommend taking the car to a mechanic only after negotiating a price.  This allows you to get an even better price because you can often get any needed repair costs taken off of this “final” price.  (*Sellers, this is a tip that you may want to be proactive and get your car inspected ahead of time!)  Whichever order you do things in, having a used car inspected by a quality mechanic is a must.  If you are buying the car long distance, consider using a mobile inspection service to evaluate the car for you.

There are many reasons why having a mechanic check out a used car is a good idea, but the main reason is that they can accurately evaluate its current condition and quality.  A knowledgeable mechanic can find current problems with the car as well as spot components which may need replacement soon.  They can also provide an impartial recommendation of whether or not the car is worth the asking price.

If you chose to have a local mechanic check out your car, consider using the free OnPoint Inspection form.  If you provide this for to your mechanic, it will help him do an even better job of evaluating key components of your car.

7) Arrange payment, transfer ownership, etc.

If you purchase a car from a dealer, generally all the legal details are taken care of for you.  Your only responsibility is to make sure the new car is on your insurance (you did get a quote beforehand to make sure you could afford it, right?).

If you are buying from a private seller, however, there are a few additional details to keep in mind.  Make sure you have the title transferred to your name.  If the title is not in your name, you do not legally own the car.  Also, make sure you fill out a bill of sale.  Most state DMVs will have a template bill of sale on their website.  While you are there, double check your state’s laws regarding the private sale of vehicles.  Some states require emissions or safety inspections to be performed at the time ownership is transferred, and some have additional regulations in place for the paperwork that must be completed.  Make sure understand these rules before you start looking for a car.

What to look out for

There are two main things to look out for when buying a used car: scammers and sneaky salesmen.  Ebay both provide excellent guides to avoiding common scams when purchasing cars online.

There is also a plethora of information on tricks of the used cars salesman available online.  The Edmund’s Confessions of a Used Car Salesman series is excellent, although it is quite lengthy.  Consumerist also produced its own, much shorter, “confessions” article, which gives the general idea of what to look out for.  More specifically, I suggest reading “6 Things You Should Never Say to a Car Salesman” and “Dealerships Rip You Off With The “Four-Square,” Here’s How To Beat It” if you expect to visit a used car dealership during your search for a used vehicle.

More Resources

Still need more help?  Many other websites have put together guides for used car buyers.  Kelly Blue Book has a very extensive 10 step guide for buyers which may fill in some of the gaps in what we provide here.  CarTalk has an entire section of their website devoted to helping potential buyers succeed.  This has continued to be one of my personal favorite resources.  Popular Mechanics also provides a short single page article that summarizes some key things to keep in mind, and Kiplinger has a similar article which we also found to be very useful.

Was this article helpful to you?  Do you have other tips and tricks for buying you’d like to share?  Please leave a comment and let us know – thanks!