Buying a used car is a time-honored money saving strategy, and for good reason. According to Q1 2019 Experian data, the average used car loan amount was about $12,000 less than a loan for a new car.
Avoiding expensive monthly car payments is especially important when faced with financial uncertainties. Thatâs probably why research firm IHS Markit found that the average car age on the road today is nearly 12 years old. Buying a used car is more popular now than ever â but it does take some extra consideration.
How to Buy a Reliable Used Car
There are always risks to buying a used car. If you buy a lemon, you might end up spending far more on it than if youâd just bought a new car. Hereâs how to find the best reliable used car at a good price.
1. Check Your Own Car Loan
If youâre still paying off a car and youâd like to trade down to save some money, the first thing to do is check your existing car loan. If you sell your car for less than you owe on the loan, you could end up having to pay the outstanding balance out-of-pocket.Â
You can request a âpayoff estimateâ from your lender to see how much itâll cost to pay off the remainder of your loan in full. Then, look up your carâs value on Kelley Blue Book or a similar site. Keep in mind that youâll likely get a lot more money for selling it yourself versus trading it into a dealership.
2. Ask for Maintenance Records
Whether you buy a used car from a dealership or through a private seller, itâs important to review the carâs history. If regular maintenance wasn’t done, repair issues and costs can compound down the road â when you own the car. Scrutinize its maintenance and repair records to get an idea of how well it was taken care of and whatâs recently been worked on.
Not everyone keeps meticulous records, unfortunately. But if theyâre available, records are a good source of information about the reliability of the car.
3. Take the Car for a Test Drive
Itâs possible to buy a car over the internet and have it delivered right to your home. Although it sounds convenient, buying a car without a first-hand test drive is very risky.
Get behind the wheel yourself to test it out on road conditions you plan on experiencing. For example, if you often drive on the highway versus surface streets. A test drive helps you feel whether the car is comfortable for your personal anatomy, and offers a real-life sense of obvious repair issues that werenât apparent in the maintenance records.
4. Do a Background Check on the Car
Regardless of whether a carâs previous owner kept good maintenance records, the carâs VIN and a CARFAX report can surface valuable information, like recalls, ownership history, service records, and more.
Also, ask to see the title of the car, and look for âsalvage,â ârebuilt,â or âfloodâ written on it. The exact terminology and the color of these special titles varies by state, but they all indicate one important thing for you: be cautious â the vehicle has a checkered past that might pose a safety or financial risk.
5. Get an Inspection
Always remember to get an inspection done from an independent mechanic. If you buy your car from a dealership it might be âcertified pre-ownedâ or already have an inspection report (from the dealerâs mechanic which might be biased).
Even in these cases, get the car inspected by a third party. Ask the seller if theyâre willing to join you as you take the car to your mechanic, or have the seller take it to your chosen mechanic.
If thatâs not an option, ask your preferred mechanic if they do on-site inspections. If thatâs not even a possibility, there are mobile mechanic companies that specialize in doing on-site inspections, like Lemon Squad or CARCHEX. These companies are also handy, if youâre buying a car from out-of-state.
Pros and Cons of Buying a New Car vs. a Used Car
Buying a used car is the best option in many cases, but itâs not the only choice. Here are the benefits and disadvantages that you can expect when buying a new car versus a reliable used car.
- Most reliable and safe: Things can still go wrong with new cars, but in general, they feature the newest safety features and have zero wear and tear on them.
- May come with a warranty: New car warranties arenât all-encompassing and generally only protect certain features, such as the drivetrain. Still, itâs something youâre less likely to find with a used car.
- May last longer: Since youâre buying a car that no oneâs driven around, thereâs a good chance itâll last you longer than a used car.
- Expensive: Not only are new cars wildly more expensive than used cars, but as soon as you drive them off the lot, new cars depreciate immediately. According to Edmunds, your new carâs value drops by 9% as soon as you drive it off the lot, and depreciates by 19% during the first full year.
- Might be in debt longer: According to the same Experian study, on average, new-car loan terms were about four months longer than a used car. Thatâs not a huge difference, but taking out a bigger loan for a longer time period, means even more money spent on a car thatâs already lost much of its value.
- More affordable: Used cars are definitely the way to go if youâre looking for a car that wonât break the bank. Theyâre also cheaper to insure and register.
- Previous owner absorbed the depreciation: The carâs original owner took the biggest hit on depreciation so that you donât have to. Even a used car thatâs just a few months old gives you a nearly brand-new car without losing a chunk of its value right away.
- Less debt: If youâre buying a cheaper car, you wonât need to take out as big of a loan for it. You might not even need a loan at all if youâve saved up enough money â a target thatâs a lot easier to reach for used cars.
- Higher-end car for less money: Another perk of buying a used car is that you can often get a nicer used vehicle at a higher trim level, for example, than if youâd paid full price for a basic model.
- Might still be under warranty: If you buy a newer used car or a car from a dealership, it might have a short warranty associated with it.
- Reliability and safety: Youâll need to do your due diligence when buying a used car. Itâs especially important to have any potential used cars looked over with the experienced eye of a mechanic before you put your money on the line.
- More research and time: Youâll need to put in more time and legwork than with a new car. This includes doing extensive research about the build-quality and reliability of the car, checking maintenance records, professional assessments, and more.
- Might not last as long: Thereâs a reason used cars are cheaper â theyâve already gone through some of their expected lifespan.
- Harder to get a loan: Many lenders have limits on how old or how many miles a used car can have, because the car is collateral for the loan. If youâre buying a really old car or it has high mileage, you might have some trouble finding financing for it.
Saving Money by Buying a Used Car
Buying a used car â the right way â is about more than just saving money up front. That savings will resonate throughout the rest of your financial life.
For example, if you buy a $20,000 used car instead of a $32,000 new car but keep all of the other loan details the same ($5,000 down payment, 4.5% APR, five-year loan term), your monthly payment will be almost $230 less.
Now, if you take that savings and put it in a high-yield savings account, youâll have almost $14,000 saved up by the time your car is paid off. Thatâs almost enough to buy another car outright in cash, or a hefty emergency savings fund. By being thoughtful about your next used car purchase, you can find a dependable car while also hitting your other financial goals.Â
The post How to Buy a Reliable Used Car appeared first on Good Financial CentsÂ®.