Tips for Buying a Used Car
A lot of folks (myself included) prefer buying used cars. For many people, used cars represent good values. Consider my own situation, for example.
It's often said that a new car loses 20 percent of its value the moment you drive it off the lot. Whether 20 percent is an accurate figure or not, I can't say; but the fact is that once a car has been titled and registered and can no longer be sold as "new," it does lose value. That loss of value is one of the things that contributes to depreciation, which simply means that over time, cars lose dollar value.
In my own case, depreciation happens more quickly. I live in a rural area where the winters can be brutal, and many of the side roads are unpaved dirt or loose gravel. This combination of tough winters, road salt, and less-than-wonderful roads causes new cars to age even more quickly than they would in a more friendly environment. In addition, because any place we need to go is farther away out here in the boonies, we put a lot of miles on our cars. This also accelerates depreciation because cars with more miles on them are worth less than the same model cars with fewer miles on them.
Another factor that works in my favor when buying used cars is that I can do most of the repair work myself. I originally was trained as an aircraft mechanic, and although I've been out of that trade for a while, I still swing a pretty mean wrench. I also have time on my hand, being semi-retired; so I can do routine maintenance and most repairs that don't require a lift or other special equipment by myself.
Add it all up, and used cars make sense for me. The only time buying a new car would make economic sense for me would be if I planned to drive it "until the wheels fall off," as they say, because the accelerated depreciation caused by the weather, the roads, and the miles seriously reduce the resale value of a car where I live.
Nonetheless, there are caveats that you need to consider when buying a used car, especially if you plan on financing it. Here are a few of my own observations and advice based on several decades of buying and driving older cars.
Should You Finance a Used Car?
Whether or not to borrow money to buy a used car is one of the most important question you need to ask yourself. Remember that once you take out a loan on a car, you're pretty much married to it. If it breaks down in a spectacular way, you're still on the hook for the payments. That's why I recommend that you never take out a loan on a used car unless one of the following are true:
- You are buying a "Certified Pre-Owned Car" from a new car dealer, and the car comes with a warranty issued by the car manufacturer that will get you through all or most of the loan period.
- You are buying a used car that still has several years and plenty of miles of new car warranty left -- preferably enough to get you through all or most of the loan period. Make sure to check with the manufacturer or dealer to make sure that the warranty is transferable.
- You are taking out a very short-term vehicle loan that will be repaid in a few months (for example, you're paying almost the full cost up-front in cash that you saved up and are borrowing just a small percentage of the total).
What About Reliability?
If you have a job where you simply must have a car, or if you regularly travel to places where you really, really don't want your car to break down (such as the middle of a desert, for example), then maybe a new car is a better choice for you. Not that new cars never break down, but used cars break down more often than new ones.
If reliability is critical for you, and you still choose (or can only afford) to buy a used car, then taking the following steps can be very helpful in making your purchase decision.
- Research the car models that you're considering buying. Look for things like known problems, general reliability, and consumer reviews.
- Research the particular cars you're looking at by their VIN numbers using a service like Carfax. In particular, be wary of cars that have salvage titles. They're usually cars that were totaled because of accidents, floods, and so forth. Some of these cars can be great bargains, but others can be great headaches.
- Research the average prices people are paying for the cars you're considering using the NADA ratings, the Kelly Blue Book, or Edmunds. Note that these prices are just averages. They didn't come down from Sinai. But they're as good a starting point as any. Consistently low resale values might mean that the car model has a bad reputation.
- Know the service intervals for scheduled maintenance, especially expensive jobs, for the cars that you're considering, and make sure that that work has been done before you buy a car. For example, most car engines have something called a timing belt that turns the camshaft and opens and closes the valves at the proper times. These belts should be replaced at manufacturer-specified intervals, and the replacement tends to be a very expensive job. So if the timing belt replacement interval on the car you're considering is 60,000 miles, and the car you're looking at has 75,000 miles, then either make sure that the timing belt has been replaced, or adjust your offer price accordingly.
- Don't be too impressed when an owner tells you that a car "has never had a problem." Cars are machines. They wear down. A problem that a car hasn't had is a problem that's still waiting to happen. It's better to buy a used car with a new exhaust system than the same used car with an old exhaust system.
How Much of a Down Payment Should You Make on a Used Car?
Short answer: As much as you can. Here's why.
When buying a used car right after bankruptcy, you're unlikely to get any of the sweet deals that the best-qualified new car buyers do. More likely, you're going to be paying interest in the 10 percent to 18 percent range -- and possibly even more, if your bankruptcy was recent.
Obviously, at rates like that, the more you put down on a car, the less loan there is to pay interest on, and the better off you are. Also, if you can put down at least 50 percent of the car's cost, you'll likely find yourself qualifying for better interest rates and/or being able to finance over a shorter term, both of which are very good things.
Here's another tip: If you have almost enough money to put down on a used car, but are a short a few hundred bucks, try asking your credit union if they can lend you the balance as an unsecured personal loan. Quite often they will if you already have an established relationship with the credit union.
Should You Get Full Insurance Coverage on a Used Car?
If you have a loan on the car, then you'll have no choice. The lender will almost certainly require you to. But if you buy the car outright for cash, then it's up to you. Here are some things to consider when making the decision.
If you only have one car, and you really need to have a car, then maybe it's worth paying to get comprehensive and collision insurance on a used car, as well as the rental car rider. This assures that in the event of an accident, you will have a car while yours is being repaired. It also will provide you with at least some money to purchase a replacement car if your car is totaled (or stolen and not recovered). How much you'll get is usually based on the car's book value, adjusted for its condition immediately prior to the event, minus the deductible.
For example, if your fully paid-off used car is in average condition for its age and has a Blue Book value of $4,000.00, and you have a $500.00 deductible, then in theory, you should get a check for roughly $3,500.00 if the car's totaled or stolen. If the car was in mint condition prior to the wreck, then maybe a bit more. If it was in poor condition, then surely a bit less.
So if you're in that position of having only one car and absolutely needing it, then maybe full coverage is worth having. On the other hand, if you're like me and own two used cars (one primary car, and another that I use mainly as a winter rat and foul-weather car), then it's less important. If, God forbid, I should total one of the cars, I would still have the other.
About Manual Transmissions
At some point in your driving lifetime, it would be a good idea to learn how to drive manual transmission ("standard shift" or "stick shift"). Aside from just being cool, knowing how to "drive stick" increases the pool of nice used cars available to you. Used cars with manual transmission tend to have much lower prices than those same model cars with automatic transmissions, simply because so few people know how to operate a manual transmission nowadays.
In addition, other than the clutch, there are fewer things to go wrong on a manual transmission. They also tend to get somewhat better fuel economy if you use them properly.
As for the clutch itself, it's not unusual to get 150,000 miles out of a clutch if you know how to use it properly. In fact, as I write this page, I have a car parked in my driveway that has more than 175,000 miles on the original clutch! It's scheduled for a clutch replacement next week, but if I really wanted to, I probably could nurse another 5,000 miles out of it.
Long story short, some time when you have nothing better to do, find someone to teach you how to drive a manual transmission car if you don't already know how. It will open up more used (and new) car values for you.
Now that we've considered a few general factors to consider when choosing a used car, let's look at another step in the process: Evaluating and inspecting a used car.