How to Buy a Used Car

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Last year,
my wife and I were eating dinner when we suddenly heard a crash
outside. We ran out the door and saw that someone had smashed into
our car, which had been parked on the street. The lady driving the
other car was drunk and driving on the wrong side of the road. The
lush and her car were completely unscathed, but our car was totaled.
Doesn’t it always seem to work out that way?

Kate and I
had to buy a new car.

Well, new to
us. We ended up buying a used car. Now, this was the first time
I had ever had to buy a car without help from my parents, so I was
sort of clueless about the process. This was my first big, adult
purchase. From doing some research on the web and talking to friends
and family, here’s a list of tips and advice I took away from
the experience.

Benefits
of Buying a Used Car

Avoiding
depreciation.
It’s common knowledge that once a new car
drives off the lot, its value depreciates immediately. In the first
two years of ownership, a new car can lose about 30% of its original
value. And if you decide to sell your new car a few years after
you buy it, you’re going to lose a lot more money in the re-sale
than if you had bought it used.

Price. If
depreciation is your enemy when buying new, it’s definitely
your best bud when buying used. There isn’t much difference
between a brand new car and a two year old car. By buying a car
brand new, you’re basically paying 30% more than you need to.
That’s a big mark-up for that new car smell.

You can save
even more money if you decide to buy older cars that have more miles
on them. A buddy of mine back in college bought an ‘86 Honda
Accord hatchback for a couple hundred dollars. It was super ugly,
but it drove just fine and lasted him a few years.

Bigger selection.
Because used cars are cheaper than brand new cars, you effectively
widen the selection of cars you can purchase. Instead of being merely
a dream, luxury and sports cars enter the realm of possibility.
I remember back in high school when my dad and I were shopping around
for a car, I found a late model (this was back in the 90s) Mercedes
Benz for about $5,000. I couldn’t believe it!. Something had
to be wrong with it. So, we took it for a test drive and to a mechanic.
It was in tip top shape and drove like a dream. I ended up not buying
the Benz. I was too punk rock for that. Instead I went with a 1992
Smurf Blue Chevy Cavalier. Now that’s punk rock. However, the
experience did open my eyes to the fact that if you look hard enough,
you can find some awesome cars for super cheap when you buy used.

Save money
on insurance.
If you buy a considerably older used car, you
can save money on car insurance by only getting the state mandated
minimum coverage. If your car is worth less than 10 times the premium
on your insurance, it’s probably not worth getting comprehensive
coverage.

Buy from
a Private Owner or a Dealership?

When you buy
a used car, you have two possible sellers: a private owner or a
dealership. Each has its advantages and disadvantages.

Owner Advantages

Great deals.
When you buy from a person who put an ad in the paper or on
Autotrader.com, you can often find some really good deals. The best
deals I’ve seen are at estate sales. You can find an older
car with low mileage because the little old lady who owned the car
only drove it to church and the grocery store. The car might smell
like mothballs, but you’ll enjoy the sweet scent of saved cash.

Less intimidating
negotiations.
Negotiations can also be less intimidating because
you’re working with an average Joe and not some highly trained
salesman who has to take your offer to a mysterious backroom boss
to get it approved. Moreover, dealerships often try to throw in
unneeded extras when you’re buying from them- extra floor mats,
XM Radio, etc. When you buy from an owner, they’re just selling
you the car and nothing more. Makes the experience less irritating
and cheaper.

Owner Disadvantages

Complicated
and annoying negotiations.
Owners tend to be more attached to
their cars than dealerships. To them, they’re not just selling
a product, they’re selling a memory. These sorts of owners
can be difficult to work with. They’ll bust your balls in negotiation
over a piece of crap Buick simply because it was their grandfather’s
beloved car, and they hate to see it get in the hands of the “wrong
person.”

No consumer
protections.
Private sales aren’t generally covered by
many states’ implied warranty laws. Implied warranties are
unspoken and unwritten warranties that hold sellers responsible
if the product they sold doesn’t meet reasonable quality standards.
When you buy from an owner, you’re buying the car “as
is,” meaning if the car has a problem (known or unknown by
the seller) once you buy the car, it becomes your problem and the
seller doesn’t have to do anything to fix it. Moreover, private
sales generally aren’t covered by the FTC Used Car Rule which
requires dealers to post a Buyer’s Guide in used cars for sale.

Dealership
Advantages

Certified
Pre-Owned Program.
A CPO vehicle undergoes rigorous mechanical
and cosmetic inspection before it’s put on sale. Moreover,
CPO cars are often covered by a warranty beyond the original factory
warranty which includes items like roadside assistance. Buying a
CPO vehicle can give you the piece of mind that the car you’re
buying is in great condition and not a piece of crap. Even if you
don’t buy a certified pre-owned car, when you buy from a dealer,
you’re likely protected by your state’s consumer protection
laws such as implied warranties or warranties of merchantability.

Extra services.
Dealers will often throw in extra services for free that a private
seller can’t. For example, when Kate and I bought our last
car, before we drove it off the lot, the dealer cleaned and detailed
it, performed a free oil change, and gave us a discount on our first
service visit with them.

Trade-ins.
Dealers also take trade-ins which lowers the amount you have to
pay in cash. Personal finance guru Dave Ramsey has a system set
up that uses trade-ins on used cars to allow him to upgrade his
vehicles every year or two without having to take out a loan on
his car. Check
it out.
It’s pretty brilliant, if you ask me.

Better
negotiation experience (possibly).
The negotiation experience
can be a bit more even keeled with dealerships. It’s just a
business transaction for them. You can avoid some of the emotional
baggage you often find when negotiating with owners.

Financing.
If you don’t have all the scratch on hand to buy a car, a dealership
can often provide financing to help you make the purchase. And with
the crum-dum economy, car manufacturers and dealerships are providing
some pretty good deals if you decide to finance a car. Things like
cash-back or zero interest can make financing a car a reasonable
thing to do.

Read
the rest of the article

April
24, 2010

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