10 Tips For Buying A Used Car

When you factor in a car payment, registration, insurance, fuel and maintenance, for most families’ vehicles are only behind housing in terms of monthly expenditures. As a consumer, what you have to be careful of is not having your transportation expenses become so great that they interfere with building long term wealth and other financial goals. For that reason, I often recommend to clients that they strongly consider buying used vehicles instead of new. Not only does someone else take the initial depreciation hit there can be substantial savings on insurance and registration costs as well.

Here are some tips as you look for that ‘new to you’ car:

Understand the depreciation curve to find a sweet spot of newness & value. While all used cars lose value, they do it at different rates. Specifically, American made cars, due to rebates and other discounting on new vehicles have the biggest depreciation hit when you drive off the lot; German cars, being more expensive to repair, have a large drop in their value when the warranty runs out; Japanese cars, due to high demand and perceived reliability depreciate at a slower rate. At some point however, the depreciation slows. This usually happens when a car is five to eight years old but varies depending on the vehicle. Your best bet is to look at Kelley Blue Book, available free online at www.KBB.com to get an idea of relative values. Wikipedia is also a good resource for doing this research as you can look up a vehicle model and it will tell you in which years a particular generation or body style was made.

Understand how your state taxes used cars. In Arizona, there is sales tax owed when a used car is bought from a dealer, but no sales tax is paid when bought from a private party. Assuming that you buy a $20,000 vehicle this can save you around $1500 in taxes! It’s also important to note in Arizona that the registration fee is the same whether the car is purchased from a dealer or a private party. Check your state’s Department of Motor Vehicles or Department of Revenue to find out what the provisions are where you live. With this tax break in place, it’s safe to say that I will never buy a car from a dealer again!

Vehicles are lasting longer now than in the past. I remember growing up that the old rule of thumb is that you could get about 100,000 miles out of a car before you needed to get rid of it. Don’t anchor on this old rule – automobiles have had tremendous improvements in quality, design, technology, and fuel economy in the last twenty years. With improved build quality and an owner who’s dedicated to preventative maintenance vehicles can last indefinitely. If you take care of a vehicle, you will get sick of that car before it wears out. Again, check sources such as KBB.com to see if the car you’re interested in has a meaningful drop in value at a certain mileage.

Have a mechanic do an inspection of the vehicle. This is common sense, but I’m including it since a lot of people neglect this step. While a mechanic won’t catch everything, they can spot major issues very quickly! Also, with more and more independent shops specializing in certain makes of vehicles, make an effort to find a mechanic who works exclusively on that brand of car. They will have a much better idea of what that vehicle’s common issues are and if the prior owner has already addressed those common issues. Expect to pay in the neighborhood of $100 for an inspection but it is money well spent if you wind up avoiding a lemon. Sometimes the shop will credit you the inspection fee if you buy the vehicle and have them do the work they identify.

As much as I love the bargains available by buying a used car, some vehicles are better to buy new. The biggest example of a vehicle that I’d want to buy new is a full-size pick-up truck or SUV with a heavy duty tow hitch attached. While the Phoenix and Tucson areas are relatively flat, a lot of Arizona is mountainous. Pulling a boat, RV, or other heavy trailer is hard for both the engine (especially with the air conditioning on) and transmission. I’d also be reluctant to buy vehicles that were in rental fleets, driven by teenage drivers, or have a lot of performance modifications. Conversely, if you can tell pride of ownership by maintenance records, cleanliness/upkeep, and close attention to deferred maintenance it’s probably a good sign.

Make sure to verify the vehicle’s title status. Although Arizona doesn’t typically have weather events such as floods and hailstorms that result in a lot of vehicles being totaled out by insurance companies there was a significant hailstorm in October 2010 that resulted in a lot of cars being turned into four-wheeled golf balls because of all the dimples! Even if the vehicle looks OK a salvage title or any other type of impaired title will cut the vehicle’s value roughly in half and make it very difficult to sell. Yes, you could get a bargain in this type of situation but you take on a significant amount of risk.

Don’t rely too heavily on a Carfax report. While you definitely want to check out a vehicle’s Carfax, recognize that they usually don’t include any accidents or other damage that was never reported to an insurance company. Even if the Carfax comes back clean, have a mechanic check out your prospective vehicle and use plenty of common sense.

Check to see if there’s an online discussion board for your vehicle. While not every make and model of vehicle will have a discussion board, you’d be surprised at what vehicles do. The beauty of looking at these types of sites is that by and large they are populated by actual vehicle owners – not people that have a vested interest in selling you a car! Among other things, I’ve used bulletin boards to get a comparison of different models and trim levels; looked to see what type of service & maintenance issues are common for a car; and to also find specialized vendors and resources for repairs. Some sites even include a ‘for sale’ section as well.

Know where to look for a used car. While Craigslist is now the most common place to buy a used vehicle, my experience is that clean vehicles in good condition and priced fairly will go quickly while the cars that are overpriced and have issues while be posted over and over again. I’ve had good luck buying vehicles from a local auto broker who serves as a middleman for private party sales. Their website is www.theautomatchmaker.com. Other places that I’ve seen good cars for sale include a bulletin board in my mechanic’s waiting area and parking lots of malls/sporting events. In North Scottsdale, the parking lot of the Wal-Mart at Frank Lloyd Wright and the 101 Freeway will have some nicer cars parked with ‘For Sale’ signs on most weekends.

Identify what you want, and be patient for it – the good cars go quick! Unlike new vehicles, where you can typically find what you want, with used cars you will normally have to make some compromises. Flexibility with things like model year, trim packages, and paint color is key. Also, work to understand your local market – in Arizona there are lots of white cars, and few four-wheel drive pick-up trucks for example. If you take your time and are patient you will be able to spot a value when you see one. Where I’ve seen people pay too much is when they need to buy a used car immediately. You are at the mercy of what’s available then and there.

Have you purchased a used vehicle recently? Do you have any tips to add? If you’re in the market, what type of car are you looking for and where do you plan to buy it? Share any experiences or thoughts in the comment section below!

About the author

Brian Frederick, JD, CFP®

Brian Frederick is a financial planner who focuses his practice on being a trusted advisor to successful Generation X professionals, helping them align their financial affairs with the lives they want for themselves and their families. He believes that financial advice should be provided by someone who isn’t compensated by sales commissions and that the advice be holistic in nature - not just looking at your investment portfolio or selling you an insurance policy. He’s also discovered that most practitioners who meet these requirements primarily serve clients who are ‘older’ and ‘richer’.
Brian has been interested in money and financial matters since watching Richie Rich cartoons as a young boy. Over the years, his understanding of building wealth has become more realistic – first by going to the public library with his father, a retired university economics professor, to read investment periodicals; and then later by his riding his small Roth IRA up during Internet Bubble, only to have it come crashing down when the bubble burst.
Brian started his career by working as a commissioned stockbroker – something he describes as being a used-car salesman when he really wanted to be a mechanic. He then moved into several customer-facing credit and collection roles before ultimately becoming a non-commissioned financial advisor. For the five years prior to starting Stillwater, Brian worked for the investment and financial advice division of auto insurance giant USAA.
Brian is a Phi Beta Kappa graduate of the University of Nebraska – Lincoln. He also graduated from the University of Nebraska Law College where he was awarded an academic scholarship. He has been a CERTIFIED FINANCIAL PLANNER™ professional (CFP®) since 2006; is a Chartered Financial Consultant (ChFC), having completed extensive education in professional financial planning; has earned the Chartered Life Underwriter (CLU) which is the highest-level designation available in the life insurance profession; and is a Certified Wealth Strategist ® (CWS®) which focuses on the practical advice related to the thirteen common issues that high net worth individuals face. He is an inactive member of the Nebraska and Arizona bar associations.
Brian lives in Scottsdale, Arizona with his wife and two young sons. Outside of work and family, his passions include Kansas City Royals baseball, driving his Corvette, and cooking barbeque on his Big Green Egg.

17 Comments

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  • I appreciate your solid advice about having a mechanic check out your car before buying it. I bought a new car a few years ago. I never had a mechanic look at it, and it broke down before the year was finished.

  • I am getting ready to buy a new car since my current vehicle is not going to last much longer. I was thinking that I could just do research when it dies, but after reading your comment I will take your advice and look into the market now so I can get the best deal. I also think that is a good idea to try and stay as local as possible when buying a used car so you can get more accurate reviews. Thanks for sharing.

  • I like your idea on verifying a used vehicle’s title status before you buy it. I would imagine that finding out if a car has been through any particularly damaging events it would be good to know about. My husband and I are looking to buy a used car so when we go shopping for one we’ll have to remember to check their title status.

  • I really like your tip to verify the vehicle’s title status. I didn’t know that a salvage title would cut the car’s value in half. Is it hard to get these kinds of cars insured? Thanks for sharing these helpful tips.

  • You make a really great point on being patient while looking for a used car. My husband and I really want to get a nice Toyota Corolla, but we haven’t found many options yet. It’s nice to get a reminder to be patient, and just wait until we find exactly what we want.

  • The post is really awesome and entertaining. It kept my eyes glued to it. It has become my favorite pastime reading to your posts. Thanks for the information you have provided in your blog as it proved to be very helpful for me in start writing my own blogs you have provided in this blog as it proved to be very helpful to me..

  • I think I’m like most people and think that the vehicle that was sold to me is in perfect condition. After reading this I’m going to have a mechanic look at every car I buy. I think that will help on time and money if I get stuff like that done right away.

  • Next month, I am planning on buying my first car. It will be a used one and so I really appreciate your advice about having a mechanic do an inspection on it. However, should I have the mechanic go to the location where I am buying the car or should I somehow get it to a shop before I buy it?

  • I’m personally a fan of buying used cars. I’ve never bought one new before, and I’m okay with that. My used car has been trusty and loyal, as long as I take care of it. Researching what you want and need is the best way to go. Also know who you’re buying from and that they are honest people, or dealerships.

  • I like your tip on having a mechanic inspect a car before you buy it. I would imagine that this could help you find the best and most reliable used car for you and your family. My wife and I are looking to buy a car so maybe we should have a mechanic inspect it when we do find one.

  • Hi there very cool website!! Man .. Excellent ..
    Wonderful .. I’ll bookmark your blog and take the feeds also?
    I’m happy to find numerous helpful information here in the put up, we’d like work out more techniques
    on this regard, thank you for sharing. . . . . .

  • I’m glad that you mentioned making sure the car is inspected before buying it. I have a friend who decided to skip this step only to find out that the car wouldn’t pass the safety inspection when she went to register it. Fortunately it was an easy fix, but it could have been much worse. If you don’t know what to look for when buying a used car, get it inspected. If the seller won’t let you, then the car isn’t worth buying.

  • These are some great tips, and I appreciate your advice to have a mechanic do an inspection of a used car before you buy it. I recently moved out to college, and I’m looking for a more convenient form of transportation. I’ve saved up enough to afford a decent used car, so I’ll definitely look into having a mechanic inspect whatever vehicle I’m interested before I make a decision. Thanks for the great post!

  • Thanks for the great tip about choosing a used car, and how having a mechanic look over it is vital. I will have to see about making sure that a used car is checked out before getting it. I will also have to look into getting it registered, and how to go about that.

  • Wonderful article. thanks for sharing, Brian!

    Buying a used car comes with its fair share of risks, therefore take your time to do homework before closing the deal.

  • These tips seem really great to know to help me find the right used car. I liked what you said about looking for online discussion boards about a specific type of car that I might want to buy. The things that people post online seem like they would be useful to use as a guide for cars that I should look into buying. That way, I can know about any potential problem and any maintenance that a car may need before I buy it. Thanks for the tips!

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