How to buy a used car

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In a Nutshell

Figuring out how to buy a used car can be overwhelming if you’ve never done it before. When you buy from a dealership, the process can be similar to buying a new car. But if you plan to buy from a private seller, doing some additional legwork can help you avoid ending up with a clunker.

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Buying a used car might be the ideal route for you if your budget is limited or you want to minimize your auto loan.

A used car typically costs less than a new one of the same kind, but it can still be a significant investment. The average price of a used car was $20,084 as of the third quarter of 2018, according to a report from Edmunds.

To find a good deal and loan terms, it helps to do some homework. Here are some of the key steps to take when you buy a used car.


  1. Set a budget
  2. Research potential makes and models
  3. Determine a fair price
  4. Find a car and check it out
  5. Negotiate the price
  6. Sell or trade in your current car
  7. Close the deal

1. Set a budget

When buying a used car, you can either pay with cash or finance your purchase with a car loan.

With cash, it’s simply a matter of how much money you’re able and willing to spend on your car.

If you finance the car, you’ll have to make monthly payments on the loan. Look at your budget to figure out how much money you can comfortably afford to pay each month. Many experts say your car payment shouldn’t eat up more than 10% to 15% of your monthly take-home pay.

Financing a car is more expensive than paying with cash upfront, because you’ll have to pay interest on the loan — and you’ll typically pay a higher rate on a used-car loan than you would for one that’s new. If your credit isn’t so great, your rates will likely be even steeper.

Keep in mind that some lenders don’t offer loans for cars over a certain age or mileage. That could limit your choices if you plan to buy an older, used car.

Applying for preapproval from several lenders can give you an idea of how much you can borrow, along with an estimate of your loan terms and interest rate. But remember, preapproval isn’t a guarantee — you’ll have to actually apply for the loan to see if you’re approved and for what terms.

The best place to get a car loan

2. Research potential makes and models

If you’re on a budget, you may be most interested in buying a car that’s low-priced, with good fuel economy. If you’re a parent, maybe you’re looking for a vehicle with strong crash-test scores and lots of cargo space.

Here are some resources to help you learn more about the kind of car you’re considering.

  • Fuel economy – Get fuel economy info for vehicles going back to the 1984 model year on fueleconomy.gov.
  • Car safety – Learn how different vehicles perform in crash tests at safercar.gov.
  • Vehicle reviews Learn more about the different features of vehicles on third-party automotive sites like Edmunds and Kelley Blue Book. These sites also offer tools that estimate a model’s cost of ownership over a five-year period.
  • Reliability – Find information about a vehicle’s dependability by visiting the J.D. Power website, where you can search by car make and year.

3. Determine a fair price

Once you narrow down the cars that might work for you, the question is what they’re worth.

When you buy any car, things like optional features, mileage and the car’s overall condition can affect the cost. With a used car, cost is influenced by a few additional factors.

Buying from a dealer or private seller

Dealers typically set higher prices than private sellers, so you could save money by buying from a private party.

Still, there are two key advantages to buying from a dealer.

  • Some lenders won’t finance used-car purchases from a private party. If you buy from a dealer, you can usually finance through the dealership, or get a car loan from a bank, credit union or online lender.
  • Dealers might offer warranty protection that isn’t available from a private seller.
Tips for buying a car from a private seller

Buying a certified pre-owned car

If you do plan to buy from a dealership, consider whether you want to buy a certified pre-owned car. Certified pre-owned cars tend to be more expensive than regular used cars. But those that are part of a manufacturer-backed program are supposed to be meticulously inspected and reconditioned, and some offer extended-warranty coverage.

Kelley Blue Book and Edmunds.com offer pricing tools that can let you know how much a particular make and model is selling for in your area. These tools can also help you determine the cost of a car bought from a dealer versus a private party.

4. Find a car and check it out

Once you have an idea of pricing for the models you’re considering, look at used-car inventory in your neighborhood. Many dealers and private sellers list their used cars online. You can also stop by local dealerships to see what’s on their lots.

Do some homework on each car you consider. This may include checking out vehicle history reports and title ownership, test driving and asking about past inspections. 

Vehicle history report

A vehicle history report provides info on a car’s background, including accidents, open recalls, service history, title history and damage. If you’re buying from a dealer, a vehicle history report will often be provided for free. If you’re buying from a private seller, you’ll likely need to buy a vehicle history report from a site like Carfax or AutoCheck. Costs can range from $10 to $40.

Remember, though, that while vehicle history reports can be a helpful source of information, they aren’t necessarily accurate for every vehicle because they are mostly based on reported info. So, for example, if an accident wasn’t reported, it may not appear as part of the vehicle history.

Vehicle title

If you’re buying your car from a private seller, you’ll want to make sure the seller has a clear title. This means that no creditors or other third-parties have a right to the car. The National Department of Justice’s National Motor Vehicle Title Information System offers information about a vehicle’s title for up to $4 per report.

Test drive

A test drive gives you a chance to experience how a car runs and handles. Look for signs of damage, listen for strange sounds and check the car’s features to make sure they all work. Pay attention to the brakes and steering and consider the car’s overall comfort. Be sure to check that the car has any optional equipment that’s included in its listing.

Inspection

One of the biggest fears when buying a used car is getting stuck with a repair bill right after you get the vehicle. If you’re dealing with a private seller, getting a mechanic you trust to inspect the car before you commit to buying can give you some peace of mind. Let the seller know that’s part of the deal.

If you’re buying from a dealership, the car will likely have been inspected already. But the Federal Trade Commission recommends having it inspected by an independent mechanic to be safe.

5. Negotiate the price

If everything checks out for the car you want, it’s time to negotiate the price. Use the pricing estimates you’ve gotten from sites like Edmunds and Kelley Blue Book as a guide.

If you’re financing your car through a dealership, the salesperson may try to win you over by offering to lower your monthly payment. But if they’re extending the loan term to bring down your monthly payment, you could end up paying much more in interest over the life of the loan. Keep your focus on the total price of the financing — not just the monthly payments.

6. Sell or trade in your current car

If you currently have a car and want to sell it to help pay for the next one (or just get rid of it), you have a few options.

  • Sell it yourself
  • Sell it to a dealership
  • Trade it in at the dealership where you plan to purchase your next vehicle

You can use the Edmunds and Kelley Blue Book pricing tools to estimate a fair price for your used car. You’ll likely get a higher price from selling to a private buyer than you would from trading in the car at the dealership.

But selling your car to a dealership or trading it in can be simpler than selling the car on your own, since it doesn’t require you to list the car or meet with potential buyers.

7. Close the deal

Congrats. You’re ready to finalize your financing for the car and sign the paperwork.

Close the loan

Submit a formal loan application to the lender you’ve chosen. If you’re approved, you’ll move forward with finalizing the loan. If you’re financing through the dealership, you can usually finalize the loan and sales paperwork at the same time.

Finalize the sales paperwork

If you’re buying from a private seller, meet with the seller to sign the necessary paperwork and get the title signed over to you.

If you’re buying from a dealership, make sure that all of the terms and prices listed in the sales contract reflect your previous negotiations. If you’re also financing through the dealer, confirm that the loan details, like the interest rate and loan term, look right.


Bottom line

It may take some time to buy a used car, but doing your research and comparing options can pay off.

If you’re having trouble finding a reliable used car within your budget, consider waiting until you can make a larger down payment. Taking steps to build your credit also might help you qualify for a lower interest rate on your loan, which could lower your monthly payment.

Credit Karma Guide to Building Credit