Buying a Used Car? Here Are Some Tips!
If you follow me on social media, you’ll have seen that I recently purchased a used car, a 2019 Volkswagen Golf R. In this post I’ll show you the steps that I took as well as things to look out for when purchasing a used car from a private party or a dealership.
Why Used and Not New?
While new cars will give you that piece of mind, the fact is - most cars depreciate a boatload the second you drive it off of that dealership lot. I find that cars that are 1-2 years old provide the best value. You get a relatively new car, there’s usually not enough time for someone to put a ton of miles on it so you have a better selection of low-mileage options, and usually have a good amount of factory warranty left over. Sure, you can get a car with 1 year of warranty left over, but I find that people are always looking to sell their car around the 1 year mark of remaining warranty to make it more attractive for used car buyers.
Financing and Getting Pre-Approved
Unless you’re planning on paying cash for the vehicle, you’ll have to get a pre-approval for a loan from your bank or credit union. For the most part, I would recommend contacting your local credit union as they will generally offer the best rates and terms. From there, you can apply for your car loan and request the amount you’re looking for, but you might be wondering, “Well how do I know how much to ask for?” Even before asking that, you should decide what you can afford on a monthly basis. From there on, you can decide on what you can spend on a car as well as the term (the number of payments) of the loan. Dealerships can also provide some 3rd party lenders that are willing to finance your purchase, but I would stick to suggesting your local credit union for the best rates and terms.
In order to get an estimated calculation of your monthly payment, there are plenty of resources online to make this easy. I’ve always used this one from Cars.com for as long as I can remember - it’s simple to use and gives an accurate number. From there you enter the Vehicle Price, Interest Rate (APR), Sales Tax (if applicable), and the desired Term; you won’t need to enter the Down Payment or Trade-In Value unless you’re purchasing from a dealership and if you’re planning on trading in a car. For the Interest Rate, most bank sites will advertise their best rates based on the best credit scores - you can always get a copy of your credit report to estimate your Interest Rate.
What Financing Terms Should You Look For?
The rule of thumb for pretty much all loans with interest is that with a shorter term, you’ll be offered lower interest rates - but not everyone can afford a 24 - 36 month term payment on the car that they want. If it is even worth the interest savings is a debate in itself. For example, Chase offers a 4.74% for a 72 month loan, a 4.59% for a 60 month loan, and even seems to penalize the buyer for a 48 month loan, offering a 4.69% rate. With a 72 month loan you’d be paying $17,280, which includes interest costs of $2,280. For the 48 month loan, you’d be paying $16,464, which includes interest costs of $1,464. In the end, the interest cost will be up to you as the buyer to decide whether it is worth it or not. Another thing you might want to consider is whether the factory warranty will expire before the end of the term - you wouldn’t want to have non-warranty covered items break with 2 years left worth of payments, right?
Current rates offered by Chase.com for a 2019 Honda for $15,000
Searching for Your Next Car
Searching for your next car can be a headache, but necessary if you are looking for the best price for the exact car that you want. Sites like Autotrader and Cars.com make it easy to save your settings for you to check the same parameters, but new players such as Carvana offer delivery and financing without having to haggle over pricing. For the most part, Carvana offers fair pricing and mid-tier financing terms.
Also, don’t forget to check your insurance rates for the type of car you’re looking for - if you’re coming from a 4 door sedan going to a 4 door sedan, chances are you won’t have any major changes in the premium, but if you decided to go to a 500HP sports car, make sure you budget for the increase!
What to Look for in a Used Car
Now that you have your car picked out, what are some of the key factors that you should look for and consider?
Mileage - you may hear things like “oh it’s just highway miles”, and while that may be true, the fact of the matter is that a high mileage car will generally always need more maintenance than a low mileage car. There are exceptions of course, but keep this in mind it is not the case with all high-mileage vehicles. High mileage will also impact the existing warranty, as all warranties are number of years or miles, whichever comes first.
Carfax - this is a must. Do not purchase any car without first getting a Carfax first. I think it’s good etiquette and practice for the seller to provide the Carfax, and it’s okay to ask if you’re the buyer. For the most part the seller should not have any issues spending $40 for a piece of mind to the buyer. Some dealers will offer something like an Autocheck, but I found more often than not, that Autocheck does not provide a clear history and missing important information.
Location - where was the car used the most? This isn’t that big of a deal if you currently live in a state with severe weather, but if you’re like me - from the sunny west coast, no rust and corrosion is a big factor when it comes to the longevity of the car. A Carfax report here will give you a good indication of where it was from and what it was used for - a “fleet” vehicle will generally have a lot more wear and tear than a personal car.
Inspect the Car!
Before you make a deal on the car, make sure to do the following - don’t be nervous about checking everything on the car. As someone who has purchased and sold many cars, it’s is a must and neither party should have any concerns.
Test Drive - test drive it!
Test the brakes to make sure they don’t squeal, any vibration in the car may be the result of warped brake rotors
Test the alignment by slowing down with your hands off the steering wheel - an alignment job can easily cost $100
Listen for any major rattles and weird sounds - if it doesn’t sound normal, ask the seller what the sound is and where it’s coming from
Inspect - be attentive!
Check for any obvious leaks or smells coming from the car
Visually inspect the body - let the background reflect off of the paint to reveal any fillers or repaint
Does it sit level?
Does it smell strong of air freshener?
Pay someone to inspect the car if you are not confident. I find that the seller should not be responsible for this cost but it will be well worth it if you are not familiar with cars.
It’s okay to ask questions - don’t be hesitant if anything bothers you.
Conclusion
Once you and the seller agree on the price, contact your bank to finalize the sale. You and the seller will be asked to provide some information such as the seller’s payoff information if there is lien on the car, picture of the title if needed, and current registration. You will then schedule a meeting at the bank with the seller to sign the title over, and from there the transaction is complete! I hope this guide will help you on your next car purchase and give you some confidence along with it - please let me know if you have any questions!
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