Used Car Buyer Guide

By Compuquotes Team on October 31st, 2009

Auto Insurance

How to Decide if a Used Car is Right for You

Many people purchase used cars instead of new ones for the simple reason that the percentage of depreciation on new cars is highest the first year after purchase and decreases as time goes by. A car's original owner always takes the biggest depreciation hit, making the car a better value for subsequent buyers. In fact, it is not unheard of for a used car buyer to resell a car that he or she has used for many months or miles for more than it's purchase price, but this almost never happens with the purchase of a new car.

There are other reasons that people purchase used cars too. Perhaps you are one of those people who would rather have a used Mercedes than a new Ford. Whatever your reason for shopping for a used versus new car, be sure that your final choice is safe and reliable.

Total Cost of Ownership of Used Cars

You probably already know what type of car you are looking for: a gas-stingy sub compact, a 70's muscle car, a late model SUV, or a luxury used sedan. Regardless of the type of vehicle you are most interested in, the total cost of ownership (TCO) is one consideration all car buyers should take into consideration.

Total cost of ownership incorporates the car's purchase price, insurance, annual licensing, maintenance, and expected resale value. Three other variables include the age of the car when purchased, the length of time you plan to keep it, and the number of miles you expect to drive each year you own the vehicle.

When comparing several used vehicles, be sure to work up a TCO for each one; you may be surprised to find big discrepancies even among seemingly similar types of cars.

How to Choose Makes, Models, and Years that Satisfy Your Used Car Needs

Once you have determined the type of vehicle you plan to purchase, conduct research specific to the makes, models, and years in which you are most interested. Include perspective from all these sources:

  • Consumer Reports Guide to Used Cars is published annually and available in most libraries or you can receive information online, but you must pay to subscribe. Consumer Reports provides comparison charts, narrative information and best buys.
  • Kelly Blue Book Website gives price ranges for used car. Ranges are calculated by year, make, model, equipment, mileage, location, and condition.
  • Edmunds.com is a well respected Website with detailed information on practically every make and model of used car going back twenty years. The site also contains a slew of tools to help you shop including calculators that tell you what price range you can afford given your desired monthly payment and available down payment.
  • The National Highway Traffic Safety Administration provides information on recalls for safety defects by vehicle year, make, and model, or by individual component. See www.nhtsa.gov for complete information
  • People who own the type of car you are considering about their experience and satisfaction, and whether they would buy the car again.

Sources of Used Cars

Not many years ago, dealers sold used cars from their lots, and individuals advertised in the local paper. Now, you will find both dealers and individuals advertising online, and sometimes it is difficult to tell one from the other. The Internet has created a bigger marketplace, with more inventory, and more transparent pricing, but it has also created more opportunities for scams and ripoffs (see Red Flags section in this guide for more information). Here are some places to look for used cars both on-and off-line:

  • Craigslist - this is one of the most popular ways for individuals to sell their used cars. It is also one of the least regulated ways in which used cars are offered because there is no monitoring or verifying of the seller or of the vehicle by Craigslist. Millions of legitimate transactions occur via Craigslist every day, but you should exercise extreme caution for your personal and financial safety. Common sense suggests that you know the identity of the seller ahead of time (ask that a copy of a driver's license be emailed to you), agree to meet during daylight in a public area, take a friend along, do not carry cash, and be sure to receive signed documents that legally transfer the vehicle to you should you decide to purchase.
  • Ebay - buying a used car on eBay is a little safer than buying on Craigslist because sellers must register with eBay before listing their cars for sale. Nevertheless, all the same precautions apply as with Craigslist.
  • AutoTrader - allows you to search by year, make, model, and by dealer or individual seller, by distance from your ZIP Code, and by certification, price, and so on. Standard cautions apply when purchasing from an individual.
  • New car dealer lots - often have used cars that have come in on trade. Some dealers will only resell to the public the same brand of car that the dealership sells new. The benefit of buying a used car from a new car dealer is that the dealers' reputations are at stake, and they usually offer a "certified pre-owned" warranty of some sort. See the sections that follow for more information on the used car Buyers Guide and warranties.
  • Independent used car lots - usually have a greater variety of used cars than new car dealer lots, and often acquire some or most of their cars from dealers. There are large used car dealerships as well as local corner lot dealers. Regardless of the size of the dealership, look for a "Buyers Guide" sticker on the window of each car. The Buyers Guide, required by the Federal Trade Commission's Used Car Rule, gives you important information and suggestions to consider. The Buyers Guide tells you:
  1. If the vehicle comes with a warranty and, if so, what specific protection the dealer will provide.
  2. If the vehicle comes with no warranty ("as is") or with implied warranties only.
  3. That you should ask to have the car inspected by an independent mechanic before you buy.
  4. That you should get all promises in writing.
  5. The major problems may occur in any car.

The Used Car Rule requires dealers to post the Buyers Guide on all used vehicles, including automobiles, light-duty vans, and light-duty trucks. "Demonstrator" cars also must have Buyers Guides. But Buyers Guides do not have to be posted on motorcycles and most recreational vehicles. Individuals selling fewer than six cars a year are not required to post Buyers Guides.

Whenever you purchase a used car from a dealer, you should receive the original or an identical copy of the Buyers Guide that appeared in the window of the vehicle you bought. The Buyers Guide must reflect any changes in warranty coverage that you may have negotiated with the dealer. It also becomes a part of your sales contract and overrides any contrary provisions that may be in that contract. See the next section for details on how to read a used car warranty.

  • Rental car agencies - buy cars in large quantities at substantial discounts. Due to market pressure, they must keep their fleets visually attractive and mechanically safe. At the same time, the objective of rental car agencies is to maximize the use of their inventory. As a result, rental car companies often offer their used cars for sale to the public at attractive prices. However, these vehicles often have excessive mileage and wear for their age.
  • Banks and credit unions - because banks and credit unions finance the purchase of most vehicles, they sometimes end up owning them. When this happens, they may offer the used cars directly t the public. In other cases, banks and credit unions partner with rental car agencies to offer their clients used car deals. You will most likely see advertising in your branch or at your bank's Website if they have a used car program; otherwise, ask your banker.
  • Auctions - cars that have been seized by federal, state or local governments are sometimes sold through auctions. Overstocked dealers sometimes send cars out to auction too. You can often get great deals at auction. However, you must know the value of the used car by opening of bidding, and you must understand that there is no cooling off, and no warranty with auctioned cars.

How to Read a Used Car Warranty

Because one of the biggest concerns about buying a used car is reliability, you will want to understand fully the types of warranties offered:

As-Is or No Warranty

About one-half of all used cars sold by dealers, and essentially all cars sold by individuals, come "as is," which means there is no express or implied warranty. If you buy a car "as is" and have problems with it, you must pay for any repairs yourself.

When the dealer offers a vehicle for sale "as is," the box next to the "As Is--No Warranty" disclosure on the Buyers Guide will be checked. If this box is checked but the dealer makes oral promises to repair the vehicle, have the dealer put those promises in writing on the Buyers Guide.

Some states (Connecticut, Kansas, Maine, Maryland, Massachusetts, Minnesota, Mississippi, New York, Rhode Island, Vermont, West Virginia and the District of Columbia) do not permit "as is" sales for most or all used motor vehicles.

Implied warranties exist under all state laws and come with almost every purchase from a used car dealer, unless the dealer tells you in writing that implied warranties do not apply. Usually, dealers use the words "as is" or "with all faults" to disclaim implied warranties. Most states require the use of specific words.

Implied Warranties

The "warranty of merchantability" is the most common type of implied warranty. This means that the seller promises that the product will do what it is supposed to do. For example, a car will run, a toaster will toast.

Another type of implied warranty is the "warranty of fitness for a particular purpose." This applies when you buy a vehicle on the dealer's advice that it is suitable for a particular use. For example, a dealer who suggests that you buy a specific vehicle for hauling a trailer warrants, in effect, that the vehicle will be suitable for hauling a trailer.

If you buy a vehicle with a written warranty, but problems arise that the warranty does not cover, you may still be protected by implied warranties. Any limitation on the duration of implied warranties must appear on the written warranty.

In those states that do not permit "as is" sales by dealers, or if the dealer offers a vehicle with only implied warranties, a disclosure entitled "Implied Warranties Only" will be printed on the Buyers Guide in place of the "As Is" disclosure. The box next to this disclosure would be checked if the dealer chooses to sell the car with implied warranties and no written warranty.

Dealer Warranties

When dealers offer a written warranty on a used vehicle, they must fill in the warranty portion of the Buyers Guide. Dealers may offer a full or limited warranty on all or some of the systems or components of the vehicle. A "full" warranty provides the following terms and conditions:

  • Warranty service will be provided to anyone who owns the vehicle during the warranty period when a problem is reported
  • Warranty service will be provided free of charge, including such costs as returning the vehicle or removing and reinstalling a system covered by the warranty, when necessary
  • At your choice, the dealer will provide either a replacement or a full refund if the dealer is unable, after a reasonable number of tries, to repair the vehicle or a system covered by the warranty
  • Warranty service is provided without requiring you to perform any reasonable duty as a precondition for receiving service, except notifying the dealer that service is needed
  • No limit is placed on the duration of implied warranties

If any one of the above statements is not true, then the warranty is "limited." A "full" or "limited" warranty need not cover the entire vehicle. The dealer may specify only certain systems for coverage under a warranty. Most used car warranties are "limited," which usually means you will have to pay some of the repair costs. By giving a "limited" warranty, the dealer is telling you that there are some costs or responsibilities that the dealer will not assume for systems covered by the warranty.

If the dealer offers a full or limited warranty, the dealer must provide the following information in the "Warranty" section of the Buyers Guide:

  • The percentage of the repair cost that the dealer will pay. For example, "the dealer will pay 100% of the labor and 100% of the parts...."
  • The specific parts and systems, such as the frame, body, or brake system that are covered by the warranty. The back of the Buyers Guide contains a list of descriptive names for the major systems of an automobile where problems may occur
  • The duration of the warranty for each covered system. For example, "30 days or 1,000 miles, whichever occurs first"
  • Whether a deductible applies.

Under another federal law, the Magnuson-Moss Warranty Act, you have a right to see a copy of the dealer's warranty before a purchase. Examine the warranty carefully before you buy to see what is covered and what is not. It contains more detailed information than the Buyers Guide.

Unexpired Manufacturer's Warranties

If the used vehicle is still covered by the manufacturer's original warranty, the dealer may include it in the "systems covered/duration" section of the Buyers Guide. This does not necessarily mean that the dealer offers a warranty in addition to the manufacturer's. In some cases, a manufacturer's original warranty can be transferred to a second owner only upon payment of a fee. If you have any questions, ask the dealer to let you examine any unexpired warranty on the vehicle.

How to Find Financing for your Used Car

If you purchase a car from an individual, you need to arrange your own financing. You pay cash (cash, or cashiers check, or personal check) or you borrow. You may look to your saving account, credit card, home equity line of credit, or your bank. In any case, the seller expects payment before signing over the title to you. If you have taken out a bank loan, the bank will be on your title as the car is the collateral.

If you purchase from a dealership, it may want to finance your purchase for you, as financing is a profitable product--at times more so than the vehicle itself.

It is always in your best interest to know well in advance of car shopping how you are going to afford your purchase. If you plan to finance, have your down payment lined up, and know how much you can pay monthly. Shop for the best loan terms--a good interest rate and reasonable payment.

How to Evaluate a Used Car for Purchase

Once you have identified a car that your want to purchase, inspect it thoroughly.

  • Complete a visual inspection of the body, tires, doors, windows, trunk, tailpipe, shock absorbers (by pressing down hard and then releasing a corner of the car), fluids, lights, heater, air conditioner, audio system, windshield wipers, and interior including under floor mats and brake and accelerator pedal (for excessive wear).
  • Take a test drive to be sure that the car operates smoothly at a range of speeds and conditions and that the brakes stop the car effectively.
  • Obtain a CarFax report. Many sellers will provide a CarFax report to you to prove that their vehicle is as claimed. Even if the seller does not provide the CarFax report, the minimal charge is money well spent as this service tells you how many owners the car has had, any major problems including flooding or accidents the vehicle has experienced, recalls on the make and model, and more useful information.
  • Arrange an inspection by a mechanic or diagnostic center of your choice. If the seller will not allow you to take the car for an inspection, offer to have him or her accompany you there, or have the inspection done at the seller's location by a mobile diagnostic company. Remember, a good-looking car, or a car that comes with a warranty, does not necessarily run well. An independent inspection lets you find out about the mechanical condition of the vehicle before you buy it. Although an inspection fee by a mechanic may seem high, when you compare it to the price of the car, it can be worth the cost.

A professional inspection should include an engine compression test, and a check of all fluids, fans, belts, and spark plugs. It should include the ignition, steering, braking, suspension, and cooling systems. If the diagnosis reveals problems, ask for a quote from the technician for the cost of repairs.

Red Flags to Recognize When Shopping for a New Car

Respond with caution to any one of these red flags warning you that there may be something seriously amiss with the seller or the car:

  • The seller is not physically available to meet with you.
  • The vehicle must be shipped.
  • The price is good only for a limited and short amount of time.
  • The seller pressures or intimidates you.
  • The seller insists on cash (versus check or cashiers check).
  • The seller refuses to let you take a test drive.
  • The seller refuses to have the car inspected by a mechanic of your choice.
  • You see indications of frame damage, uneven tire wear, odometer tampering, or water damage.
  • The inspection reveals serious problems.
  • The CarFax report shows problems.

How to Negotiate for your Used Car

There are whole books written on the topic of how to negotiate. But in summary, here are a few points to keep in mind:

  • Know the high, midpoint and low Blue Book values of the exact year, make and model of the car you want.
  • Know the dollar amount beyond which you are not comfortable, and the point beyond which you will not go.
  • Be willing to walk away.
  • Be friendly.
  • Ask for a ridiculously low price; the worst that can happen is that you will be denied; negotiate from there.
  • Ask for extras (better warranty, free service, new tires, floor mats, whatever the car seems to need), again, the worst that can happen is that you will not get them, but perhaps you will.
  • Consider hiring a pro to negotiate for you (they are usually paid a percentage of what they save you).

What to Do if You Have Problems Following the Purchase of a Used Car

There is no "cooling off period" on the purchase of new or used cars, so be sure you are comfortable before you close the deal. Remember that you have little if any negotiating power once you have paid for your used car. That said, if you have a problem, you can still take action.

If you have purchased from an individual, you can attempt to convince them to work something out with you.

If you have purchased from a dealer, be sure to keep the Buyers Guide and any other paperwork in a safe and accessible place for easy reference. On the back of the Buyers Guide you will find the name and telephone number of the person at the dealership to contact if you have any complaints after the sale. If you believe you are entitle to warranty service, and are denied by the service manager, speak with the dealership manager.

You might consider contacting the Better Business Bureau, your state's department of consumer affairs, an attorney or the local media. You might file a claim in Small Claims court. You can also report your experience on Angieslist.com, and Yelp.com.


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