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Buying a used car: A step-by-step guide

Young woman looking in car window, sign that reads for sale by owner to the left of woman
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If you’re in the market for a new vehicle, buying used could save you a significant amount of money. The average used car price was a little over $28,000 in 2021, compared to over $47,000 for new cars, according to Kelley Blue Book.

But saving money shouldn’t be the only priority on your list. You also want to know what actions to take and what to watch out for when buying used to make your purchase a worthwhile investment. 

6 key steps to buying a used car 

There is no surefire way to guarantee that you will get a used car that is free of defects. However, you can take steps to minimize your risk and secure the best deal.   

1. Make a budget and stick to it

Take a look at your budget and determine how much you can afford to spend each month on a car loan. Experts recommend spending no more than 25 percent of your net (or take-home) pay on all vehicle costs — including the monthly payment, insurance and maintenance.   

Use an auto loan calculator to get an estimate of your maximum purchase price based on your desired monthly payment. If you’re planning to roll tax, title and registration costs into the loan, include them in the purchase price as well.  

And don’t forget to factor in the cost of maintaining your vehicle. You may need to adjust your budget to comfortably afford the monthly payment along with fuel costs, insurance, repairs and maintenance.   

2. Research cars that fit your needs 

Now that you have an ideal purchase price, research safe and reliable models that fit your needs and budget. Create a list of your top five options and narrow it down based on reviews and safety ratings from the Insurance Institute for Highway Safety 

If you plan on buying a car from a franchise dealership, look at the certified pre-owned (CPO) options. These vehicles are generally under five years old and often have a warranty from the manufacturer. You can also buy a private extended warranty if you find a perfect ride that isn’t CPO.   

3. Prequalify for financing 

Before you visit the dealership or start shopping for a vehicle from a private owner, get prequalified for an auto loan through a traditional bank, credit union or online lender. Some lenders let you explore potential loan options on their website without affecting your credit score. And most allow you to apply for preapproval so you have up to 30 days to shop with financing to back you up.  

It may be tempting to get in-house financing from the dealer or a lender in their network. But the dealer could be incentivized to get you financed with a lender that pays a heftier commission over another lender with a lower interest rate. Plus, walking into the dealership as a prequalified buyer shows the salesperson you are serious gives you more leverage to negotiate the vehicle’s sale price.   

4. Shop around 

Conduct a quick online search to find inventory available for the vehicle you’re looking to purchase. Be sure to check out what dealerships, private owners and even rental car companies have to offer.   

If you aren’t sure where to search, visit sites like AutoTrader and Cars.com. Some private sellers also list on Craigslist, but proceed with caution to avoid scams.   

Test drive any vehicles that pique your interest. Once you’ve explored a few options, pare down your list of options to just a few — and be sure to jot down the VIN, or vehicle identification number.     

5. Fully research a car after test driving 

Access the vehicle history reports for your top choices. You can visit Carfax or AutoCheck to pull this information using the VIN number if the vehicle is from a private seller. Otherwise, the dealership should have the vehicle history readily available to review.  

Also, have the car inspected by a mechanic certified by Automotive Service Excellence. If there are issues, ask that the seller cover the repair costs or reduce the selling price. You should also check for safety issues and recalls with the vehicle, which can be done on the National Highway Traffic Safety Administration’s website using the VIN. 

6. Make the purchase

The final step is to seal the deal, but you will want to negotiate a fair purchase price that works for both parties. If you’re financing the car, focus on the purchase price and not the monthly payment to avoid getting trapped into an extended loan that will cost you more in interest over time.   

You will also need to finalize the loan by contacting the lender directly to sign documents and by purchasing the required insurance in your state.   

What to watch out for when buying used 

A used car could be the more suitable option for your finances. Still, there are pitfalls to be mindful of when considering a used car purchase.  

  • Cars with salvage titles — those that have been declared by the insurance company as a total loss. 
  • Private sellers or dealers that aren’t open to you having a pre-purchase inspection done on the vehicle. 
  • Private sellers who try to rush you into purchasing the vehicle. 
  • Vehicle history reports with limited maintenance records. 

The bottom line 

You could save hundreds or thousands of dollars by buying used. But you want to do your due diligence and take the necessary steps to ensure you get the best deal on a used car that’s safe, reliable and will serve you well for years to come.  

 

Written by
Allison Martin
Allison Martin's work began over 10 years ago as a digital content strategist, and she’s since been published in several leading financial outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews, Investopedia, Experian and Credit.com.
Edited by
Auto loans editor