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Buying used is a great way to get behind the wheel of a vehicle without the steep cost of the current year’s models. And as vehicle prices have reached new heights over the past few months due to the combination of the pandemic and semiconductor shortage, buying used can help you save money.
Buying used has not been immune to the price increase. The monthly payment for a used vehicle in the third quarter of 2023 was $533, according to Experian. But buying used is still less expensive than buying new. So as you explore your car-buying options, keep these tips in mind to get the best deal.
Tip 1: Have a realistic budget
The best way to save money when it comes to a large purchase is to be honest with how much you can afford. When it comes to buying a used car, it is no different.
If you already have an affordable car loan, try to stick within that range. Otherwise, know that experts recommend you spend 25 percent or less of your budget on car-related expenses. Consider both the monthly loan payment and additional vehicle costs that are bound to pop up. This includes fuel costs, insurance and regular maintenance.
Take advantage of an auto loan calculator before starting your vehicle search so you have a firm understanding of your budget — and the interest rate and loan terms you can afford
Tip 2: Explore financing options
Choosing the right financing option for your vehicle is not dissimilar to finding your perfect car. Your options include banks, credit unions, online lenders and dealerships.
Almost every lender offers auto loans for used cars within a certain mileage or model year, so you should have no problem finding the right fit.
Shop around to ensure you get the best auto loan rates and terms available. Check out current rates and Bankrate’s winner for best used car lender before accepting a loan. And equally important, see how the loan term and fees change the total cost of financing.
Tip 3: Apply for loan preapproval
Auto loan preapproval is when a lender tentatively approves you for a certain amount while you shop for your car. It isn’t an iron-clad agreement, but it does give you a better idea of what you will pay in interest and what you can afford.
The main benefit of loan preapproval is that it can give you confidence that you are getting the best deal. In most cases, you have 30 days to shop. You’ll know exactly how much you can borrow for the vehicle, and can even use preapproval to negotiate with dealerships.
Tip 4: Trade in your old vehicle
Trading in your vehicle will save you money, and it can ease any stress of figuring out what to do with your previous vehicle. The trade-in process depends on the dealership you use, but the steps are simple. It primarily requires you to understand the worth of your current vehicle in comparison to the new one.
Shop around and get quotes from several dealerships. You can use the estimates as negotiating power with the dealership you end up buying from. And if dealerships aren’t offering a good deal, consider selling your car privately instead to get more for your ride.
Tip 5: Make a large down payment
The larger your down payment, the less you will have to borrow and the lower your monthly payment will be. A down payment of at least 20 percent is the best option. But with the increase in car prices, you should at least try to save 10 percent of the vehicle’s sale price as a down payment.
Saving up and making a large down payment upfront will save you money as you drive. Because you’re borrowing less, you may have a better chance of being approved for a loan and can potentially get a lower rate.
Tip 6: Consider a certified pre-owned vehicle
One way to get around some of the risks of buying used is to shop for a certified pre-owned (CPO) vehicle. Typically found at dealerships and rental companies, these vehicles are specially inspected and approved by the manufacturer.
In general, buying CPO means that your car will have good parts, low mileage and proper maintenance. CPO vehicles are typically properly cared for and accident-free. These vehicles can also come with an additional vehicle warranty for long-term quality assurance.
Tip 7: Shop online
The marketplace for purchasing a vehicle has shifted dramatically over the past few years, and buying used is a great time to take advantage of buying a car online.
Start with trustworthy online sources like Carvana, TrueCar or Vroom. These allow you to browse nationwide for the right fit. They also let you keep the process entirely online from start to finish — with a period after delivery to test drive your used car and get it inspected.
But even if you feel more comfortable taking the traditional route, research online before heading to the lot in person. Dealerships frequently list their inventories on websites, so you have an idea of costs and vehicle availability without the pressure of a salesperson.
Tip 8: Conduct a detailed car inspection
Buying a used car comes with additional risks. You don’t know how the previous owner handled the vehicle and unforeseen issues could be looming.
To be sure you aren’t driving away with a stealth fixer-upper, request a vehicle history report. Along with an initial test drive, it is wise to get an independent mechanic inspection to check for any issues under the hood.
With so many Americans looking to buy vehicles right now, preparation is key to saving the most money. Used vehicles are expensive, but you’ll avoid the high prices, limited supply and huge depreciation hit of new vehicles.
To get the best deal on a used car, start by shopping around for auto financing and getting preapproved. Also, consider trading in your current vehicle to lower out-of-pocket costs when purchasing your next ride and making a larger down payment to get a more affordable monthly payment. Most importantly, have the car inspected to ensure it’s both safe and reliable before signing on the dotted line to seal the deal.