How to Buy a Used Car

Shopping for a used car is a great way to get the most vehicle possible for your money, and there are lots of preowned gems out there just waiting to be found. These simple steps can help you choose one you can drive happily for years to come.

Calculate your budget and explore financing

Keeping your total ongoing car costs (including loan payments, insurance, maintenance and gas) within 20% of your net income should leave you enough cash for other expenses and a little fun as well. An online loan calculator can help you figure out what you can truly afford to borrow. Then, if you can, lock in a preapproved loan and rate.

Shop only for cars that fit your lifestyle

Your individual style is one of the most important considerations when it comes to choosing a used car. If you often drive in severe winter weather, for example, you’ll likely do better with an all-wheel-drive vehicle rather than a sports car. A long daily commute means that fuel economy matters, and that you’ll want seats with good back support. Those who have to haul lots of gear for kids, hobbies or work should look for something with ample cargo space.

Research the true costs of ownership

When you find a car that appeals to you, check out the reliability record and ownership costs for that model from trustworthy organizations such as J.D. Power, Kelley Blue Book or Consumer Reports. It also pays to contact insurers to make sure you’ll be able to afford the premiums on that vehicle.

Investigate the car’s past

Becoming a used-car detective is easy when you get an official car history report from a reliable organization that’s been vetted by the National Motor Vehicle Title Information System. The report will reveal any reported accidents involving the vehicle and how many owners it’s had. To rule out the possibility of an unreported accident, flood damage or other issues, look the car over carefully yourself. It should smell clean and have matching carpet throughout, and the paint job should be uniform.

Go for a test drive

Taking a car for a drive can give you a feel for the vehicle. While driving, be sure to try out all the controls, including windows, wipers, moonroof, heat and air conditioning. The car should start easily, run smoothly, and everything should work. If all looks good, have a trusted mechanic give the car a once-over for added peace of mind.

Close the deal

Once a price is negotiated and financing is approved, you’ll be ready for the final exchange. Inspect the title carefully to ensure it’s legitimate, and that it’s a standard rather than a “salvage” document.

Making an informed used-car purchase is well worth the extra time. The reward for the energy invested is driving away in a car that works with your finances, habits and unique personality.

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How to Buy a New Car

The number of decisions you have to make when buying a new car can be dizzying. And while many of them will depend on your individual needs and wants, there are some steps you should take no matter what to ensure you get the best deal.

Assess your credit and financing options

Unless you plan to pay cash, your credit will matter a great deal as you look for financing. Get your (free) credit report from AnnualCreditReport.com and look for any errors.

You can get financing through the dealer, but it’s far from your only option. Inquire at your credit union about their auto loans and ask to be pre-approved. If you are, take the approval with you to the dealer. Consumer Reports offers some useful do’s and don’ts at the dealership.

If you are getting rid of an old car, you can sell it to someone or trade it in at the dealership, and put the proceeds toward a new car. Use the Kelley Blue Book to find estimates of your car’s trade-in value and the price you can expect if you sell it. There are also a number of car-shopping apps you can check for competitive offers.

Set a budget that makes sense

Add up your pre-approved loan, the value of your trade-in and any down payment you plan to make, then subtract about 10% for taxes and fees (rates vary by state). This will give you a good idea of what you can spend. If you want to go by how much you can afford to pay each month, use an affordability calculator to see where you stand.

Buying the car isn’t the last time you’ll put money into it, of course. There’s gas, maintenance and much more. At sites such as Edmunds.com, KBB.com and NADAguides.com, use a metric called “five-year cost to own” to get a more complete view of how much your chosen vehicle will cost you.

Do your research

Look up dealerships on customer-review sites like Yelp (filtering out the nonsense, of course) and on auto websites such as DealerRater.com (where the comments are moderated). Conduct research into your chosen make and model and options, too, so that you’ll know when the dealer quotes a price that’s just too much.

When you’re ready to get those quotes from dealers, shop around — from home. Edmunds.com recommends calling at least three dealerships that carry the car you want and asking for the Internet sales manager. The idea is this person deals with savvier customers and so is more likely to go lower. And play the offers off one another to really get the best deal.

Hold your ground

Like the grocery store stocks goodies in the checkout aisle, the dealer may offer you an extended warranty or service deal just before you start signing the paperwork. The goal is the same: to get a last little bit of money from you. Resist.

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0% Auto Loan Might Not Be the Best Deal

In seeking the best deal on your next car, you might’ve stumbled upon advertisements or offers to get a 0% interest auto loan. As great as this sounds, you may not save as much as you expect with this type of incentive.

Since auto loans can come through either a dealer or a lender, such as a bank or credit union, it’s important to note that a 0% interest loan generally, if not always, is obtained through a dealer. Automakers offer them to attract buyers to certain car models, especially ones that aren’t selling well. Here are a few things to consider about 0% financing and why it might not be in your best interest to use it.

You might be forfeiting a better deal

Typically, you can’t receive both reduced rate financing and a cash rebate when you buy a car, so you may have to choose one. Manufacturers’ cash rebates can range from a couple hundred to a few thousand dollars. The well-known auto research website Edmunds found that the cost of incentives that automakers pay to attract customers was around $2,300 per car industrywide, which includes cash rebates and cost of reduced financing.

While a 0% loan may sound appealing, a cash rebate might save you more money. If you buy a $20,000 car that has a $2,300 rebate, you are really paying $17,700 plus interest. If your interest rate for a five-year loan is 3%, a typical rate, you will pay a total of $1,383 in interest. That brings the cost of the car plus interest to $19,083, saving you $917 compared with what you’d pay with a 0% loan.

Rate may not last as long as your loan

Some car models may have 0% financing for a limited term, such as five years, which could be less than the length of your auto loan. In the third quarter of 2015, the average loan term for a new car was five years and seven months, and the term for used cars was five years and three months, according to Experian’s State of the Automotive Finance Market report. These are the longest average terms calculated since the firm began collecting data in 2006.

You may even receive a longer loan if you want lower monthly payments than you were offered initially. If your term is longer than the 0% financing deal, you generally pay interest on the remaining months or years.

This offer can be limited

A 0% rate might only be offered for a handful of models, especially newer cars, and less for used cars or older models. But even if this deal is available for the car you want, qualifying for it typically requires a high credit score. Check on the eligibility rules for getting this rate before stepping onto the dealer’s lot if you can.

As you sift through car prices and incentives, remember that trade-offs are part of the process when buying a car. Although a 0% interest rate may save you money in some cases, you might also be letting a better savings opportunity pass you by.

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