In 2020 and 2021, prices for used cars soared.. The COVID-19 pandemic had disrupted the production of new vehicles, limiting their supply and leading more buyers to seek pre-owned vehicles. By the end of June, the average price of a used car had passed $25,000 for the first time ever, according to CNN.
In this overheated market, buying a used car is harder than it used to be. To find the vehicle you want at a price you can afford, you must cast as wide a net as possible. You should plan to compare lots of models, search lots of listings, and possibly test-drive several vehicles before finding the one you want.
Nonetheless, the basic strategies for getting a good deal on a used car are the same as ever. Essentially, it comes down to doing your research on different car models, specific vehicles, and financing options. By gathering as much information as possible, you can be sure you’re really getting the most car for your money.
Tips for Buying a Used Car
Whether the market is hot or cold, buying a used car always involves more research than buying a new one. Comparing vehicle models in general is just the first step. You must search to locate available vehicles that fit your needs and thoroughly investigate each one to determine whether it’s worth the asking price.
1. Determine Your Budget
Before you start looking at cars, you need to know your budget. There’s no point in investigating and testing a bunch of cars that cost $12,000 if you only have $8,000 to spend. So before you get into the car-researching weeds, figure out which cars you can afford to consider.
If you’re planning to pay cash for your vehicle, your budget is just one number: the amount you have set aside for a car. However, if you’re planning to finance, you must consider both the upfront cost and the monthly payment.
Your Down Payment
According to Edmunds, the average down payment on a used-car loan is 10.9% of the sale price. The editors think that amount is adequate if you’re buying the car from a private party.
But if you’re buying from a dealership, the price is likely to be higher and you’ll take a bigger hit from depreciation (loss of the car’s value over time). That increases the risk of becoming upside down on your car loan (owing more than the car is worth). If you sell the car at that point, you won’t get enough to pay off the loan.
You can reduce this risk by negotiating for a lower price. Holding onto the car for at least a few years before selling also helps, as depreciation slows over time. But the best way to minimize your risk of becoming upside down, if you can afford it, is to make a down payment of 20% or more. That also lowers the amount of interest you pay over the life of the loan.
When you’re figuring out what you can afford for a down payment, leave an allowance for taxes and fees. According to Car and Driver, some states charge more than 10% sales tax on car purchases.
On top of that, you can expect to pay title transfer, registration, and documentation fees. These also vary from state to state. In New Jersey, Car and Driver says, taxes and fees on a $15,000 car could add up to around $1,500.
Your Monthly Payment
Your monthly car payment isn’t the only cost of owning a vehicle. You also have to spend money on gas, auto insurance, maintenance, and repairs — and all of this has to come out of your monthly budget. So, when calculating how big a car payment you can afford, you also need to know how much room to leave for these other expenses.
According to Edmunds, a good rule of thumb is that your total monthly car expenses should be no more than 20% of your take-home pay. For a new car, that might mean 15% of your paycheck on the monthly payment and 5% for other expenses.
But for a used car, Edmunds says it’s best to keep the payment down to 10% of your paycheck. That leaves you 10% to cover the higher maintenance costs of an older vehicle.
2. Set Priorities
Once you know your price range, the next step is figuring out what you want in a car. That way, you don’t waste time looking at vehicles that don’t suit your needs.
To narrow your choices, make a list of your priorities. Sort it into two columns: must-haves and nice-to-haves. To help make your list, consider these questions:
- How Will You Use the Car? If it’s mostly for commuting to work, choosing a small, fuel-efficient car makes sense. If it’s for driving family members around, you might want a bigger car with four doors. If it’s for road trips, extra cargo space could be a priority. Also think about whether you’ll ever need to take it off-road or tow a trailer.
- How Long Will You Own the Car? If you’re the kind of person who likes to trade in a car for a new one after a few years, longevity isn’t essential. If you prefer to drive your cars until they fall apart, it makes sense to choose one that can last 200,000 miles or more.
- What Features Do You Need? If safety is a top priority, look for advanced safety features like automatic braking and lane-departure warning. If you care most about comfort, you may prefer perks like a heated steering wheel or ventilated seats.
Based on your answers to these questions, decide what general car type and size you’re looking for, such as a compact sedan or a large SUV.
3. Compare Models
To narrow your car search still more, create a list of possible car models to consider. Use sources like Edmunds, U.S. News & World Report, and Kelley Blue Book to find models that fit your wish list.
For any model you’re considering, check reviews and ratings online. Search for the make, model, and year of the vehicle accompanied by the word “complaints.” You can also find ratings at consumer-review sites Cars.com, Edmunds, and J.D. Power.
As you compare vehicles, think about their total cost to own. For instance, a small, fuel-efficient car will have lower gas costs than a large SUV. Luxury cars and sports cars may cost more to insure. A high-end foreign car may cost more to maintain because the parts can be hard to find.
To help you compare car costs, Consumer Reports has information about the overall cost of ownership for many models. If a model you’re considering isn’t on its list, try searching for the car’s make and model with phrases like “cost to repair” or “cost to insure.”
Using this method, you can come up with a short list of models. But don’t commit to a specific model at this stage of the game. A willingness to consider multiple options gives you a better chance of finding a used car you like at a price you can afford.
4. Check Pricing
Before you even start talking to used-car dealers, check the prices of the specific models you’re interested in. That includes both the trade-in value (what a dealer would be willing to pay for the car) and the typical price it fetches at a used-car dealership.
The difference between these two prices is the amount of room you have for bargaining with a dealer.
There are several free websites you can use to check used-car prices based on make, model, year, and condition. These include:
When you go to the dealership, bring a printout showing both the trade-in value and the list price for the vehicle you’re considering. If necessary, you can produce these pages as proof the dealer’s asking price is too high.
If you’re buying from a private party, you don’t need to worry about the price the car would fetch from a dealer. As long as your offer beats the trade-in price, it’s a reasonable deal for the seller.
But private sellers don’t always set their prices based on a car’s market value. Checking the price beforehand tells you how much it’s reasonable to pay. And by bringing the numbers with you to show to the seller, you can prove your offer is a fair one.
5. Check Financing Options
If you’re like most used-car buyers, you require a loan to pay for your car. But that doesn’t mean you need to finance it through the dealership. Many other types of lenders offer auto loans, and banks and credit unions sometimes have lower interest rates.
However, this option is only available for newer used cars. According to Experian, many lenders don’t offer loans on vehicles over a certain age or mileage.
The best time to shop for a used-car loan is before you hit the dealership. If you get preapproved for a loan before you shop, you won’t be under pressure to accept the loan terms a dealership offers you. Instead, you can pull out the loan offer you already have and offer the dealer a chance to beat its terms.
Getting a good deal on a used-car loan is pretty much the same as with a new car. Useful tips include:
- Know Your Credit Score. Having a high credit score means you can get better interest rates on a car loan. If you check your credit score before you apply for a loan, you’ll have a better idea of what rates to expect. If you find you have poor credit, take steps to rebuild your credit before applying for loans.
- Get Quotes From Multiple Lenders. These days, you don’t have to go into a bank to get loan offers. Online lenders like SuperMoney allow you to apply for financing from several lenders from home. If your credit is poor, try Auto Credit Express, which specializes in finding financing for people with bad credit or no credit.
- Focus on the Total Cost. When shopping for a loan, don’t automatically opt for the lowest monthly payment. The payment has to be affordable, but the total price also matters. Shorter-term loans cost more per month, but they typically come with a lower interest rate, so you pay less overall.
6. Shop Around
Once you’ve got the financing out of the way, it’s time to start shopping for a vehicle. At this stage, the most effective way to save is to shop around. If you buy the first car you see at the first place you look, you’ll never know if you could have gotten a better price somewhere else.
So explore all possible avenues. Today’s used-car buyers have more choices than ever, but they fall into two primary categories: dealerships and private sellers.
If you’ve already arranged a preapproved loan, you don’t need to visit a dealership for financing. But car shopping at a dealership has other perks. They take care of all the paperwork, such as the title and registration, and they offer service contracts. They can also accept your existing vehicle as a trade-in.
The downside of buying from a dealership is that you usually pay more than you would buying from a private seller. You also have to be prepared for a hard sell from a motivated car salesperson. Car sellers will do everything they can to get you to buy a car right away, whether you’re ready or not, and to load you down with a bunch of extras.
Types of dealerships that sell used vehicles include:
- New-Car Dealerships. Franchises for specific car brands, such as Ford or Toyota, often sell pre-owned vehicles as well as new ones. Some also offer certified pre-owned cars that come with manufacturer warranties. These dealerships offer lots of options, but their prices tend to be high.
- Used-Car Dealerships. Independent used-car lots carry a wide variety of brands. That allows you to browse lots of different cars in person, but it can make it harder to locate a specific model that interests you.
- Used-Car Superstores. Many large cities boast used-car superstores with massive inventories and haggle-free shopping. They’re often part of regional or national chains, such as CarMax and CarShop. Buying through a chain allows you to order a car from one of its other locations if it’s not available nearby.
- Online Dealers. Some dealerships specialize in selling cars online. You can reserve a car, get financing, get appraised for a trade-in, and have the car delivered to your door. Some, such as Carvana and Vroom, are online-only, which means you can’t take the car for a test drive before buying. Others, such as CarMax, are hybrids with both an online store and physical locations.
- Buy Here, Pay Here. For car shoppers with poor credit, buy here, pay here (BHPH) dealerships can be a good option. Unlike most dealerships, which work with outside lenders, BHPH dealers offer in-house financing. That makes the process quick and easy, but Experian warns that loan costs are high and car selections are limited.
- Rental Agencies. Some rental car agencies, such as Enterprise, sell off their cars after a year or two of service. Although these cars have had many drivers and racked up a lot of miles, Edmunds says they’re usually well maintained and still under warranty. And their prices can be thousands of dollars less than a traditional dealership’s.
Buying a used car from a private party is generally cheaper than buying from a dealer. Unlike dealers, they don’t need to make a profit on the sale. They also don’t have lots of room to store the car until another buyer comes along. That makes them more willing to negotiate to get rid of the vehicle and make room for a new one.
The downside of buying from a private seller is the lack of accountability. The government doesn’t regulate private sellers like it does dealerships, and they don’t depend on good customer reviews for future business. Thus, they probably face no consequences for selling you a lemon. And you’re just out of luck if you get one since these cars don’t tend to come with warranties.
Buying from a private party also involves more legwork. You have to arrange your own financing and sell your old car rather than just trading it in. And then, you have to make a trip to the department of motor vehicles to handle the paperwork.
Ways to find private sellers include:
- Craigslist and Facebook. Many local Craigslist and Facebook groups include car listings in their for-sale sections. You can find good deals through these sites, but use caution. They don’t screen sellers, so you have to do your homework to avoid lemons and outright scams. Also note that some Craigslist postings for cars and trucks are really from dealers, not private sellers.
- eBay. You can buy just about anything on eBay, and that includes cars. Through eBay Motors, you can find pre-owned cars available for delivery or local pickup. The site also offers vehicle history reports. But some listings are from dealers rather than private parties.
- Car Search Engines. Car search sites such as Autotrader, CarGurus, AutoTempest, Cars.com, and iSeeCars allow you to search thousands or even millions of cars from both dealers and private sellers. It’s easy to compare prices, features, condition, history, and warranty info at a glance. Some sites also offer vehicle history reports.
- Local Newspapers. Finally, it’s still possible to find used cars in your area the old-fashioned way: through the classified section in your local paper. These car listings usually don’t offer a lot of detail, but you can be sure they’re all private sellers in your area.
7. Check the Vehicle’s History
Once you find a specific vehicle you’re interested in, you can research its history through a service like Carfax or Experian’s AutoCheck. These sites track the vehicle’s history based on its vehicle identification number (VIN), which you can usually find on a metal plate just inside the windshield.
According to U.S. News & World Report, information in a vehicle history report includes:
- Mileage. A car’s odometer reading gets recorded at various points in its life, such as when it gets inspected or serviced. The car history report can tell you the last recorded mileage for the car you’re considering. If the current odometer reading is lower than that, it’s a sign the seller is trying to scam you.
- Previous Use. A car that’s passed through many hands usually isn’t worth as much as one with only one previous owner. In particular, you need to have a mechanic vet a car that’s been a rental or a company car with extra care.
- Accident History. Reporting services search records from sources including insurers and repair shops to determine whether a car has ever been in a serious accident. If it has, ask a trusted mechanic to check to ensure it was properly repaired.
- Other Damage. A vehicle report can also often tell you if a car has suffered damage from a cause other than an accident. Examples include fire, flood, or hail damage.
- Service History. A history report should include information about major periodic maintenance and repairs. It probably won’t show every single oil change, but it can give you a sense of whether the car has been well maintained.
- Thefts. A VIN search can tell you if anyone’s ever reported the vehicle stolen. If it was stolen and recovered much later, that means it was probably abandoned at some point. That’s a red flag as far as its condition is concerned. And if it was stolen and never recovered, that’s even worse. It’s not only risky to buy, but it’s actually a crime.
- Title History. A vehicle’s title information is crucial for several reasons. First, it confirms the seller is the lawful owner. It also tells you about what’s happened to the car over its lifetime. For instance, it can tell you if it has been salvaged (totaled and rebuilt), used as a taxi, or repurchased by the manufacturer under a state lemon law. Any of these would make the vehicle an ill-advised purchase. If the car has moved around a lot from state to state in a short time, that’s also a red flag. It may suggest the owner was trying to scrub negative information from the title.
- Liens. If the vehicle’s current owner has an unpaid car loan, that shows up as a lien on the report. It means the seller must pay off the loan before the car can change hands.
- Inspection and Registration History. Records from the DMV can tell you if the vehicle has had its inspections done and registrations renewed on time. Any gap in registration history suggests the car may have been abandoned or unused or spent some serious time in the repair shop.
- Recall Information. Finally, a vehicle history report can tell you if the manufacturer has ever recalled this car model or any of its original parts. A recall isn’t necessarily a red flag. But if the owner ignored the recall alert and failed to get the necessary repairs, the car could be a serious safety risk.
Carfax charges $40 for a single car report, $60 for three, or $100 for six. AutoCheck charges $25 for one report or $50 for up to five reports in a 21-day period. You can also find some of the info in a vehicle history report with a free VIN check from iSeeCars.
Another site to try is the National Motor Vehicle Title Information System. This website, run by the U.S. Department of Justice, offers a choice of 11 different providers to run a title check for you. Some of them check the title only, while others check the vehicle history as well.
U.S. News & World Report recommends getting a vehicle history report on a car before taking it for a test drive. That way, you won’t waste your time on a vehicle that isn’t worth your consideration. But if you have more free time than spare cash, you can test-drive the car before deciding whether to spend money on a report.
8. Take a Test Drive
If the car you have your eye on seems to meet your requirements, the next step is to take it for a test drive. No matter how good the car looks on paper, or even in person, you can never tell how well it suits you until you get behind the wheel.
Things to check for on a test drive include:
- Appearance. Examine the car outside and inside. Do you see anything hanging down under the vehicle? Are there any drips or pools of fluid under it? Do the tires appear to match, and are they in good condition?
- Fit. Get in the driver’s seat. Can you fit comfortably in the seat and reach the pedals and all the controls? Can you see clearly out the windshield and in all the mirrors? If you have kids who use car seats, ensure their seats fit the car and that you can secure them properly. Do the same with any pet carrier or dog crate you use.
- Systems. Check to ensure the doors, windows, locks, seat belts, headlights, flashers, interior lights, dashboard lights, heat, air conditioning, fan, and stereo work. Turn on the engine, and listen for any strange noises. Check the color of the exhaust. If it’s blue or black, that could indicate an emissions problem.
- Handling. Assuming the car seems safe to drive, take it out on the road. Get the feel of the steering, brakes, and acceleration. Test it on various road types, including a stretch of highway, tight curves, hills, and rough or bumpy roads to test the suspension. As you drive, be alert for any unusual noises, vibrations, or odors.
If possible, test-drive the car under different weather conditions. Driving it in the rain tells you how it handles on wet roads, how well the windshield wipers work, and whether any door or window seals are leaking.
9. Get It Inspected
Even if a car seems perfect during the test drive, it could still have problems that aren’t obvious. That’s why it’s a must to have the vehicle examined thoroughly by a mechanic you trust. Your mechanic can find all the problems the seller doesn’t tell you about or doesn’t know about.
A trained mechanic can confirm all a vehicle’s systems are functioning properly. They can inspect the less visible parts like brake pads and look for trouble codes that reveal mechanical or electrical problems. They can also find hidden problems with the body, frame, or engine.
According to Edmunds, the best time to get this inspection is before you start negotiating the final price. That gives you a chance to back out if the car turns out to have fatal flaws. And if it has problems that aren’t deal-breakers, you can adjust the price to cover the cost of repairs.
Most repair shops charge between $100 and $200 for a presale inspection. They usually provide a detailed description of how they inspect a vehicle and a list of all the points they cover — typically more than 100. For instance, the standard inspection from Lemon Squad costs $179. That’s money well spent if it saves you thousands of dollars in repair costs.
Most private sellers should have no problem allowing you to take the car for an inspection or having a mechanic come to them. However, some used-car dealerships don’t allow outside mechanics to inspect their vehicles. Edmunds says if a seller won’t let your mechanic examine the car, that’s a red flag that should make you consider walking away from the deal.
10. Negotiate for a Lower Price
To get the best price on a used car, be prepared to haggle. Think of the seller’s asking price as just a starting point for negotiations. Good negotiation strategies can save you hundreds or even thousands of dollars on the sale price.
Tips to keep in mind include:
- Bring Paperwork. The work you did checking prices early in the buying process can help you negotiate. Bring copies of all the research you’ve done on the car: the book price, comparable listings for similar models, and the vehicle history report. Showing you know the car’s actual market value makes it hard for the seller to demand more.
- Prompt for an Offer. If possible, let the seller be the first to name a price. That puts you in a position to talk them down. Tell them you know the car’s value, then ask them to name their best price. If you have to make the first offer, name a price that’s a bit below market value but still reasonable. That gives you room to give a little on the price and still get a good deal.
- Ignore the Monthly Payment. Car dealers often try to negotiate based on the monthly payment rather than the total price. To avoid that, bring a copy of your preapproved loan offer or a form of payment if you plan to pay in cash. Doing so takes the monthly payment out of the negotiations and leaves you free to focus on the total.
- Get the Out-the-Door Price. Insist on knowing the car’s “out-the-door price,” including financing, fees, taxes, and add-ons, and negotiate based on that number. Ensure you know about all fees included in the cost. And don’t let the dealer tack on a bunch of extras, such as a service contract or rustproofing, after you’ve settled on a price.
- Take Your Time. Rushing through the negotiation process can lead to careless mistakes. Take your time to ensure you understand all the details of the offer. Repeat the numbers back to the seller, and write them down if you need to.
- Stay Calm. When negotiating a vehicle price, keep a cool head. Car dealers sometimes try to manipulate your emotions, either by being super-friendly or by trying to intimidate you. If it helps, bring a friend who isn’t as emotionally invested in the purchase. They can spot these strategies and help you take a step back.
- Be Polite. Some people try to get a good deal on a vehicle by being tough and aggressive. But according to U.S. News & World Report, this strategy can backfire. If a dealer sees you as rude, they’re more likely to use all the tricks they know to stick you with a bad deal. Being polite but firm is a better way to get what you want.
- Be Prepared to Walk Away. If the seller doesn’t agree to terms you can accept, walk away. Don’t hold back out of embarrassment or because you’ve invested so much time in the process already. It’s better to cut your losses than agree to a deal you can’t afford. But don’t storm off in a huff. Just tell the seller it doesn’t look like you’ll be able to come to terms, but they can call you if they change their mind. If they can’t find another buyer quickly, they might do just that.
11. Close the Deal
Once you and the seller have agreed on all the details, it’s time to close the deal. When buying a car, a handshake agreement isn’t good enough. Get all the details in writing, and review the contract in detail before you sign it.
Final Steps at the Dealership
Federal and state laws govern dealership vehicle sales, but that doesn’t mean unscrupulous dealers won’t try to scam you. Read every part of the contract carefully before signing.
During your review, don’t be distracted by any highlighted marks the dealer has made. They’re usually to show where you need to sign or initial, but they can make you miss important info. Ensure the price and all the other terms are what you agreed to before signing.
Be especially alert for fees and add-ons you didn’t agree to. Don’t put your name on any form that’s inaccurate, and never sign an incomplete contract. If you do, there’s nothing to stop the seller from filling in the blanks afterward with details you never agreed to.
If the contract looks too long to read in the dealer’s office or you’re feeling distracted or pressured, you’re allowed to take it home and review it. You can even ask a lawyer to review it.
If the dealership tries to stop you from leaving with the contract, treat it as a red flag. In most cases, they’re just trying to close the deal faster, but if you insist and they refuse, walk away.
Note that you can’t necessarily take as long as you like to sign. In most cases, the deal is only good for a certain number of days, according to LegalMatch. If the contract doesn’t specify, it’s generally accepted that it expires in a reasonable amount of time.
Sometimes, this period depends on terms the dealer can’t change. Incentives such as dealer cash and low-APR financing are offered by manufacturers and lenders. Ask the dealer how long you have to review the paperwork before signing it.
Final Steps for a Private Sale
The paperwork for a private car sale isn’t usually as complicated as for a dealership purchase. One document you need is a bill of sale. It should include:
- A description of the vehicle, including make, model, year, mileage, and VIN
- The purchase price
- The delivery date
- Spaces for your signature and the buyer’s signature
Ensure all this information is on the document before you sign it. It’s a good idea to have it signed by a notary public too. That way, both you and the seller have proof of the agreement.
By law, the car owner must disclose its current odometer mileage at the time of sale (dealerships provide that information too). In some states, you can just write it on the title and include it in the bill of sale. In others, you must fill out a separate form. Check with your state DMV to see what its requirements are.
At the time of sale, the owner must sign over the title of the car to you. That’s your proof you own the vehicle. Typically, the owner just puts their signature and the date on the back of the document. Then you must go to the DMV to get a new title in your name. Check with your state DMV to learn what the rules are where you live.
In addition to these documents, the seller may provide other documents, such as maintenance records or warranty documentation. Get all the required documents and anything else that goes with the car before you drive away. That includes your receipt, the owner’s manual, and any extras, such as a car cover.
When it comes to car buying, knowledge is power. The more information you have at every stage of the buying process, the better your chances of getting the right car at the right price.
In the early stages, that means knowing your budget and priorities, which models suit your needs, and what it’s appropriate to pay. Later, it means researching both loan offers and specific cars available in your area. And toward the end, it means learning all you can about a specific car and its price before putting down your money.
Doing all this research isn’t easy. But if it gives you the chance to save thousands of dollars on your new-to-you used car, it’s well worth the effort.