6 Steps to Buying a Used Car and What to Avoid


If you are looking for a new vehicle, buying a used vehicle could save you a lot of money. The average used car price was just over $28,000 in 2021, compared to more than $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 steps to take and what to pay attention to when buying used to make your purchase a worthwhile investment.

6 Key Steps to Buying a Used Car

There’s no surefire way to guarantee that you’ll get a defect-free used car. However, you can take steps to minimize your risk and get the best deal.

1. Set a budget and stick to it

Take a look at your budget to determine how much you can afford spend each month on a car loan. Experts recommend spending no more than 25% of your net (or net) pay on a car payment.

Use a car loan calculator to get an estimate of your maximum purchase price based on your desired monthly payment. If you plan to include taxes, titles, and registration fees in the loan, include them in the purchase price as well.

Also, don’t forget to factor in the cost of maintaining your vehicle. You may need to adjust your budget to comfortably pay the monthly payment plus fuel, insurance, repair and maintenance costs.

2. Look for cars that match your needs

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

If you’re considering buying a car from the dealership, look at Certified Pre-Owned (CPO) options. These vehicles are usually less than five years old and may come with an extended warranty from the automaker. You can also purchase a private extended warranty if you find the perfect ride, but that’s not CPO.

3. Pre-qualify for funding

Before visiting the dealership or starting shopping for a vehicle from a private owner, be prequalified for a car loan from a traditional bank, credit union or online lender. Some lenders allow you to explore potential loan options on their website without affecting your credit score.

It may be tempting to obtain internal financing from the dealership or a lender in their network. But the dealer might have an incentive to finance you with a lender that pays a higher commission than another lender with a lower interest rate. Plus, entering the dealership as a pre-qualified buyer shows the seller you mean business, giving you more leverage in negotiating the selling price of the vehicle.

4. Shop

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

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

Test drive any vehicle that piques your interest. Once you’ve explored a few options, narrow your options list down to just a few – and be sure to write down the VIN or vehicle identification number.

5. Do a full research on a car after a test drive

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

Also have the car inspected by a mechanic certified by Automotive Service Excellence. If there is a problem, ask the seller to 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 Safety Administration website using the VIN.

6. Make the purchase

The last step is to seal the deal, but you’ll 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 stuck in 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 local paperwork and purchase the necessary insurance coverage required in your state.

What to pay attention to when buying used

A used car might be the best option for your finances. Still, there are pitfalls to avoid when buying a used car.

  • Cars with salvage titles – those that have been declared by the insurance company as a total loss.
  • Private sellers or dealerships that are not open to you having a pre-purchase inspection done on the vehicle.
  • Private sellers trying to rush you into buying 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 make sure you’re getting the best deal on a used car that’s safe, reliable, and will serve you well for years to come.


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