Used Car Buying Guide

Jul 26, 2011 by

If you’re like me, the prospect of replacing a car sounds like a pretty exciting undertaking.  You only get to do it every few years, you get to test drive all sorts of different makes and models, and in the end, you hopefully wind up with a car that both suits your needs and is fun to drive.  However, once you’ve gone through the process a time or three, it seems like more of a chore than anything else.  Having just recently gone through the process once again, I’ve decided to put together a used car buying guide to hopefully help you secure the best deal, as painlessly as possible.

car sales

Image: Boaz Yiftach / FreeDigitalPhotos.net

Decide what kind of car or truck you want to buy before you leave the house.

The first thing you should do is make a list of what’s important to you.  Do you commute 50 miles back and forth to work every day?  Then fuel economy is probably going to be a top priority for you.  Do you have children?  Do you have plans for more?  If so you may want to think about an SUV or crossover to accommodate your expanding family.

Is resale value important to you?

If you’re planning on keeping your new vehicle for more than four or five years, then resale value is probably not going to be a factor in your buying decision.  When you keep a vehicle that long, you really have no way to predict how many miles a vehicle will accumulate over that period of time or what the market is going to look like that far down the road.

That said, if you’re planning on trying to recover a good chunk of your investment back in two or three years, you will need to research which vehicles have the best resale values.

The standard rate of depreciation from MSRP is about 50% over the first fours years.  What that is essentially saying is that a 2011 Lexus selling for $40,000 should be worth about half that in 2015.  After that the rate of depreciation varies based on a variety of factors, most notably physical condition of the vehicle and number of miles on the odometer.  As a generality, you can count on a rate of depreciation of about 8-12% annually after the first four years.  By that example, the aforementioned Lexus would be worth about $20k in 2015, but should still be worth $13-$15k three years after that.

Traditionally, mid to high-end imports and domestic luxury cars tend to hold their value the best.  The reason is simple: lower end cars are produced in higher volume.  The law of supply and demand states simply that the more plentiful something is, the less they’re worth individually.

If you have a car to trade in, determine it’s value and what you can expect to receive for it.

Sites like Kelley Blue Book and NADA Values will give you a good idea of what you can expect your trade-in to be worth.  Don’t just take the dealer’s word for it.

If you are financing the vehicle, pull a copy of your credit score first.

You can get a copy of your report at FreecreditReport.com.  From there, you should have a decent idea of where you stand.  It is also a good practice to secure financing from your own lender before you even walk into the dealership.  This reduces the sale to a simple cash transaction as far as the dealer is concerned.

Determine your budget.

If you know what you can afford, you can’t get talked into payments that will leave you destitute.  But even more than that, it’s important to establish a budget so that you know what type of vehicle you can afford.  Dealers have ways of fitting a vehicle into your budget from a monthly payment standpoint.  You could potentially pay a lot more in interest over the course of the loan if you go in unprepared.

Watch dealer inventory.

Many car lots and dealerships buy their inventory on credit, which means that they are paying interest on the cars on their lot until they sell.  The longer a car sits and remains unpurchased, the more it is costing the owners to have it.  They will often be more likely to haggle on the price if they’ve got stale inventory.

Click here for part two about how to negotiate the price of a used car.

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