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7 Things to Avoid When Buying a Used Car
By Evan Tarver
Buying a used car can be a smart investment when you are in need of a replacement vehicle. While new car purchases have increased with the rising economy, used cars can provide a great alternative as long as you know what to look for.
With a used car, you can get the most bang for your buck. While this provides an opportunity to live more economically, a used car, by definition, has issues from regular wear and tear. Therefore, it's important to avoid making these costly mistakes when you're shopping for a used car.
Buying a used car can often be one of the smartest buying decisions, but due diligence is required in order to make the right purchase.
One of the most important aspects of used car purchase is the mechanical integrity. Having the car checked by a certified mechanic is a step that should never be skipped.
Sellers know their car is used, and they are more open to negotiation than new car sellers. Use smart haggling tactics to get the best price. If you don't like the deal, there is nothing wrong with walking away.
Failing to Line up Financing Before Shopping
If you're buying a car from a used car dealership, it's possible to avoid the dealer-offered financing, which normally carries a hefty premium. Dealer financing is built like a wholesale insurance offer, but then it adds additional interest rates. When you have a loan from a third party or you pay for the used car in cash, you can avoid these additional rates.
Whether you purchase your used car through a dealer or from a private owner on a website such as Craigslist, financing allows you to understand the upper limit of your price range. When you know how much you can spend on a used car, you know exactly what your budget is, which makes negotiating prices easier.
Shopping Based on Monthly Payments Alone
Often, when people look for a new car, they think about the monthly payments they'll have to make. While a lower monthly payment is good for your monthly budget, a longer payment period means that you end up paying back more money overall. Due to compounding interest, it could make more sense for you to take on a higher monthly payment since it's possible to pay back the principle in a shorter period.
Also, don't be fooled by the difference between a lease payment and a car payment. While your monthly lease payments can be lower than your monthly loan payments, you have to return a leased car at the end of your lease. If you bought your used car, you can sell it or trade it in at your discretion.
While monthly payments are an important part of financing a used car through a loan, don't forget about cash. If you have enough funds to buy your used car outright, you can save a lot of money over the long term and eliminate the mistake of buying a used car based on monthly payments.
Foregoing the Test Drive
As many as 20% of buyers of used cars don't test drive the car before making the purchase. On the other hand, first-time buyers of new cars test drive as many as seven new cars, on average, before making a purchase.
This disparity in statistics might be why there are many third- and fourth-owner used cars on the streets. When you don't test the asset that you're purchasing, you run the risk of experiencing a bout of buyer's remorse. In the case of used cars, it's imperative to test drive a few before making a purchase decision. This protects against buyer's remorse and also ensures that the car is running properly.
Not Having the Car Checked by a Mechanic
While many people test drive cars before purchasing, few have used cars checked out by mechanics before finalizing the deal.
Even if you have to pay for the inspection yourself, it could save you a lot of money in the long run. However, it's possible to have the seller pay for the inspection. If the seller is a car dealer, chances are it's already an offer, but make sure it is. If it's a private seller, he probably won't offer, so it's important to ask.
Making Initial Negotiations in Person
If you are purchasing a used car from a dealership, it's going to be the salesman's main goal to get you down to the dealership. Once you're on the dealership property, you are much more likely to leave with the car you're interested in; it's an easier sell for the salesman.
To combat this, ensure that you've done all of your research and comparisons at home, and try to negotiate over the phone or by email. It's much easier to walk away when the car isn't there, which gives you the upper hand in negotiations.
If you're purchasing a used car from a private seller, chances are the seller isn't a professional salesman. By mentioning a few used car statistics over the phone, it's possible to gain the upper hand before seeing the car in person.
Buying Based on Looks
Before you even begin looking for a car, whether online or in person, it's important to assess exactly what you need from your car. If you're looking for a commuter car, don't waste your time looking at trucks. If you're looking for a vehicle that can tow a trailer, don't bother to look at sports cars.
By understanding what your needs are first, you mitigate the risk of making an impulse purchase based on what you want instead of what you need.
Not Running a Vehicle History Report
In addition to performing a test drive and having the car inspected by a mechanic, it's important to run a vehicle history report. With a vehicle history report, it's possible to check for any prior accidents, problems with the car, and the number of previous owners.
Dealers usually pay for this third-party service, but if the sale is through a private seller, the purchaser will most likely have to foot the bill. Whether you use CARFAX, AutoCheck, or another service, it's always important to check the history of the car and the stories of its owners.
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Closed-End Lease
A closed-end lease is a type of rental agreement that does not require the lessee to purchase the asset is called a closed-end lease.
Understanding Down Payments
A down payment is a type of payment made in a lump sum payment, usually in cash, during the onset of the purchase of an expensive good/service.
How Negotiations Work
A negotiation is a strategic discussion that involves two or more parties that resolves an issue in a way that each party finds acceptable.
Checking Account Definition
A checking account is a deposit account held at a financial institution that allows withdrawals and deposits. Also called demand accounts or transactional accounts, checking accounts are very liquid and can be accessed using checks, automated teller machines, and electronic debits, among other methods.
A budget is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis. Budgets can be made for a variety of individual or business needs or just about anything else that makes and spends money.
Personal finance is all about managing your income and your expenses, and saving and investing. Learn which educational resources can guide your planning and the personal characteristics that will help you make the best money-management decisions.