Girls driving in a city in their used car.

How To Buy A Used Car

Lauren Nowacki14-minute read
October 06, 2021

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Years after he became a billionaire, Amazon founder Jeff Bezos still drove around in an old Honda Accord – a fitting example of one of Amazon’s principles the company still touts today: Frugality. When explaining this principle, the company says you can “accomplish more with less,” adding that “constraints breed resourcefulness, self-sufficiency and invention.”

Buying a used car is one way to practice frugality. You may not think it helps you practice the qualities listed above, but it does – whether you’re someone on a tight budget, the owner of a multibillion-dollar company, or somewhere in between. And there are other ways to benefit from purchasing a used car, too.

Advantages Of Buying A Used Car

Plain and simple, the biggest advantage of buying a used car is that it costs less than a new one. Because of this, you could get a nicer car or one with more bells and whistles. Sure, it will be an older model, but a better brand or more updated technology could be worth it.

With a lower sales price, you may be able to pay for the car in full or get a much lower, more manageable auto loan with a doable down payment. Another way buying used helps you save money is that car insurance is typically cheaper for preowned vehicles. With little to no monthly car payment and lower car insurance costs, you could use the money you’re saving to pay off other debts or build your emergency fund.

Don’t forget that a new car depreciates in value the second you drive it off the lot and loses up to 60% of its value within 5 years of owning it. That’s money you just won’t get back. With a used car, you won’t have to take that depreciation hit. Someone else (the previous owner, perhaps) has already taken it for you.

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The Process Of Buying A Used Car

Buying a previously owned vehicle requires some work on your part, including researching cars and working with the seller to get the best deal. However, before you even start investigating and test driving cars, there are two steps you need to take: setting a budget and figuring out what kind of car you need. These actions may go hand in hand since your budget may influence the type of car you get or vice versa.

Set A Budget: Pay In Full Or Auto Loan?

When setting a budget for your car, you’ll need to decide if you want to pay in full or get an auto loan. If you pay in full, you’ll determine your budget based on the money you have available to spend on a car. If you’ve been saving money specifically for this purpose, you know how much money to use. If you are dipping into your savings, make sure you leave enough for an emergency fund. Some recommend an emergency fund of at least $1,000 while others recommend having 3-6 months of living expenses saved.

If you plan on getting a car loan, aim for a monthly payment that is less than 10% of your monthly income and a finance period of no more than 4 years. Be aware that, even with an auto loan, you’ll still need money for a down payment, which is usually about 10% of the purchase price. You’ll also need to show proof of income, proof of insurance and additional documentation. For most auto loans, there are certain credit score requirements, too. The better your credit, the better your loan terms will be, so make sure your score is in good standing before applying for a loan. To view your credit score and learn more about the different factors impacting it, create a Rocket HomesSM account. You’ll get a free TransUnion® Credit Report and VantageScore®, which is updated every 7 days.

Figure Out What Type Of Car To Look For

You don’t need to know the exact car you’re going to buy just yet, but there will be types of cars you can rule out right away. Before thinking about the kind you want, make sure you’re first considering your needs. Here are a few things to keep in mind:

Your commute. Do you have a long commute to work? If so, you’ll want to look for a car that is good on gas, or consider the cost of an electric car. That may exclude SUVs and other gas-guzzlers. You’ll also want to start with low mileage since you’ll be slamming miles on it. Look for something with the lowest number on the odometer for your price range, if possible.

Your passengers. How many passengers will be driving in your car on a typical day? If you have a spouse and a child or dog, you’ll need a car with at least one row of back seating. Do you have multiple children or multiple dogs? You may want to consider an SUV or van with third-row seating.

Your lifestyle. Do you have a trailer or boat you take camping or to the lake? You’ll need a car that has towing power and the capability to hold a hitch. Are you constantly filling your car with boxes, suitcases, unique flea market finds or other cargo for your job or hobby? Do you need a ton of room? If so, a compact car won’t do. Instead, consider an SUV or truck.

Your location. Are you living in a state that experiences heavy snow and icy roads? Do you regularly drive on rough terrain? A car with 4-wheel drive may be a better option. And if you do live somewhere with harsh winters, you may want to cross convertibles off your list. When it comes to your location, consider parking, too. If you live in a city where parking is often a nightmare, a compact car that can fit into small spots may be the best choice.

Your future. How long do you plan on owning this car? In that amount of time, how will your life change? Do you plan on getting married soon? Do you hope to start a family, have more kids or adopt more dogs? Will you be moving closer to or farther from work? Consider these things before buying a car that won’t fit into your life a few years from now.

Your wants. While it is important to meet your needs first, you still want to enjoy driving your car. You’ll most likely spend a good amount of time in it, so make sure you’re getting something you can drive comfortably and has at least some of the features you want. It is OK to buy a car or look elsewhere based on certain features you want or don’t want. Just because you’re saving money buying used doesn’t mean you have to sacrifice.

As you go through this process, take note of all the things you want and need in a car. This will help you when you begin searching for the right one.

Find Used Cars For Sale

Now comes the fun part – finding your next car. With a budget set and general idea of the type of car you want – and don’t want – you’ll be able to narrow your search. Several websites list used cars for sale, but there are other places you can find them, too.

Craigslist and Facebook Marketplace. These online marketplaces allow sellers to list used cars for sale at no charge. Many listings will provide general details of the car along with pictures of the vehicle. Sellers who post to these sites are often looking to get the car off their hands, so they may be more open to negotiating. Many posts will list the sales price with OBO (or best offer). However, beware of scammers as fraudulent posts are common on these listing sites. Here are a few red flags to watch for:

  • The deal seems too good to be true.
  • The seller requests payment via wire transfer.
  • The seller says a third-party will handle the transaction or provide payment protection.
  • The seller is traveling, relocating or stationed abroad.
  • The seller asks for partial payment upfront before you get the car.
  • The seller will not let you see the car before buying it.

If you notice any of these  things, it is best to steer clear of the listing and report it.

Used car websites. Many specialized websites can help you find used cars for sale in your area. Sites like Autotrader, CarFax and Edmunds have a huge inventory of used cars for sale across the country, and various search functions allow you to narrow your options by the make, model, year, price, location and more. These listings provide photos and such information as the mileage, engine type, gas mileage and even a history report if it is available. You can save your favorites and contact the dealer or seller from the site. These types of used car sites also feature other tools to help you buy a car. You’ll find top 10 lists, car reviews, recalls, affordability calculators and used car buying guides to help you as you search.

Kelley Blue Book. This site has many of the same functions as the used car websites, but what sets it apart is that it literally wrote the book on setting a fair price for a car. Kelley Blue Book (KBB) isn’t just a used car site, it is an automotive research company with more than 90 years of experience pricing used cars. KBB’s site will help you feel confident that you’re paying a fair price for the car because its pricing is based on several factors, including your location’s market conditions and industry trends.

Rental car company. Many people don’t realize that rental car companies like Enterprise, Avis and Hertz often sell cars from their fleets to keep their inventory current. While these used cars may have more miles and more wear and tear, they can be a great deal because they are often well-maintained by the company and are constantly inspected for safety and quality. And remember, too, that while these cars’ drivers are temporary, they tend to drive with more care for fear that they’ll be charged for any damage. Most rental car companies boast no-haggle pricing because they are looking to get the vehicle off their hands to make room for newer models. However, there is one major downside: the inventory is often limited, so you can’t be too choosy.

Car enthusiast communities, clubs and forums. Not only do the people selling on forums have a love and expertise for the type of cars they are selling; they also have a rep to protect within these online communities. There are several different forums where people will post their autos for sale, but the best ones are specific forms for enthusiasts of specific cars. That is where you’re most likely to find more invested sellers who are passionate about what they are selling.

Local used dealerships. If you’re someone who needs to see and touch the inventory in person, then it may be best to go to a local dealership. While buying from a dealer may be easier and more seamless, be aware that you will most likely pay more for the car since the dealer needs to make up for overhead costs and commissions. 

Research The Contenders

Once you decide on a few cars you like, do the research to narrow down your list to find the best deal. Here’s how:

Ask to see the vehicle’s history report. Many sellers will offer this to you for free, but if they do not have the report, get the car’s vehicle identification number (VIN) and run the report online. The vehicle history report is important because it’ll show you any previous accidents and damage, current and previous owners and whether it was salvaged, repurposed or rebuilt. It will also show the true mileage (some sellers roll back the mileage) and list any recalls on car parts. Also included in the report is the service history, which will help you learn more about how the previous owner(s) took care of the vehicle.

Check for safety. If safety is a concern, you can view the vehicle’s Insurance Institute for Highway Safety (IIHS) rating for crashworthiness and crash avoidance and mitigation. Depending on the make, model and year, you’ll be able to see crash test results and how the vehicle rates for things like side and front crash prevention and child seat anchors.

Inspect the vehicle. When inspecting the vehicle’s interior and exterior, use your senses, your instinct and your (or someone else’s) expertise. Here are the red flags to look for when inspecting the car:

  • Severe damage that isn’t a minor scratch or dent from normal wear and tear
  • Rust
  • Broken seals between the interior and exterior
  • Cracks or major chips in the glass
  • Broken or missing lights
  • Mismatched paint
  • Gaps or uneven spacing between panels
  • Less than 1/16-inch of tread on all four tires
  • Mismatched tires
  • Uneven tire wear
  • Signs of smoking including dirty ashtrays, a yellow film on the windows or the smell of smoke
  • Musty smells that may indicate water damage
  • Ripped, torn or stained upholstery
  • Poor legroom
  • Improperly working radio, dashboard lights, power locks or windows
  • Cracked hoses
  • Burning smell
  • Corrosion
  • Discolored, goopy or milky fluids

If your car knowledge is subpar, consider bringing a trusted friend who is a little more well-versed in matters under the hood to look for any mechanical red flags. You could also take the car to your mechanic to look it over, though the seller may not be keen on this idea and could refuse.

Take it for a test drive. A car may look like a dream on the lot but be a total nightmare on the road. Taking it for a test drive not only helps you find any potential problems but also helps you realize whether you even like driving it. When taking the car for a test drive, check the following: 

  • Is the car easy to drive?
  • Does the interior provide enough space for what you need?
  • Do you feel comfortable driving, parking, switching lanes, etc.?
  • Does the car rattle or make any strange noises when you take it over bumps?
  • Do you hear any screeching, whistling, knocking, flapping, humming or clicking?
  • Does the car pull to the left or right?
  • Does the car shake?
  • Do the brakes squeal when you apply them?
  • Do the brakes work smoothly?
  • Are there any bad blind spots?
  • Does the cabin block out road noise?
  • Does the car ride smooth or can you feel every bump and imperfection in the road?

Remember, your test drive should match your daily commute. If you’ll be driving on the expressway, take it on the highway. If you’ll be driving on hills, drive through a hilly area and see how the car climbs.

Work With The Seller 

Between online listings, search tools, comparison apps, used car buying guides and vehicle history reports, the internet has made shopping for a car much easier. While there are several resources to help you find one, there are still two main sources you’ll purchase from: a dealer or a private seller.

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How To Buy A Used Car From A Dealer

If you are going to buy a used car from a dealer, come into the deal knowing that you’ll most likely be paying more than with a private seller. That’s because the dealer needs to make a profit on the car while covering other expenses like operating costs and sales commissions.

Dealers also have trained salespeople who are pros at negotiating to their desired price. Try to focus on the total cost of the car instead of the monthly payment. Bring a calculator to do your own estimates, take notes, ask for any clarification, talk slow and make sure you comprehend everything before you agree to the deal. Always make sure the price you’re agreeing to is the final price and not the price that’s quoted before taxes and other fees. Ask for an itemized list of charges and ask for explanations of any that seem bogus.

How To Buy A Used Car From A Private Seller

Buying a car from a private seller is usually less expensive and puts you on a more level playing field for negotiation. However, many banks do not provide auto loans for cars sold by a private seller, so it may be more difficult to get financing.

There is also more risk of being scammed by a private seller because they don’t have a reputation to protect like a dealer does. Private sellers are also not bound by laws or warranties that protect people who purchase from dealers.

When buying a used car from a private seller, there are a few documents you’ll need to protect you.

The title. This proves that the seller actually owns the car and can sell it to you. It also proves that the car was sold to you, that you didn’t steal it and that you are now the owner of the car. When you purchase the vehicle, you’ll need to transfer the title. To do this, the buyer, the seller and anyone else on the title must sign and date it. In some states, you must also have it notarized. If the seller is not on the title, ask for legal documentation, like a power of attorney, showing they can sell the car for the person named on the title. You’ll also want to check their ID to make sure their name matches the name on the documents. If the seller doesn’t have the title, necessary legal documents or proper identification, don’t buy the car. If there are other names on the title, but those people are not available to sign the title, don’t buy the car.

A bill of sale. The bill of sale is kind of like a receipt; and while you cannot use it to return the car, you can use it as the proof of purchase. Many states offer templates to help you draft a bill of sale. Just make sure it includes the following information:

  • Date of sale
  • Sale price
  • Description of the vehicle, including the make, model and year
  • The vehicle identification number (VIN)
  • Name and address of the seller
  • Name and address of the buyer
  • Condition of car or warranty information. Usually stated “as is” in private sales.
  • Acknowledgment of sale and accurate information
  • Signatures of the buyer and seller

Other required documents will vary by state but may include a vehicle safety inspection and emissions test. 

Negotiate Your Price

Negotiating your price can be tricky and uncomfortable, but it’s part of the buying experience. Here are a few tips for getting to the price you want. 

  • Always ask the seller what they are looking to sell the car for. That way, they can’t go above that price and you’ll know where to start negotiations without lowballing them too much.
  • Come prepared. Take all the research you’ve done on the car’s history and its valuation based on condition and mileage and be prepared to show it to negotiate a better price.
  • If you are working other terms into the deal (like a trade-in or financing), negotiate everything separately, settling on the final sales price first.
  • Don’t provide an insulting lowball offer. You won’t look like a serious buyer.
  • Be prepared to walk away from the sale – whether the deal just isn’t going to happen or the seller is calling your bluff.

Complete The Purchase

Before completing the purchase, make sure you understand all terms of the agreement and all the fees that add up to the final sales price. When purchasing from a private seller, make sure you complete a bill of sale and transfer the title. If you are buying from a private seller who still owes money on the car, contact their lender and find out what else you need to do to complete the sale before signing anything. When buying from a dealer, check the numbers to make sure no other fees were slipped in. Never sign a document with blank spaces as dealers can use these areas to add more information after you sign. If the dealer allows you to leave with the car before the deal is done, pass on the offer. If you drive off with the car before financing is complete, they could ask you to come back and sign new paperwork at a higher cost because “financing fell through.” Beware of add-ons and warranties the dealer may offer. They are typically not worth the money.

Rocket AutoSM is here.

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Lauren Nowacki

Lauren is a Content Editor specializing in personal finance and the mortgage industry. Her writing focuses on reporting the best places to live in the U.S. based on certain interests and lifestyles. She has a B.A. in Communications from Alma College and has worked as a writer and editor for various publications in Philadelphia, Chicago and Metro Detroit.