Used-Car Buying 101

A friend needs a new(er) car and I've been trying to persuade him that buying a used car is much better for his financial health. In fact, Money magazine recently said that, if you're over 50 years old, you should buy a used car every five years (and I'm not sure what age car they're recommending but I think it's also five years). And financial advice in other places as well has cautioned against sinking a lot of money into a depreciating asset--a new car.

Also, if you want to have a nice car but don't have the price of admission, consider buying used. Maybe you can have a used Audi for the cost of a Ford Focus. A lot of people have known of this strategy for a long time.

My father always used to say that if you buy a used car, you're buying someone else's troubles. And the friend I mentioned is very apprehensive about buying used.

The fact is, cars these days are more reliable, and last longer, than they used to. A couple of the Japanese makes such as Honda and Toyota are legendary for their reliability and will last much longer than 100,000 miles—and can even still be virtually trouble-free at that mileage. So you can buy a used car without much anxiety, at least if you choose the make and model wisely. (There are some turkeys and even lemons out there!)

I myself have not bought a new car since 1989. My last three cars—a Toyota, an Acura, and another Toyota—were bought used, with low mileage and in very nice shape, and have been very reliable.

I'd say I have a definite (used)-car buying strategy, and I feel it's been successful in that the cars I've bought have been virtually trouble-free. With three cars, in 14 years and I don't know how many miles, I've had--except for expenses like replacing tires and batteries, which might be considered more maintenance than repairs--only one major repair I can think of, and that was for a water pump.

First, before deciding which make/model you're interested in, check Consumer Reports. They have an annual report on used cars with reliability ratings, by model. Remember, it's the model that's important, not the make. And go by Consumer Reports rather than what your brother-in-law or your neighbor says about his experience with the make (or model): The experience of many owners, collectively, as in the Consumer Reports ratings, is better than what just one person says.

Moreover, I try to follow a number of do's and don'ts when buying a car. I shared all of this advice with my friend and felt I should also share it with my readers.

It's in Q & A format:

Q: Where did you buy it? Dealer?

A: I'll only buy a car from a new car dealer--on the presumption that they have some concern for their reputation--and even then, only a dealer that I've checked out with the Better Business Bureau beforehand. Before I settled on the present car (Toyota Solara) I in fact found an Acura similar to the car I'd had previously, and at a dealer fairly close by--but they had a bad rating with the BBB so I wouldn't even consider dealing with them.

New car dealers offer for sale cars they took in as trade-ins or which they leased. Cars they take in but which are not top-notch they may sell via auto auctions. But used-car dealers always acquire their cars at auction, and even they may not be certain of what they're getting.

Q: Did it have a guarantee of any kind?

A: With the Acura I had, since it was a certified car, I got the balance of the original warranty plus 1 year. A very good deal, I feel.

With the (present) Toyota I paid about $400 extra for the car being "certified"--which was probably stupid of me since the work of "certifying" the car had already been done--whether I paid for it or not after the fact.

Other than buying a certified car, or paying for a (not worth it!) aftermarket warranty, you don't get a warranty with used cars anymore. However, getting a certified car is a very good idea. You pay, I figure, about $1000 more.

When buying from one of those used-car supermarkets, like CarMax, you also pay about $1000 more than you might at some other places. But their cars have been checked over, so presumably that is roughly as good as buying a certified car (I have no personal experience with them).

Q: What percentage of the car's original price did you pay?

A: The used cars I've bought were typically around 3 – 4 years old when I bought them, and a car that age—depending on make—might retain 50% or more of its original value. Of course used-car prices depend heavily on the mileage, and I paid a bit more for low-mileage cars. I'm not interested in buying a car with 100,000 or even 60,000 miles on its odometer. I'm looking for maybe 40,000 or so miles on a three-year old car--which would be a bit less than average annual mileage. (Average is supposed to be 15,000.)

When I bought one car, the dealer had quite a few examples of the model to choose from, probably all having recently come off lease. Start out your shopping on the Internet and you'll see what dealer has what, and what the range of prices is. I use autotrader.com, but there are other, similar sites. You can start your in-person shopping with the car that looks like the best deal for the price (best ratio of mileage to price)--after, of course, you've checked out the dealer with the Better Business Bureau.

Q: Did you have it checked by a mechanic before you bought it?

A: No. Though everyone says it's a good idea to do so. Whether you do or don't do this, always insist that the dealer show you the Carfax report on the particular vehicle. That can rule out many of the cars you were initially considering if you reject a car for anything on the report that's not ideal (e.g., too many owners, having been in an accident, a suspicious drop in the odometer reading which could mean that the dealer rolled back the odometer).

For readers in countries outside the US: I apologize for my US units (miles). To convert, 1 km is about 0.6 mile. Also, some businesses like CarMax and Carfax may not be present outside the US and Canada.

Update, June 17, 2012.
For a guide to what prices on a used car ought to be, you can look at Edmunds.com or Kelly Blue Book (link: http://www.kbb.com/used-cars/). However, if you are looking at the listings of what's for sale in your area on cars.com, that site has the helpful feature of displaying the highest, lowest, and average asking prices of the cars of the make/model you have displayed. And you know these are at least actual asking prices for your area.
Update, January 19, 2013
I failed to mention one possibility for the used-car shopper: the car sales units of the major car-rental companies.
First, I'd say that if you want to buy one of these cars (and the rental companies sell off their cars when they're still pretty new), be aware that they are likely to have a rather basic trim level; that is, the smaller or smallest of available engine options, and only basic levels of interior appointments and options.
Second, in my (limited) experience of shopping at these places, my feeling was that you don't get that good a deal.
Third, my uncle always used to say that it's hard on a car to have a lot of drivers. I don't know if that's true. But, while the rental companies probably maintained the car pretty religiously, on the other hand you don't know how hard some of the renters might have driven it.

Update, January 20, 2013
For more car-buying tips--which apply to buying both a new or a used car--see my January 20, 2013 posting, "Used (and New) Car Buying 102."
And I'd like to elaborate on the reasons for my suggestion to check the dealer's ratings with the Better Business Bureau before going there in person. First, if they have a bad rating, my feeling is that you might have a greater chance of being sold a car that is not a good one--a lemon. Even more likely is that if you do have any problem, you'll have less chance of getting a resolution to the problem that is to your satisfaction. But they all have their means--subtle or not--of trying to get the better of you; so, with car shopping as nowhere else, you just can't be too alert and on the lookout for whatever a fast-talking salesman might try to put over on you.
Copyright © 2012 by Richard Stein