The Comprehensive Guide to Buying a Used Car

Maybe your old car finally costs you more to maintain than it's worth or maybe it's time to upgrade to a family friendly SUV. Maybe you're shopping for your teen's first car. Or maybe, just maybe, you're looking for a second vehicle for yourself — like a sports car or a pickup truck.

Whatever your motive for buying a used car, the relative affordability of being the second (or third, fourth, or fifth) owner of a car or truck makes it a popular option for drivers of every age and experience level. Here's everything you need to know about purchasing pre-owned.

How Much a Used Car or Truck Costs

You can typically save thousands of dollars buying used. However, the average price of a used car depends on a lot of factors from year to year. The average price in 2021 for a pre-owned automobile now surpasses $25,000. This is the highest rate on record and the first time in history that used-car prices have eclipsed the $25,000 mark.

Experts cite two main reasons for rising costs in 2021: a rebounding economy and a global shortage of semiconductor chips that's slowing production of new cars and trucks. Prices will likely decrease in time, but until then, you can expect to pay a little more for any vehicle, new or used.

Supply and demand and resource issues aside, lots of other variables impact the cost of used automobiles:

• Year, make, and model
• Mileage
• Condition
• Features and accessories
• Color
• Location

As a rule, newer vehicles that have fewer miles and are in better condition cost more than older, higher-mileage cars and trucks. We suggest determining whether a particular used vehicle is a good value and whether it makes sense for your unique financial situation and lifestyle.

Fortunately, there are numerous resources to help you do just that. Be sure to start with one (or all) of these:

Kelley Blue Book

Kelley Blue Book is the gold standard for gathering pricing data and estimating the value of used vehicles. 

Edmunds

Much like KBB, Edmunds is used extensively to check pricing, ratings, and value information for used automobiles.

TrueCar

TrueCar, an automotive pricing and information website for new and used car buyers, allows you to research what others paid for vehicles in your local area.

Ways to Pay for a Used Vehicle

You have two options when buying a used vehicle: pay cash or take out an auto loan. Cash offers numerous advantages, but most people opt to finance, whether it's through the dealership or by securing a loan from a credit union, bank, or online lender.

It's generally more difficult to finance a used vehicle than a new car or truck. That's because the vehicle serves as collateral for the loan, so if you were to default, the lender would be saddled with a less valuable car than one that started out new.

Interest rates are also higher for used cars. Rates can vary considerably based on a variety of factors.

You can get a general idea of the APR you'll qualify for based on your credit score category. 

Best Times to Buy a Used Car

There's really no time of the week, month, or year that's more ideal when buying a vehicle from a private party. It's first-come, first-served, so if you find a car or truck you like and the price is right, act quickly before it's gone.

When purchasing from a dealer, however, timing can have a big impact on the price you pay. Some of the ideal times to buy a used automobile from a dealership include:

Beginning of the Calendar Year

Thanks to all the trade-ins dealers receive for selling new cars in December, the first three months of the year are best for used car purchases. Plus, with less traffic in general on car lots during the first part of the year, dealers are more inclined to discount their prices.

Latter Part of Each Month or Quarter

Generally, you're better off waiting until the latter part of any given month to search for a new vehicle, when sales managers are more likely to come off their prices to hit their sales targets.

Weekdays

While it might not always fit into your schedule, weekdays are usually slower at dealerships, which means you have more time to ask questions and negotiate. If possible, avoid shopping on weekends when dealerships are busiest. Doing your research ahead of time can make it easier to fit in a trip to the car lot on your lunch hour.

Around Certain Holidays

Holidays like Veteran's Day, Black Friday, Christmas Eve, and New Year's Eve are popular for new car sales, which makes the day after these sales events a prime time to pick up a used car or truck.

MLK Day

Martin Luther King Jr. Day (the third Monday in January) is the best day of the year — holiday or otherwise — to get a deal on a used automobile. Somewhat surprisingly, a study by online automotive research website iSeeCars revealed that buyers saved an average of 39% more when they purchased a pre-owned vehicle on MLK Day.

Best and Worst Used Cars to Buy

Ask 10 people the best or worst type of used car or truck to buy, everyone seems to have a different answer. Your best friend loves her station wagon. Your coworker would not buy another sedan. Your kids want a sunroof.

Personal experiences, preferences, budget disparities, and a host of other highly individual factors are likely to inform well-meaning advisors.

We suggest combining good old fashioned common sense with your personal needs and wants to weed out the good from the bad.

Best Used Cars to Buy

The best used car is one that won't break the bank, will keep you safe, won't need constant repairs, and fits your lifestyle. Here's how you'll know it when you see it:

1. The Best Used Car Will Meet Your Budget

The car of your dreams should be the one you can comfortably afford to own and drive. There are several rules of thumb you can use to determine your budget, but the most popular one is the 15% rule.

In a nutshell, spend 15% or less of your pretax monthly income on the total monthly cost to own your vehicle. Remember to factor insurance premiums, maintenance costs, and fuel when calculating your estimated monthly expense.

2. It's Safe

Safety should be one of the first things you consider when buying a used car or truck. Search for models that perform well on safety tests and look for these common safety features and equipment:

• Three-point seat belts restrain occupants across their lap and shoulder.
• Air bags, including side impact bags and curtains, lessen upper body or head injuries during a crash.
• Electronic stability control helps maintain stability if they begin losing control of the vehicle.
• Backup cameras reduce the chances of collisions while in reverse.
• Blind spot detection monitors for vehicles in adjacent lanes.

3. It's Reliable

The shiniest of cars will quickly lose its luster if it's always in the shop being repaired. Your best bet is to research reliability ratings and focus your overall search on makes and models that have a reputation for not breaking down.

4. It Satisfies Your Wants and Needs

Just because you're trying to stick to a budget doesn't mean you should ride around in a feature-free set of wheels. Chances are you'll be driving this car for years, so you should look for one that has the options and accessories that will make your life a little easier. For instance, if you have a long commute, an upgrade like heated seats might be a worthy investment.

Worst Used Cars to Buy

One the flip side, the worst — or, perhaps more appropriately, least desirable — kind of vehicle is one that over-extends your finances, has low safety ratings, doesn't have a clear title, and isn't in great shape for its age. Here's how to tell it's a dud:

1. The Vehicle Exceeds Your Budget

An automobile's price is only one component of its true cost. If you can't afford the insurance, taxes, and maintenance costs associated with a particular vehicle, it's a bad deal.

2. It's Unsafe or Unreliable

Avoid a make and model that doesn't hit all the marks we pointed out in the previous section. A quick internet search will reveal countless car forums and reviews from owners who will share their real-world experiences with most any type of vehicle. Take outside advice with a grain of salt, but if you notice the same distinct complaint coming from a majority of owners, you can probably bet on it.

3. It's Got a Branded Title

A vehicle that's been significantly damaged or has another issue which might make it unsafe to drive or difficult to sell will receive a "brand" from the state DMV that should appear on the title certificate. Types of branded titles include:

• Salvage title
• Reconstituted/reconstructed title
• Bonded title
• Lemon title
• Junk title
• Odometer rollback title
• Flood title

You don't necessarily have to steer completely clear of a car or truck with a branded title, but you should be extremely cautious if you're thinking about buying one.

4. It Hasn't Been Well-Maintained

You can tell a lot about how the previous owner maintained a car or truck based on its appearance. If it appears the worse for wear on the interior or exterior, chances are good that it's been neglected mechanically as well.

How Much Mileage is Too Much?

Vehicles break down more frequently as mileage increases. Deciding whether a car or truck has too many miles on it has a lot to do with how long you plan to keep it and how comfortable you are with making — or paying for — repairs.

Keep in mind that the "average" automobile in the United States is driven between 10,000 and 15,000 miles annually, with 12,000 miles per year being the sweet spot. With proper maintenance, you can expect to get 200,000 miles (sometimes more, other times less), or roughly 16.5 years, of reliable performance from most vehicles.

You should also consider what type of miles the vehicle has on it. A well-maintained car that's been driven on highways has less wear and tear than one that's been subjected to stop-and-go city traffic. Similarly, a vehicle that has low miles but has been neglected by the owner and not regularly serviced may be in worse shape than the odometer would suggest.  

Should You Buy an Extended Warranty?

When you buy a used car or truck, you might be inclined to purchase an extended warranty. This optional coverage — also known as a vehicle service contract — can help you pay for certain repairs your vehicle may need when the original warranty expires.

But should you buy one? Honestly, it depends.

If you plan to buy a luxury or high-mileage vehicle, an extended warranty might make sense. Other advantages of additional coverage include:

Repair Savings

Save money on repairs if your vehicle needs work that's covered under the plan. This can be particularly useful with the expensive technology and computerized equipment in newer vehicles. Instead of footing the entire bill, you'd only be responsible for paying the deductible.

Peace of Mind

At its core, an extended warranty is insurance. And, like insurance, the biggest benefit is the peace of mind that comes with knowing you're covered — at least to some degree — in the event of "what-ifs."

Customization

With an extended warranty, you can often customize a plan to address specific needs. For instance, if the factory warranty for your vehicle's computer system has expired but the powertrain warranty remains intact, you could purchase additional coverage specifically for your car's technology components.

Potential benefits aside, extended warranties aren't ideal for every car or individual. Here are several disadvantages to consider:

Cost

The average cost of an extended warranty is $1,500, but the price tag can climb to as high as $3,000 or more. What's more, if you roll the cost of the warranty into your auto loan, you'll pay interest on it.

Coverage

Although they sound good in theory, extended warranties usually don't cover everything. Plus, some plans may only pay to repair or replace parts as a fixed portion of the cost, based on the car's mileage or other factors.

Usage

Whether by choice or oversight, many people who purchase an extended car warranty never use it. In other cases, the repair often costs less than the warranty, which effectively negates its primary benefit.

Unless the type of car you're buying is notoriously unreliable (in which case you might want to reconsider your choice anyway), you're probably better off not purchasing an extended warranty. Instead, use the money you would have spent on the plan to establish an emergency fund that you can use for any extensive repairs you might one day encounter.

Questions to Ask When Buying a Used Automobile

From a Dealer

Since most pre-owned vehicles at dealerships are trade-ins or bought at an auto auction, it's usually difficult to find details about a particular car or truck's history. That's why it's essential to ask for a copy of the car or truck's Carfax or Autocheck report.

They're not foolproof, but these vehicle history reports can provide some degree of assurance when you're buying used. They include essential information about previous types of owners, accidents, major repairs, service records, and title issues.

From a Private Seller

On the other hand, when buying from an individual, the seller should be able to answer most of your questions about the vehicle's history. Be sure to ask: 

How was the vehicle maintained?

Find out if all maintenance is current and where the vehicle was typically serviced. If possible, talk to any mechanics who routinely worked on the vehicle. This is a great way to gain insight to its overall condition.

Has the vehicle been in any accidents?

Wrecks should be a red flag when buying a used car or truck. Many accidents will appear on the vehicle's history report, but make a point to ask the seller about any fender benders or other damages because not all incidents get recorded.

If the vehicle was in an accident, find out:

• How it was damaged and to what extent
• Where and by whom it was repaired
• How and when it was fixed
• If the work is guaranteed and has a transferrable warranty

What systems and features don't work properly?

Older cars or trucks almost always have features or accessories that don't work as well as they did when new. While a burned-out light in the dashboard probably shouldn't be a dealbreaker, be cautious of weak air conditioning, missing pixels in displays, and other malfunctioning systems that could indicate more serious (and costly) underlying issues.

What's the ownership history?

Ideally, the seller will be the original owner who has a notebook or folder filled with receipts from every service appointment. But that's rarely the case. Even if the vehicle has had numerous owners, the person trying to sell it to you should be able to tell you something about where they got it. If not, that's a definite red flag.

Why are you selling the car?

Most sellers will have an answer ready for this question, but it's still worth asking. Pay as much attention to how they respond as to what they say. Intuition and discernment should help you decide whether to trust the answer — and the seller. If something seems off, it usually is.

Do you have the title in hand?

When you finalize a deal, the seller will transfer ownership by signing the vehicle's title over to you. If he or she doesn't have the title, it can complicate the process at the least, or terminate it altogether.

There are ways to complete the sale if the owner misplaced or lost the title or doesn't have it because of an outstanding loan on the vehicle. It's up to you whether the car or truck is worth the additional time and effort to secure the title and have it put in your name.

Can I have a mechanic inspect the vehicle?

This should be a given when buying a vehicle that you know virtually nothing about. If the seller balks, you should probably walk away. 

Used Vehicle Dealer Fees

Scan most any vehicle purchase agreement and you'll notice a host of fees that might give reason for pause.

Legitimate fees included in your out-the-door price: 

• State and local sales taxes
• Registration and title fees to register a new vehicle, assign a title, and pay for the license plate
• A documentation ("doc") fee to cover the cost of preparing and filing the sales contract and other paperwork

On the other hand, if any of these charges appear on your paperwork, ask the seller to remove them:

• Reconditioning fee
• Additional destination fee
• Cash upcharge
• Vehicle history report

How to Negotiate a Used Car

Car negotiation is an artform, whether you're buying new or used. It's also one of the most intimidating and nerve-wracking aspects of the entire experience.

Whether you're working with a dealer or an individual, there are several things you can do to make your used-car negotiations more productive for everyone involved:

1. Do Your Research

Doing research before you begin test-driving vehicles can help ensure you find exactly what you want for the best price. Start by referencing Kelley Blue Book, Edmunds, and/or TrueCar to get a general idea of used cars and trucks in your area.

2. Know Your Numbers

Determine the fair market value (or range) for the vehicle you're considering. Knowing the "going rate" for a particular car or truck in your area allows you to justify your price when you begin wheeling and dealing.

3. Be Patient — and Don't Be Afraid to Walk Away

One of the worst things you can do is appear desperate to get a deal done. If you can't agree when negotiating or don't like the vibe you're getting from the seller (or salesperson), walk away.

Bottom Line

For some, buying a used car or truck might not seem as "cool" as driving off the lot in a brand-new set of wheels.

However, if you do your research, stick to a budget, and choose wisely, you can find a pre-owned vehicle that fits your style and your bank account.

That type of decision-making will keep you rolling down the roads of life in a reliable ride for years to come.