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A step-by-step guide for buying a used car from a dealership

A step-by-step guide for buying a used car from a dealership

The process of buying a used car is stressful, especially for buyers with little to no experience. And it’s all due to the risks associated with getting a car that has a past you’re not familiar with. To mitigate those risks, you should consider buying a used car from a dealership. It’s an easier process, and you are generally more protected buying from a dealership than from a private seller.

Take a few moments to educate yourself on what the best practices for purchasing used vehicles are so you can get your hands on a reliable used car for a fair price. Without further ado, this is how to buy a used car from a dealer.

Set a clear budget and take car ownership costs into account

Car ownership costs can creep up on you. So, if you want to be financially responsible and get a car that you can easily afford, consider these expenses:

  • Out-the-door price – many prospective buyers equate the sticker price to the final price of the car, when in reality the latter is roughly 10 to 15% more expensive than the former. To make it seem like you’re spending less, dealerships keep taxes, fees, and add-ons out of the sticker.
  • Maintenance – ideally, every car should be serviced roughly two times annually. One is the interim service which comes every 5-6,000 miles and the second is the full service that you need to do every 12 months or every 10-12,000 miles, whichever comes first.
  • Insurance premiums – most drivers take insurance into account when calculating their car ownership costs, but they fail to focus on lowering their premiums by shopping around. Many drivers just add their car to their existing policy when they could get better rates by asking for offers from multiple insurance companies. To get the best rates, get at least three quotes from three different insurers and then make them compete against each other for your business.
  • Car depreciation – believe it or not this is the biggest car ownership cost of all. A new car will lose between 15 and 25% of its value in the first year of its life and roughly 10% annually thereafter. That is if you take good care of it and it won’t suffer damages from accidents, fires, or floods.
  • Personal choices – the amount of money you’ll spend on your car is also highly dependent on your choices. There are huge differences in fuel economy between vehicles and many drivers underestimate just how much more expensive some cars are to drive than others. Your driving style and how close you stick to the recommended servicing schedule also impact how steep of a depreciation curve your car will register.

Finally, you should let your financial status decide your car budget, not your emotions. To do that, follow the 20% rule which states that you should spend no more than 20% of your take-at-home pay on your car. And to maximize your budget, make sure to get pre-approved for a car loan before you set yourself on a car-buying journey.

Used car financing is tricky enough as it is – you’ll likely get worse APRs and terms on a car loan for a used vehicle than you would for a new one. Some lenders may even refuse to give you a loan for a used car altogether. And since dealerships are notorious for praying on their customers by offering them horrible car loan rates, you need to shop around and get pre-approved before you visit them. 

Research models

After you figure out how much car you can afford and you get preapproved for a car loan, you should start researching models that fit your wants and needs. Other than sticking to your budget, you should consider fuel economy and reliability as your main factors for choosing a used car.

You’ll find specs about every car model online, just as you will find a list of their most common problems. Word travels fast in the 21st century, so you can find out if a car is built to last or not in a matter of minutes. Check out Consumer Reports and visit car forums to see what other owners have to say about their cars. Some models are good even past the 200,000 miles benchmark while others might have a certain engine option that’s sturdier than others. A great benefit of buying a used car is that you can rely on other people’s experience to limit your choices to the very best models in your price range.

Pick at least three models of interest, ideally from different manufacturers so you can cast a wider net while looking for a good deal. After you decide on which cars you’re interested in, it’s important to know the market. See how much these models go for, on average, so you can spot a good deal when you come across one. Also, familiarize yourself with the sort of features you can expect from different trim levels.

Research dealerships

Buying a used car is significantly more complicated than buying a new one as you’ll have to guard yourself against being deceived every step of the way. You can buy a new car from pretty much anywhere since they come with the manufacturer’s backing. But with used cars, you need to research the seller as part of your due diligence.

Before you start researching, you should know the types of dealerships that sell used cars:

  • Franchised New Car Dealers – the safest option and the most streamlined process. Authorized dealers will have slightly higher prices but they tend to offer the best used cars on the market and are looked upon more favorably by lenders.
  • Used Car Superstores – they combine the well-thought-out processes and professionalism of franchised dealers with a huge offering. Used car Superstores such as CarMax and Carvana are great places to shop, just be careful about their in-house add-ons.
  • Local Used Car Dealers – you can find lower prices with them but they’re less reliable than the previous two options listed above. Make sure to thoroughly check their reputation before visiting them.
  • ‘Buy Here, Pay Here’ Dealers – they sell used cars and act as a lender at the same time. They are typically the go-to choice for people with bad credit and they charge exceptionally high rates and fees. You’re better off avoiding them, if you can get financing anywhere else.

With used cars, there’s always the dealer’s reputation to consider – unless you buy a Certified Pre-Owned vehicle, you depend on the professionalism of used car dealerships for future repairs that are covered by your warranty. Check out Google reviews and investigate further on social media to see what previous customers have to say about every dealership that you’re interested in contacting.

Shop around and ask for VINs

The best way to find a good deal on a used car is by shopping around. The more time you have and the further away from your location you can look for a vehicle, the better your chances of stumbling upon a great opportunity. If you followed our advice and you selected at least three models to look for, then you should have plenty of options available.

Don’t be afraid to shop out of state, you can find some great deals if you know where and when to look. A convertible will likely be less expensive in January than in July just as you’re bound to find more convertible models in California than in Wyoming.

Whenever you find a car that has potential, you need to ask the dealership to send you the vehicle’s VIN (Vehicle Identification Number). VINs are unique codes that act as a car’s fingerprints, allowing authorities, companies, and individuals to track a vehicle throughout its history. If a seller refuses to share the car’s VIN with you, that should be considered a huge red flag.

Why is asking for a VIN code the first step when contacting a dealership?

Because VINs are at the base of every vehicle history report, a vital step in the process of buying a used car. A history report can save you a lot of time by helping you discard broken-down cars or by uncovering shady sellers who lie about their vehicles. History reports contain official odometer readings from a car’s past, data about accidents (if applicable), and whether or not a car was used as a taxi or a rental.

Unfortunately, the used car market is filled with scams and dishonest sellers. By providing a glimpse into a vehicle’s past, a vehicle history report helps buyers shed light when transparency is an issue. Best practices for purchasing used vehicles dictate that you should never bother to go see a car in person until you’ve checked its history report to see if it’s worth your time.

Go for a test drive and a preliminary check

All the work you’ve done so far is just a preamble to the most important part of buying a used car – the test drive, inspection, and negotiation processes. Let’s discuss them in the right order.

Say you found a model in your budget and that its history report confirms the seller’s story about the car. You now need to test drive it and give it a preliminary assessment. For a successful test drive, follow these simple rules:

  • Don’t rush – a solid test drive should take you at least half an hour, but ideally, you’ll want to drive the car for an hour or so. Book an appointment during the week when the dealership is less likely to be busy, so you can take more time with the car.
  • Drive in as many scenarios as possible – don’t just drive the car around the block. See how it feels inside the city where you’ll encounter stop-and-go traffic as well as on the highway at high speeds. Don’t forget to park the car in as many ways as possible (try parallel parking, backing into and out of a parking spot), and test every electronic and safety system that you can think of.
  • Keep your ears open – listen for any strange noises. 

Apart from taking the car out for a spin, you can also give it a quick preliminary inspection, before you take it to a professional mechanic to do a more in-depth one. Here is a list of what to look for when buying a used car:

  • See if the odometer reading aligns with those in the car’s history report
  • Check if the VIN stamped on the car is the same as that in its documents (you can find the VIN on the low-right side of the windscreen, on the driver’s side of the dashboard, or on the driver’s door or door frame)
  • Look at service records, often a more telling indicator than mileage, it’s important to buy a used car that’s been looked after and serviced regularly
  • Search the exterior for scratches and corrosion. A simple visual inspection is ok, just make sure to take your time and look at the car’s entire body
  • Spot unaligned panels – these are a tell-tale sign of prior accidents that have required extensive repairs
  • Check paint depth on multiple parts of the car with the help of a paint thickness gauge (you can get one for as low as $50) – a good indicator that certain parts have been repainted
  • Inspect the doors and the trunk – open and close all doors gently and then lift and let go of the driver’s door to see if it wobbles or if it seems loose.
  • Look at as many rubber seals as possible to detect wear and tear
  • Inspect the front and rear door glasses and windscreens to spot cracks
  • Push down on each of the car’s four corners to test its suspension – if the shock absorbers are in good condition, it should bounce straight back up in one fluid motion (if it bounces up and down repeatedly, that’s a problem)
  • Check if all the lights are working
  • Examine the condition of each tire – wear should be even across the tread and the wear on the left side should match that on the right side of the car
  • Sit in every seat inside the car and see if you can feel any lumps or if you can spot wear and tear on the fabric/leather
  • Make sure the driver’s and passenger’s seat commands function properly, and take the seats all the way back, and up and down to their limit. If the chairs come with a massage feature, see if it works; the same with heated and ventilated options.
  • Inspect the roof and the trunk for stain
  • Try the sound and the infotainment systems

Having a solid car inspection checklist to go through is vital. Remember that once you buy the car, all of the problems it comes with are now yours, so it’s worth taking 30 to 45 minutes to do a preliminary inspection before you pay for it. The list above doesn’t cover the mechanical and more technical aspects of a used car but it is extensive when it comes to the general condition of the vehicle. The best part is that anyone can do it, even if you don’t know a thing about cars. 

Keep a list of all the problems you encounter. It will help you in the next stage of the process of buying a used car from a dealership.

Negotiate

Car dealers negotiate all the time, it’s half of what they do on a day-to-day basis. So, you need to arm yourself with a few negotiation skills if you’re to be a match for their experience. Luckily, it really takes knowing just a few simple tips to successfully negotiate with a seasoned car salesperson:

  • Negotiate the out-the-door price first and foremost, don’t negotiate the sticker price. The out-the-door price also includes taxes, fees, and add-ons that can add another 10 to 15%.
  • Focus on the final price, not on monthly payments. A classic tactic in a car salesperson’s arsenal is to sell you on a low, or seemingly affordable monthly payment. The trick is that low monthly payments usually come with a long-term car loan which will accrue far more interest than a loan for three to four years, significantly increasing the car’s final price.
  • Negotiate one thing at a time. Shady car salespeople like to group things together in an attempt to confuse you. The best thing to do is negotiate things one by one – sticker price, trade-in value, add-ons, etc.
  • Evaluate your trade-in properly. If you have an old car to trade in for a discount, make sure to check its value before you talk to the dealer about it. Dealers take your old car in to sell it for a profit, so they’ll lowball you as much as you let them.
  • Know the market for the model that you’re interested in. The more knowledgeable you are about a car’s real value, the better you’ll be at negotiating its final price.
  • Don’t let them steer you away from what you were originally interested in. Dealers sometimes try to confuse you by steering you towards another car model that you know little about. If you want to entertain the possibility of buying a model suggested by the dealer, one that you hadn’t previously considered, take some time to research its price and common issues online before committing to buying it.
  • Be careful what add-ons and fees find their way into the final contract. Almost all dealerships turn a profit by selling unnecessary or downright absurd add-ons plus applying unrealistic fees. You can’t negotiate sales tax, registration and title fees, or credit insurance. Everything else, such as documentation, dealer preparation, and transportation fees, extended warranties, VIN etching, etc. can and should be negotiated or eliminated altogether.
  • Don’t fall for pressure tactics. You DO NOT have to sign the contract the day you go see the car. Anything can wait and there are plenty of cars to choose from out there. Dealers that pressure you into buying a car don’t have your interest at heart. You should be able to take some time to consider if the used car you picked is truly the right choice for you, so don’t be afraid to leave the dealership and think things over.

Another great trick to employ while negotiating with a car salesman is to bring along a friend or a family member with you. They can offer an objective, outside perspective on everything that’s discussed and they can help you stand your ground when need be.

Professional car inspection

If the negotiations go well and you’ve reached a deal, then it’s time to have the car inspected by a professional mechanic. But is it all that important to do so, especially considering the fact that it will likely cost you a few hundred dollars? Yes, absolutely.

A used car comes with added risk, obviously. And you mitigate that risk by obtaining a car history report, through a test drive, and ultimately with the help of a professional mechanic. A pre-purchase inspection is critical in identifying potential problems that can either turn into dealbreakers or bargaining chips.

Never buy a used car without having it inspected by a mechanic first.

Buyers Guide

Overseen by the Federal Trade Commission, the Buyers Guide is an informative leaflet that’s mandatory across the US. Used car sellers have to provide you with a Buyers Guide for every car they sell, so you can find out:

  • A few details about the car you’re interested in buying. Things such as a car’s important features and whether or not they were damaged in the past.
  • How to mitigate risk when buying a used car. You’ll be instructed to put every promise in writing, get a vehicle history report, arrange for an independent inspection of the car before you buy it, etc.
  • What exactly is the dealership offering you post-purchase? This section notes if the car is sold “as is” or if it comes with a warranty, plus the details of said warranty.

A helpful tool for every prospective used car buyer out there, make sure to read your Buyers Guide carefully and follow its instructions. 

Return policy and warranties

Under federal law, dealerships are not required to offer you a three-day window in which you can return the vehicle to them. Moreso, legislation differs significantly from one state to the next. There are two ways to solve this problem. One is the obvious route – check with your local state attorney general to see what laws apply in your state.

We advise you to take matters into your own hands, though, and simply negotiate a reasonable return policy to be included in the contract. If you get the dealer to give you a grace period, make sure to have it in writing. That way, you’re covered no matter what the rules are in your state.

If return policies are pretty straightforward, no such thing can be said about dealership-backed warranties. It’s vital for every buyer to be familiar with the types of warranty used cars can come with.

  1. “As is” or no warranty – this means that the dealership is not responsible for anything that happens after you buy the car. They will not cover any expenses for repairs, even if you discover that the car already had major damage before you bought it.
  2. Implied warranties – these are unwritten, even unspoken warranties provided by the seller, unless the sale was cataloged “as is” in writing. There are two main warranties covered by this umbrella term: the warranty of merchantability and the warranty of fitness for a particular purpose.
  3. Full plus limited warranties – depending on the deal you negotiate, a dealership might cover some or all of the vehicle’s components for a certain amount of time. The problem, though, is that almost always a dealership-backed warranty comes at an inflated price as remarked by Consumer Reports, especially when it comes to extended warranties.

Whatever your return policy and warranties might look like, it’s vital that you put every promise made by the dealer in writing. You’d do well to use your car-buying contract to guard yourself against future problems, regardless of how improbable they might be.

Complete the deal and take care of the paperwork

If you are satisfied with the car and the deal you negotiated, you can now sign the contract. One of the main benefits of buying from a dealership as opposed to a private seller is that they will handle most of the paperwork for you.

You will have to pay a small fee that can range from $50 to $600, but you’ll be spared a trip to the DMV and you can always negotiate the documentation fee.

One thing that’s better if you handle it by yourself at this stage, though, is car insurance. The dealership will likely offer you insurance but it’s almost a given that it will have an inflated premium. They’ll also likely try to sell you more insurance than you actually need. It is part of the best practices for purchasing used vehicles to arrange for car insurance outside the dealership’s office.

Schedule the post-purchase inspection and maintenance

This sounds strange to most car buyers but the last step of buying a used car from a dealership is to schedule post-purchase inspection and servicing. Is it necessary to have it looked at again, considering you just inspected the car before buying it? Yes, it is.

First of all, return policies, if applicable, don’t last forever. And you’re better off finding out what’s wrong with the car as soon as possible. Usually, things get mirky as time passes, and if you have a complaint 6-12 months after you bought your car, it might be more difficult to prove the dealership’s fault and thus liability.

Having your used car checked after you bought it is another great way to mitigate the risks associated with previously owned vehicles. And servicing gives your car a clean slate, it helps it to function well and it will lower its depreciation curve.

Tips and tricks

Here are our top tips when buying a used car from a dealership:

  • What you do before you visit the dealership is more important than anything. Get pre-approved, find a good insurance premium, and do your research to figure out the market price for the models that you’re interested in buying and for your trade-in. Most car buyers lose money because they’re unprepared.
  • Negotiate one thing at a time and take your time to understand everything you’re paying for. Educate yourself about add-ons and fees and dispute everything you’re not interested in buying.
  • Always buy a vehicle history report. It’s a cheap and fast way to look into a car’s past so that you base your decisions on solid facts, not on the stories the seller is telling you about the car.
  • Take the car to a professional mechanic for both a pre-buying and a post-buying inspection.
  • Everything is negotiable. Everything, except taxes.
  • Nothing counts unless you have it in writing.
  • Focus on the out-the-door price, not the sticker price, and don’t get sold on monthly payments. The lower they get, the longer the loan period, which will skyrocket the amount of interest you’ll end up paying.
  • Be polite but firm and base your offers on real market data. The more knowledgeable you are about current prices, the better you’ll be at negotiating.
  • Go for a Certified Pre-Owned vehicle that has a manufacturer guarantee. They combine the best of both worlds with lower prices, a solid warranty, and a general good condition with low mileage plus the latest tech.

With a little bit of preparation and some patience, buying a used car from a dealership is quite a simple process. If you follow our best practices for purchasing used vehicles, you’re almost guaranteed to mitigate the risks often associated with pre-owned cars and avoid buyer’s remorse.

FAQ

Is it better to buy used cars from a dealership?

If you have little to no experience in buying used cars, then buying from a dealership offers a few unique benefits. You’re generally safer buying from a dealer, and they can deal with all the paperwork for you.

Is the price of used cars negotiable at dealers?

Absolutely everything is negotiable. From the sticker price to add-ons and fees, negotiate everything to your advantage.

Do dealerships inspect their cars?

Most do, but not thoroughly. It’s vital that you take the car to a professional mechanic for a pre-purchase inspection and that you test-drive it yourself. You should also obtain a vehicle history report before buying any used car.

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