Practical money matters by Jason Alderman
SOME PEOPLE seem to buy a new car every year or so. What happens to all the ones they’ve gotten rid of after just a year? People buy them and sometimes get great deals.
A large part of a car’s depreciation happens as soon as you drive it off the lot. So the main advantage of buying used is that you’re buying after that huge drop in price. That makes a used car less of a long-term investment.
Used-car salesmen have one of the worst reputations of any profession. While most will not live down to this reputation, some will. The term “too good to be true” applies doubly to used cars. That motto will help you avoid some of the car sharks.
Shopping for a used car can be much harder than shopping for a new one. They’re like snowflakes. Each one is unique. That makes comparison shopping more of an art than a science.
And used-car dealers have a little bit of an advantage because you can’t just leave and buy the exact same car at another dealership.
There are three main sources of used cars.
Dealers often offer you a warranty on a used car – which is comforting when a previous owner might have used it to haul chickens down an uneven gravel road every day for the past three years. But you probably won’t get as good a price as you will if you buy from the Average Joe or Jane.
A little negotiation with Average Joe/Jane can really drop the price to something that’s fair to both of you. But you won’t be given a warranty. And, to look at five cars, you’re most likely going to have to visit five different people.
You can get some incredible deals at public auctions. There is no dealer to haggle with and only the active presence of other potential buyers will increase the price. The downside to auctions is that you usually can’t test drive the car and it is extremely rare to get a warranty on an auctioned car.
The point of buying a used car is to save money but, if you don’t research the car you buy, it could end up costing you more than a new car! First, look up the Kelley Blue Book, left, value of the car so you know what price range to start in. Then get the history of the car. Ask the seller what it has been used for. If it has been used just for driving on relaxing tours of the countryside several times a year, no problem. But, if it was used as an off-road race vehicle, you might want to reconsider.
Get the vehicle history report, or VHR, using the car’s vehicle identification number, or VIN. It will cost about $10-$15, but this report will let you know if the car has been in any major accidents that could have weakened its frame.
When it comes time for the test drive, be relentless and thorough. Ask the seller about any strange noise the car makes. Anything. It might just be an odd quirk. But it could be a telltale sign of a much larger problem.
Use everything in the car. Press every button. Open every window. Open and close every door.
Once you are sure there is nothing wrong with the car, get a professional mechanic to do the same. Subtract any small thing wrong from the price you are willing to pay for the car. Realistically, you’ll end up paying that money back to get it fixed.
Jason Alderman directs Visa’s Practical Money Skills For Life financial education programs. Follow him on Twitter at twitter.com/PracticalMoney. His articles are intended to provide general information and should not be considered legal, tax or financial advice. Always consult a tax or financial adviser for information on how the law applies to your individual financial circumstances.