Best Way to Buy a Used Car?

[JayFreddy]

If someone wants to sell me a late model Miata with low miles and a 6 speed for $5K, I'll pay cash, but more likely I'll be looking to finance something.

In the past, I've always financed through the dealership, but I imagine there are better ways to do it...

I've heard of people who put 20% down, then wait till the first payment comes due, then pay off the loan all at once to save the interest... Does this really work?

Looking at replacing at least one of our cars soon, and realized I don't know nearly enough about how to buy a used car.

[abracadabra]

it is way better to save up the money than to buy the car now and pay interest. however, if there is a no-payments/interest-until-the-future deal and they let you pay it off early then that'll work nicely!

you didn't mention if you HAVE to replace the car now, or if you just want to, but interest drives up the price of the car dramatically.

idk how it works in the US, but here you can find dealers who offer a year or so warranty.

it can be a minefield though. I'd suggest hunting around on google for a list of things to check on any prospective car you are interested in. every different make and model of car will have issues that you should be aware of prior to shopping and talking prices. and read up on what the new car reviews said about the model you are interested in as well, for the practical issues.

plus, if the dealer or private seller realises you know what you're talking about and that you know what to look for there's less likelihood of them trying to pull a fast one. :)

[abracadabra]

oh yes, and forgot to mention (which is pretty obvious anyway), that you will generally pay more at a dealer than privately, but that dealers will be able to offer other services (such as service guarantees as I mentioned above) and you might have the knowledge of their reputation from other buyers. and you might be able to trade in your old car.

[BobbyZ]

I just pay cash. I've learned over the years that after I drive a new car for a while it's used.

[Chud]

Private financing companies like Capital One will generally offer better rates than what you can get at a dealer (O% or 1.9% offers, etc... notwithstanding). They also give you the power to walk into a dealership already financed for X amount, of course this cuts the dealer out of their backdoor financing kickbacks and such...

[CharlieO]

I don't know if anyone can tell you the best way to buy a used car, but maybe we can help you to determine what will work best for you. From you initial post, it appears that you intend to get a loan, so I'll start with that. Before you get serious about actually buying the car, you should do a little research on financing options. If you have good credit and a relationship with a bank, ask a loan officer to give you their current rates. Be sure to tell them the age of the vehicle that you are considering, because sometimes the rates are lower for newer cars. Don't forget to ask if they offer a lower rate if you choose to have your payment drafted directly from your account monthly.

After you have gotten the rates from your bank and maybe a couple of other banks, check credit union rates. They're often lower than bank loan rates. Armed with this information from banks and credit unions, you'll know if a dealer's finance department is offering a competitive rate when you finally decide to make a purchase.

The next question is how to actually buy the car. If you know what you want, start your search on the internet to find a couple of estimates of its value. Use edmunds.com, kbb.com, and whatever other sources that give values for cars. Then use the internet to find as many possible cars as you can within a reasonable distance from your home. Use Craigslist, autotrader.com, eBay, and any other sites that you can think of. When you have found a few possibilities, go out and drive them.

Concerning whether to buy from a dealer or from a private party, I have no preference. I've gotten good deals either way. It all depends on the seller's motivation. If a dealer bought a car cheaply as a trade-in, got a deal at an auction and can turn the car quickly, or if they're trying to make a monthly sales goal, you can get a great deal. I even "stole" a Jaguar from a dealer several years ago because they offered one car a week in their Saturday newspaper ad that was a real deal, intended to bring in weekend traffic. I was there at 9am, took the car home for a 2 hour test drive (had to see if it would fit in the garage), keeping it away from other excited buyers, and then called the salesman to tell him I'd take it.

Another good way to buy a used car is to find one of the new breed of dealers that will shop the auctions for exactly the car that you want. They'll search the internet for upcoming dealer auctions, and when they find a car that meets your requirements, they'll get your approval to buy it. Then they mark it up to make their profit. You may save thousands of dollars buying this way, because the dealer has low overhead and doesn't have to maintain an inventory. I bought my Lincoln this way, and it was a great way to do it. The dealer I worked with has a policy that he will only sell cars that are still covered by the factory warranty, so he doesn't have to maintain a service department and so you're covered if there is a problem. I bought a two year old Lincoln with 10,000 miles on it, and it had two years and 40,000 miles of warranty coverage remaining on it. I figured that I saved $1500 to $2000 vs. what I would have paid at another dealer, and there weren't many offered by private sellers at that time.

[slauson slim]

My wife and I have bought used cars only from private parties - Land Cruiser, Benz 560 SEL, Benz 560 SL, Mazda RX7 - from friends and from AutoTrader. We used the credit union to finance the vehicles.

Generally, credit unions have the best rates for used car loans. Joining up is easy. And when you show up with a wad of $100 bills some sellers get a little weak-kneed and become motivated to mark down the price.

Of course there are lots of caveats about buying a used car.......

[dean]

I bought a used car from a dealership last summer and decided to finance most of it. I had a decent down payment and was ready to go through one of my credit unions for the loan. Both of the CUs were withing a tenth of a percent of each other. The dealership loan officer asked if he could check for a rate through their resources - he spent about a half hour checking my credit rating (said I had "rock star" rating - I felt good, but it didn't translate into being a better guitar player). In the end, he found a very low rate that beat both CUs by a couple percentage points, so I went that route and have been quite happy. As far as paying the loan off early, just make sure you can do that, and it shouldn't be a problem.

Have fun with your new toy!

Dean

[CharlieO]

Originally Posted by slauson slim

... And when you show up with a wad of $100 bills some sellers get a little weak-kneed and become motivated to mark down the price..

In some areas, if you show up with a wad of $100 bills, the Craigslist seller will pull out a gun and run off with your cash.

[oramac7891]

CharlieO's write up says it best

[kelnet]

Originally Posted by abracadabra

oh yes, and forgot to mention (which is pretty obvious anyway), that you will generally pay more at a dealer than privately.

Not necessarily true. Private sellers usually price their cars based on prices they see at dealerships. They might move a little, but private sellers are emotionally involved in the sale, and they "know" that their baby is worth more than you want to pay. Check out Craigslist and you'll see that dealer and private prices are very close.
However, dealership prices have a huge markup, and the dealer needs to move product, so they have a lot more flexibility in their pricing. When I sold cars, I always prefered to sell used cars because the profit margin has massive.
On the other hand, if you are buying a popular car, the dealer knows that if you won't pay the asking price for it, someone else will be along shortly who will. A dealer won't budge on the price on a Miata because it will sell very quickly. However, a private seller might not have the patience to wait.

[robt57]

Originally Posted by CharlieO

In some areas, if you show up with a wad of $100 bills, the Craigslist seller will pull out a gun and run off with your cash.

In NJ I was doing work on a network at a lawyers office and realized a $400k cash closing was going on. I was pissed and told them not to schedule/have me there again if there was a cash closing at the office. I NJ, they will kill everybody in site for a lot less that $400k.

That said, I sold a car for cash in NJ and they asked if I would drive it down to their place/deliver it. I brought my friend a cop for the ride as it was $7500.00 cash involved. Turned out the buyer was also a cop too, and when we all realized it was pretty funny and the tension went away.

[boris bubbanov]

If you have any renovations needed on the house, or need some new appliances, etc., applying for and getting a home improvement loan is fairly low in cost, compared to all the costs associated with buying a car on loan. You just use some of that for that car.

Cash gets you a better price on the car, often, and it sometimes gets you a shot at a car where the vendor would just as soon not sell if he has to wait to be paid. Some of the nicest cars, nicest deals are where the car is a spare, the sale is basically discretionary, and the seller either has to like you or you at least need to inconvenience him almost not at all. The "thrown away" cars out there; some are nice, but some were tossed for a reason.

But we're forgetting about the other end of the transaction: Which cars to buy, what to look for, what to avoid. There are (there are!) enthusiast web pages for many brands of cars, almost like TDPRI. Find some, read a lot, find out which models, years are trouble and which parts need checking. Just like you might use TDPRI to help you pick out which Teles and Esquires to be looking for, for sale.

[CharlieO]

One more thing...If you're buying a Miata, you (or your dealer) should be looking in Minnesota, Wisconsin, or Michigan right now. Buy a low mileage car that has been stored every winter. It might be too late to get the best deals though, because spring is coming.

[robt57]

Originally Posted by boris bubbanov

Cash gets you a better price on the car, often.

Not at a dealer IMO. They make a lot of back points on the loans etc.

Thus, IMO at the dealer yo get a better price when a lot of coin i getting financed and you buy the most expensive extended protection policy too.

Cancel the policy and pay off the loan fast with a safe electronic transfer.

Some states still allow a pre payment penalty, make sure you are not in one. Not many, but there are still few I believe.

[Earguy]

I'm looking too, here's what I did:

1. Figure out how much I can afford to pay each month. For me, it's about $400.

2. Called my bank and asked, "how much can I borrow for a three year term that will give me payments in the $400 range? The answer: $15,000.

3. Went to KBB.com to determine the trade-in value of my current car. They said $3500. Unfortunately, when I went to dealers the reality is that my trade-in is worth $2000. If I had gotten a CarFax on my own car, I would have been more realistic going in. Still, I now know where I am on the trade-in value.

4. Figure out how much cash (if any) I can put down in addition to my trade. I can put down $500 easily, $1000 would pinch and I can't do more than $1500.

4. Got the April 2011 Consumer Reports mag with used car values and reliability ratings. Set my sights on a 2010 Ford Fusion.

5. Figure out what costs are beyond the sticker price of the car. In my state, it's 7% sales tax, and about $400 in other fees.

6. So, lets now say that I can afford $2000 (trade-in) + $15,000 (financed) + $500 (cash) = $17,500. A car that costs $16,000 with tax and fees puts me right around $17,500 total. So any car that has a sticker of higher than $16k has to be haggled, either down in price or up in trade-in, I don't care.

7. See, now that I have financing in place, the dealer can't mess with me trying to confuse me with financing and monthly payments...you find yourself tempted with low payments, but you're financed for 5-6 years. (go to the consumerist.com and look up four square).

8. Once I have my trade-in and car price locked, now I ask if they can finance me for three years at a better rate than the one I have locked in with my bank.

If they don't meet my final target price, I apologize for wasting their time looking at a car I can't afford.

[ce24]

After checking it out and all seems as good as can be for what the car is I offer 15% less than the asking price ESPECIALLY at a dealer and if they don't accept I walk. just my MO and it has worked for me.

[BobbyZ]

Originally Posted by CharlieO

In some areas, if you show up with a wad of $100 bills, the Craigslist seller will pull out a gun and run off with your cash.

I know what you mean ! I bought a 5th wheel hitch from a guy with a very long junk car and trash lined drive way in the woods.
I had the widow down so I could hear banjos and kept looking for the pallet of lime.

[boris bubbanov]

Originally Posted by robt57

Not at a dealer IMO. They make a lot of back points on the loans etc.

Thus, IMO at the dealer yo get a better price when a lot of coin i getting financed and you buy the most expensive extended protection policy too.

Cancel the policy and pay off the loan fast with a safe electronic transfer.

Some states still allow a pre payment penalty, make sure you are not in one. Not many, but there are still few I believe.

I hear what you're saying but we both know, the loan is not gonna be paid off that way, and some way or another the buyer gets beat on these plans and stuff. Plus, (and this is my real point) the average bargainer loses a grip on what is going on in the deal when you make it all complicated like this, and, while not meaning to, they end up spending more than they intended . If you keep things simplified you can still follow the ball.

[robt57]

Originally Posted by boris bubbanov

I hear what you're saying but we both know, the loan is not gonna be paid off that way, and some way or another the buyer gets beat on these plans and stuff..

Probably so. Our last few financed cars got paid off in less that 1/2 the original term. And we plan the same for the Eqinox we just bought. But I hear you... But we buy below our means, example being buying a house that we financed over 100k less than we qualify for... When a summer place deal pops up [and that 2011 Nox is paid off] we can do something about it. ;)

To the OP, look for the used car with Michelins on it. Folks that pay 50% more for their tires take better care of their cars and are good choices for used cars. Even if traded in.