Your Complete Guide To Buying A Used Car

With new car prices soaring in recent years, you might consider buying a used car. After all, new cars lose about 20% of their original value in the first year, which means you could save $6,000 on a $30,000 car simply by waiting a year to buy it. According to Fortune, new car prices were over $47,000 at the start of the year. By comparison, the average used car price as of April 10, 2024, was $27,601, according to CarGurus.

Of course, price isn’t all that matters when buying a car. In this article, we offer a step-by-step guide and tips on how to choose your next used car.

How To Buy A Used Car: 10 Steps

Before you buy the first used car that catches your eye, follow these ten steps:

Step 1: Decide How Much You Can Spend On A Used Car

First, set a budget. This helps narrow your choice upfront so you don’t waste time looking at cars you can’t afford. Your car budget may vary based on your income, savings, debt, and whether you plan to finance or buy the car with cash. You may be able to afford a more expensive vehicle by taking on a monthly payment instead of buying the car outright, but you’ll need to fit the payment into your budget.

Also, keep in mind that the cost of a car is much more than its sticker price. You must also factor in the upfront costs of sales tax, title, registration, insurance, and any dealer fees as well as the ongoing costs of fuel, maintenance and repairs.

Of course, with so many variables, estimating the total cost of a used car can be tricky, so settle on a budget price range and try to limit your monthly auto expenses to no more than 20% of your monthly take-home income. This helps ensure your car costs remain manageable and don’t excessively strain your finances.

Step 2: Determine The Kind Of Car And Features You Need

With a budget in mind, you can further narrow your search to car models that meet your needs. For example, if you plan to use the car to commute to work every day, research vehicles that get good gas mileage. Alternatively, if you need it to transport family members and run errands, look for vehicles with plenty of seats and cargo space. Plan to go off-roading or drive on rough terrain? Then consider a vehicle with four-wheel drive (4WD), high ground clearance, and big tires with lots of traction. 

Once you’ve determined your must-have features, you can move on to nice-to-haves, such as leather seats, heated seats, sunroof, keyless ignition, cruise control, backup camera, etc. While you may not be able to get everything you want in a used car, it doesn’t hurt to try. Research car models online and make a list of those that meet your needs and preferences.

Step 3: Explore The Used Car Market And Decide Where To Buy

Next, it’s time to look at used cars for sale. Fortunately, you have many options. For example, you could explore the used car section of a traditional dealership or browse auto retailer sites like CarMax and Carvana. Both sell cars from their own inventory and may offer return policies.

Alternatively, online classified sites like Craigslist or Facebook Marketplace can help you find cars for sale by private sellers. While they may not offer returns, they often have better prices.

Finally, dedicated car marketplaces like Autotrader and Autolist aggregate listings from dealerships, retailers, and sometimes even private sellers nationwide, making comparing a large selection of used cars and prices easier.  

Before choosing where to buy, evaluate different marketplaces and sellers based on what car options and prices they have to offer and their proximity (or ability to deliver a car) to you. 

Step 4: Check The Market Value And Vehicle History Report

Before checking out a car in person, look up its market value. You can do this by entering its year, make, model, and other details into an online car value estimator such as the one offered by Kelley Blue Book or J.D. Power. This way, you at least have a ballpark figure to work from when evaluating and negotiating potential deals. Also, if you plan to trade in your old car, it’s a good idea to check its market value, too.

As part of your due diligence, you can also request a vehicle history report. It provides details on a car’s title, previous owners, past accidents and repairs, odometer readings, recalls and more. Dealerships and sellers often offer them for free, but if they don’t, you can get one with the car’s vehicle identification number (VIN) via online services like CARFAX and AutoCheck.

Step 5: Contact The Seller

At some point, you’ll need to reach out to the seller, whether it’s a dealership or a private owner. Ask them if the car is still for sale and any specific questions you have. If it’s a private seller, for example, you may want to ask if they are the car’s first owner, why they are selling, whether the vehicle has a clear title, and how they arrived at the asking price (but wait until you see the car to negotiate). This is also an appropriate time to ask for a copy of the vehicle’s history report.

If you’re satisfied with the seller’s answers and feel the deal has potential, schedule a test drive.

Step 6: Test Drive The Car

A test drive is your chance to inspect a car’s condition and see how it feels to drive. After all, you’ll likely spend a lot of time in the car, so you want to ensure it’s comfortable.

If you’re buying from a private seller, ask them to meet you in a neutral location, such as a parking lot or police station. It’s also a good idea to meet during daytime hours, so it’s easier to spot any car damage. Bring a friend or family member along, too, just to be safe (and to get a second opinion). At the very least, tell someone you trust where you’ll be.

At the test drive, look out for the following:

• Exterior condition: Check for any dents, rust, fading paint, cracked glass, tire wear, wheel damage, signs of leaks, and other potential issues.
• Interior comfort and condition: Ensure it’s easy to get in and out of the car and that you have enough headroom, hiproom, and legroom. Then check the interior for worn upholstery, broken controls, faulty electronics, odors that could indicate damage, etc.
• Dashboard lights: After starting the car, check the dashboard for any warning lights regarding the engine, oil pressure, brakes, airbag, and other potential red flags. By law, dealerships can’t sell a car if its engine light is on (and private sellers shouldn’t either, but it’s not illegal).
• Visibility: Check the rearview and side mirrors. Notice any blind spots and whether the car has a blind-spot monitoring system.
• Brakes and steering: As you drive, make sure the brakes don’t pulse, grab, or squeak. Notice whether the car pulls to one side when holding the steering wheel straight and whether it vibrates. Drive in the city, on hills, and on the highway to see how the car does in a range of settings.
• Other features: When parked, test the car’s audio system, air conditioning, heater, lights, trunk door, and other features. Make sure the car has enough cargo space.

Step 7: Get A Car Inspection

Still like the car? Then consider taking it to a mechanic to get a professional inspection. They can alert you to potential issues you missed and tell you how much any repairs would be. Most sellers are happy to let you do this. If not, they may be trying to hide something and you’re likely better off walking away from the deal. A typical pre-purchase inspection will cost you $100-200.

Keep in mind that some dealerships offer certified pre-owned (CPO) vehicles — cars that have undergone a comprehensive inspection and refurbishment process and come with a factory warranty. Though usually more expensive, CPO cars have the benefit of not needing to be taken to a mechanic.

Step 8: Negotiate A Price

If the car passes its inspection, you can start the negotiation process. Dealerships tend to use more sales tactics and many need to meet certain profit margins, while private sellers may be more flexible and direct. To get the best price, follow these tips:

• Have a maximum price in mind. Based on the car’s market value, your budget and your research, set a maximum price in your head of what you’re willing to pay.
• Focus on the “out-the-door” price. This includes all taxes and fees, not just the sales price. This way, you won’t be taken off guard when closing the deal. 
• Avoid discussing the monthly payment. Some dealers try to work toward an offer with a monthly payment that fits your budget. However, this typically comes at the cost of extending the loan and increasing your long-term interest costs.
• Treat trade-ins as a separate transaction. Trying to negotiate a deal that factors in your trade-in makes it harder to understand the true cost of the car you’re buying. So handle its price first. Then move on to negotiating the price of the car you’re trading in.
• Start with a low offer. Your first offer should be on the low end of your price range. As you negotiate, you can increase it slowly, in small increments. 
• Don’t be afraid to walk away. If you can’t agree on a price, it may be best to move on. You can always look at other cars on the market. Plus, showing that you’re willing to walk away is a powerful move that could get the seller to compromise.

Step 9: Choose An Auto Financing Option

Once you’ve settled on a price, finalize how you’ll finance the car. For example, you could buy the car with cash or get a car loan. The right choice will depend on how much you have saved for a car, your disposable income, outstanding debts, and other factors. Generally, buying with cash is best if you want to own the car outright and limit your debt, while a car loan is preferable if you want to maintain some liquidity and you can get a good financing deal.

If you’re buying from a dealership, they’ll likely have financing options. However, you may be able to find a better deal by shopping for a car loan on your own. Here’s how:

Find a lender. Start by exploring car loan options at your current bank. From there, you can search for lenders online.

Get preapproved. With a single credit check and some verification of your finances, you can get preapproved for a car loan. This helps you set a budget and may give you more negotiation power.

Compare loan offers. Some will be better than others. Aim for a low interest rate, flexible repayment options, no prepayment penalties, and other favorable loan terms.

Step 10: Close The Deal

Finally, it’s time to close the deal. Check your state’s consumer protection office website to see what paperwork you need to sign. When buying from a dealership, this typically includes a sales contract, authorizations that let the dealership handle the title transfer and vehicle registration, and any financing documents.

When buying from a private seller, one of you will need to create a bill of sale for both parties to sign. You’ll also need to handle the title transfer and register the car with the Department of Motor Vehicles (DMV) to obtain license plates and tags.

Whatever you do, review all the closing paperwork carefully. Dealerships may try to include extra fees at the end. Make sure you understand them, and if not, ask to have them removed. Many dealers may also pitch add-on products and services such as prepaid maintenance plans and extended warranties (for non-CPO cars). Use your best judgment and stick to your budget.

Lastly, don’t forget to insure the car as most states require at least minimum liability insurance. Add the car to an existing policy, or shop around for a new one.

Then once you’ve signed all the paperwork and handed over the money (typically via cashier’s check), you can take the keys and enjoy your new ride. Congratulations!

Tips For Buying A Used Car

Now that you know how to buy a used car, here are some final tips:

• Consider Certified Pre-Owned (CPO) Options. They undergo a rigorous inspection and refurbishment process and often come with extended warranties, providing added peace of mind compared to regular used cars.
• Plan for routine maintenance costs. Cars require regular oil changes, tire swaps, fluid flushes, filter replacements, brake servicing, and more. These costs can add up fast, so be sure to fit them into your budget.
• Research the car’s reliability. Some used car models are known for having higher maintenance costs, certain repair issues, or unique parts that are hard to find. Make sure to factor these into your buying decision.
• Invest in proper car insurance coverage. You can get liability, collision, comprehensive, and other types of protection. Carefully compare policies and rates from different providers and choose one that best meets your needs.
• Consider resale value. On top of seeking a good deal upfront, aim for a car model known for retaining its resale value. That way, you can save money when it comes time to sell or trade in the car.
• Join online communities. Look for groups and forums dedicated to the make and model of the car you’ve purchased. They can be a valuable source of advice, maintenance tips, and troubleshooting help from fellow owners.
• Keep ample records. Hold on to any documents related to the car purchase, including the bill of sale, vehicle history report, maintenance records, and warranty information (if applicable). They can be helpful for future reference and resale purposes.
• Stay informed on recalls and safety issues. Keep up with any recalls or safety issues related to your car’s specific make, year, and model. You can sign up for recall notifications on the National Highway Traffic Safety Administration (NHTSA) website.

The Bottom Line: Research Is Key When Buying A Used Car 

Ultimately, finding the right used car to buy is a process. You must honestly evaluate your financial situation and needs, explore different car models and sellers, perform due diligence, negotiate for the best price, compare financing options, and commit to the sale. By thoroughly following these steps, you’re more likely to find a good deal and avoid buyer’s regret.

Still saving up for a car? Track your progress with the Rocket Money^SM app to get a look at your full financial picture and how much you can afford before you buy. Download the app today!