Saving Money by Buying a Used Car
Purchasing a used car from a private seller is most likely the best value a consumer can get when purchasing a car. Cars are depreciating assets. Used cars between three and five years old have had significant depreciation, but often have significant use left in them if they have low miles and are well cared for by their owners. Most mechanics will tell you that when it comes to used cars, how well they have been maintained is more important than the number of miles. Find a car that's been serviced regularly.
Narrow Down the Make, Model, and Features Desired in a Used Car
Dealerships carry used vehicles. Go to several dealerships and sit in and test drive the vehicles you are interested in purchasing.
After sitting in the cars and driving them, narrow down the possible cars based on your preferences. Then make a list of features wanted and must haves in the vehicle.
- Power seats
- Automatic transmission
- Cruise control
- Grey or Silver color
- Leather interior
- Mileage of less than 35K
- Remaining warranty
After putting together a list of features, and requirements, start searching craigslist, auto trader, eBay autos, and cars.com. I find that these three services, give excellent coverage of the used cars on the market.
I also start doing some basic price research. If I find a car that I like from a dealer, I use that price as my upper bound. Second, I use kbb, nadaguides and edmunds to find the private party price range that I should expect to pay. When I'm buying a used car, I'm not looking for the best possible price, but rather a fair deal on a car that has been well maintained. When negotiating the price, I'll let the seller know, I looked up the price on a few services and that the private seller price for a car in good condition with this many miles should cost this much. If they are willing to sell the car at the private party price, then I like to make sure I have funds or financing in place and to take the car to have a prepurchase inspection. It's very important to have a firm price before the pre purchase inspection.
Decide How Much to Pay for a Used Car
If I find a car that I like from a dealer, I use that price as my upper bound, but I prefer to purchase from a private seller. Second, I use kbb and edmunds to find the private party range, and I only look at used car prices for good condition or average vehicles. Most people think their cars are in better condition than they are.
When I'm buying a used car, I'm not looking for the best possible deal, but rather a fair deal. I'll let the seller know, I looked up the price on a few services and that the private seller price for a car in good condition with this many miles on the car should cost this much. The mileage is a very important component of the price as well as the options added to the vehicle, so be sure to add these in.
If they are willing to sell the car at the private party price, then I'd like to make sure I have financing in place and to take the car to have a prepurchase inspection. It's very important to have a firm price before the pre purchase inspection.
Buying a Used Car from a Private Seller or Dealer
Getting a Used Car Loan for Purchasing a Car from a Private Seller
If you're going to finance your used car, then you'll need a few things to apply for a used car loan.
- The purchase price
- The vehicle identification number also called the VIN
- The payoff amount for the seller (if they owe money on the car)
- The name of the institution holding the loan and the address
I researched used car loans and the best used car loan rate I could find is through Pentagon Financial Credit Union. With a $20 donation, and $5 for an initial deposit, anyone can become a member. I applied for an account over the phone, but to get the special rate, I had to apply for the car loan online. Once I was approved for the loan, then, I move on to the inspection.
Make sure you have the funds lined up to buy the car before having the car inspected. Note: Many car lenders will loan up to 110% of the value of the car based on nadaguide prices. If you want the loan to cover the cost of the vehicle, taxes and any fees, then you need to make sure that the nadaguide price is inline with what you pay. If you pay more than nadaguide from a private seller, there is a good chance you won't be able to finance 100% of the car's cost.
Getting the Pre Purchase Inspection from a Dealer
The next step in the process is taking the car to a dealer to get inspected. I take used cars to the manufacturer dealership service department for two reasons. First, most dealers offer the inspection at a fixed price and they have a comprehensive list of items that they check on the car. The second reason, is dealers will give you a quote to fix items that they find wrong with the car that is very accurate and often more expensive than independent garages.
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If the car is still under warranty, see if the dealer can do all of the warranty work when you take it in to get inspected. If there are other maintenance items, like brakes, service and tires that need to be done, then you can ask the seller to take care of them, or reduce the price. My rule of thumb for negotiating is I don't want to nickle and dime a seller. If there are a few small items, then I don't worry about it, but if there are several things that add up to several hundred or thousands of dollars, then I ask the seller to reduce the price.
Asking the seller to reduce the price can be a little tricky and a bit of a gamble for maintenance items. On one side, you likely spent a few hundred on the inspection and he can refuse and then you'll be out the money and end up without the car. However, most people will be reasonable if you state why you're asking for a little money off.
For example, I may tell the seller, I agreed to pay the private party price based on the car being in good condition which includes a very limited amount of needed maintenance work. The car is requiring more maintenance work to bring it up to good quality and I like the price reduced to reflect the work that needs to be done. I then total up the prices that the dealer gave me to do the work and ask for that much of a discount which is reasonable. Most sellers won't give the full discount because they know that dealers charge higher prices to do things like brakes and tires which is fine. I expect most sellers to give a credit of half. If they do give a full credit or take care of the work, then that's an outstanding deal.
Completing the Used Car Paperwork from a Private Seller
There is a handful of documents that need to be completed, sent in, and taken to the DMV. Make sure to fill out and get the following:
- the title (never take possession without getting the title - aka pink slip)
- a recent smog certificate if the car is older than four years old (seller provides)
- bill of sale
- a release of liability for the seller to send in
- An application for title
- if getting a loan, send in the completed loan docs which includes proof of insurance
Lastly, take the documents to the DMV, pay the registration fees, and the taxes. Also, have the maintenance work done by mechanic once you have possession of the car.
Buying and Selling a Used Car in California Paperwork and forms
- Application for Title and Registration
The new owner needs to send in an application for the title and to register the car. If the car is financed, the loan holder will show up as a lien holder on the title.
- Notice of Transfer of Ownership and Release of Liability
When you buy a used car, the seller should send in a notice of transfer and a release of liability to the DMV
- California Bill of Sale
Fill this out with the seller to take to the DMV.
- Pentagon Federal Credit Union for Used Car Loan
The credit union for the Army, Air Force, Coast Guard, Homeland Security, military, government, and related groups has the best used car loan rates online. Anyone can join with a $20 donation and $5 to open an account.
CA Application for Title and Registration
CA Notice of Transfer of Ownership and Release of Liability
CA DMV Bill of Sale
Buying a Used Luxury Car
Buying a used luxury car is a great way to get a fantastic car at a great price. Typically, luxury cars will depreciate 50% or more in three to four years. People that buy luxury cars new, tend to be older, take good care of their cars, and I can often find cars that have always been garaged, rarely carried passengers, were never smoked in and have very few miles on them. Usually many less miles than 10 thousand per year.
When I can find a car that has these qualities, I feel like I'm getting an outstanding value on a high quality vehicle. It took me about four months to find the exact car I was looking to find, with the options and a seller willing to sell the car at the private party price. When I originally made the offer at the private party price, the seller said that was too low, but a week later he called me back and said he would take the offer.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.