If you're reading this article, you're likely in the market for a new set of wheels and considering a used car. If you don't need the latest technology, are flexible with your wish list, and do the right due diligence during the shopping process, you can often get a great vehicle for thousands of dollars less than you would buying new. And financially, you'll avoid new car depreciation.
There are some key differences between buying used versus new. They involve a number of factors, including financing, insurance costs and the types of technology you'll find in older model-year vehicles.
Pros and Cons of Buying a Used vs. New Car
Pros:
- Avoid new vehicle depreciation
- Afford a better-equipped model than you would have buying new
- Save on insurance
- Lower purchase cost
- More places/people to buy from
Cons:
- Higher risk: requires more due diligence
- Interest rates may be higher
- No factory rebates/incentives
- Older technology
- Harder to compare since no two cars are exactly alike
“Generally, the best value is to buy a vehicle that is 2-3 years old that has been driven 15,000 miles or less per year. The steepest depreciation happens in the first two years.”
-CarPro Radio Show host, Jerry Reynolds
Types of Used Cars
To decide whether a used car is the right choice for you, it is important to understand the different kinds of used vehicles.
Certified Pre-Owned Cars: Certified pre-owned (CPO) vehicles are cars that have been inspected at a dealership and are now available for sale. These used vehicles are taken to the dealership's service department and inspected by factory-certified technicians for over 150 items, such as signs of rust, excess wear and tear, and mechanical issues.
“Although the programs vary by manufacturer, they all go through a rigorous checklist to make sure everything works and is in good order,” says CarPro’s Jerry Reynolds.
“Many of the programs require such things as new wiper blades, two working keys and remotes if the car is equipped with those, and they must also have a clean vehicle history. Management of the dealership has to sign a form saying all work was done.”
CPOs usually include a warranty for up to a certain number of miles.
>>Read more: Why Some Used Cars Cost More Than New Ones
Pros of Buying Certified Pre-Owned Vehicles
- Lower risk of undisclosed mechanical issues: vehicles are diligently inspected by certified technicians before selling
- Extended warranties
- Lower interest financing
- Some CPOs qualify for leasing deals
Cons of Buying Certified Pre-Owned Vehicles
- Higher purchase price: this is not always the case, but generally, you will pay more for a CPO than a non-certified used car
- Limited selection: only late-model, low-mileage vehicles with clean vehicle history reports are accepted into certified pre-owned programs. If you are looking for an older model or a highly specific vehicle, you may not be able to find a CPO.
>>Read more: What is a Certified Pre-Owned Vehicle?
Used Rental Cars: Rental car companies typically sell their cars after 2-3 years or when the car reaches 20,000 to 50,000 miles. You can purchase a rental car from either a dealer or directly from a rental car company, but Reynolds cautions against this. “I think there is a risk of the rental car company hiding things,” he says. Instead, “buy it from a new car dealer and only if it is factory-certified pre-owned.”
Pros of Buying Used Rental Cars
- Rental cars are likely to have been well-maintained
- Typically newer models
- Often priced lower than a car with a single owner
Cons of Buying Used Rental Cars
- Likely to have a lower resale value
- Rental cars are likely to have more wear-and-tear
- Fewer vehicle features: rental car companies will often reduce their purchase costs by special-ordering cars without options like XM radio or On-Star.
- Minor repairs may not appear on vehicle history reports. If the company made the repair in-house, it may not be included in a vehicle history report.
>>Read more: Should You Buy A Former Rental Car?
Used Fleet Vehicles: Fleet vehicles are any vehicle purchased by a business (including rental cars) or a government agency that buys in bulk. This could include taxicabs, delivery vehicles, police vehicles, public utility trucks, etc. Aside from rental cars, used fleet vehicles tend to have the highest level of wear and tear. Rental cars tend to have more highway mileage, whereas other fleet vehicles do a lot of city mileage with lots of stop-and-go driving on bumpy streets. They tend to have over 100,000 miles on them before retiring from active duty.
Used fleet vehicles may be cheaper, but you are more likely to encounter repairs and maintenance issues. Like rental cars, lower your risk by purchasing factory-certified pre-owned vehicles from new car dealers.
Pros of Buying Used Fleet Vehicles
- Lower cost to purchase
- Well-maintained with detailed vehicle repair records
Cons of Buying Used Fleet Vehicles
- Likely to have high mileage
- Heavy use on critical systems, such as engine, transmission, and brakes
Demo Cars: Demo cars are used by dealerships for customer test drives and employee commuting. They are usually popular models and are sold when inventory is low. They usually have between a few hundred to a few thousand miles on them, which may warrant a slight discount on your purchase price.
Pros of Buying Used Demo Cars
- Can be a way to get a “nearly-new” car at a discounted price
Cons of Buying Used Demo Cars
- Unlikely to be considered a CPO, which means you will not get the benefits of a CPO, which includes an extended warranty
- No official way to price a demo car. Demo cars will not always be cheaper than other used or new cars.
- The vehicle’s warranty may have begun when the vehicle was first issued into service.
- May have some cosmetic wear and tear from multiple drivers and moving around the dealership car lot.
>>Read more: Can Buying a Demo Car Save You Money?
Private Seller: Vehicles can also be purchased from individual owners. A private sale may result in a lower purchase price, but there is a lot more risk involved.
Pros of Buying Used Cars from a Private Seller
- Likely to pay a lower purchase price, as private sellers do not have overhead costs like dealerships
- Quicker sale: Private sellers are motivated to sell the vehicle as soon as they have a buyer
Cons of Buying from a Private Seller
- The seller is likely to be a total stranger, which could put you in a potentially dangerous position during the vehicle test drive, mechanical inspection, and negotiation.
- No warranties or mechanical certifications
- Title transfers and DMV-related issues must be handled by the buyer
Steps to Buying a Used Car
Now that you know the different types of used cars, here are the steps we recommend you take to ensure you end up with a car you love.
1. Figure Out What Features You Actually Need
Vehicle features run the gamut from the basics (working air conditioning) to highly specialized (custom aromatherapy diffusers). With so many options available, it is easy to feel lost and blur the line between “wants” and “needs.”
TIP: Start by determining the vehicle’s primary use. Ask yourself, what will the car be used for 80% of the time?
Here are a few questions to ask yourself to help clarify your thinking:
- What will my typical commute be with this vehicle?
- How many passengers will the vehicle need to carry?
- How much cargo space will I need?
- Will this vehicle be used for hauling?
- How long do I plan to keep this vehicle?
2. Determine Your Used Car Budget
After your needs are decided, it is time to set a budget. The budget must include the cost of ownership, which includes things like fuel, maintenance, and car insurance, as well as the cost to purchase.
TIP: Many financial experts recommend spending no more than 10% to 20% of your take-home pay on car expenses.
Ownership costs are especially important when purchasing used vehicles. A monthly payment on a new car may be higher, yet your ownership repair and maintenance costs will likely be lower. Used models may cost less to purchase but are likely to have poorer fuel economy and often require more maintenance.
This is why researching vehicle reliability is critical when buying a used car.
>>Read More: Budgeting How Much Car You Can Afford
3. Research Used Vehicle Reliability, History and Safety Ratings
Here are the Best Research Tools for Used Vehicle Reliability:
J.D. Power Vehicle Dependability Report: J.D. Power releases Vehicle Dependability reports every year, dating back to 2011. The ratings focus on the type and number of problems owners experienced during the preceding 12 months with their 3-year-old vehicle.
Every year, J.D. Power names the most reliable mainstream and luxury brands based on those findings.
CarMD Make and Model Rankings: CarMD provides data from a different perspective. It ranks in-use vehicles and brands based on the frequency of check engine light (CEL) problems and the average cost of repairs. It currently provides make and model vehicle rankings by year back to 2014.
RepairPal Reliability Rating: RepairPal’s Reliability Rating measures vehicle dependability based on the cost, frequency, and severity of unscheduled repairs and maintenance. For 2018, the updated RepairPal Reliability Rating analyzed millions of repair orders from over 2,000 auto shops across the country, measuring dependability by evaluating the cost, frequency and severity of repairs.
Don’t forget to investigate vehicle history after you’ve found a car you like. We recommend obtaining a vehicle history report from both AutoCheck and CarFAX.
The goal is to obtain as much information as possible about the vehicle’s past life. Be sure to find answers to these questions:
- Has it been in a wreck?
- Has it been in a flood?
- Is the odometer accurate?
- Is the title clean?
>>Read more: Autocheck vs CarFax: which vehicle history report is better?
Safety Ratings for Used Vehicles
Two great resources for used vehicle safety ratings are the National Highway Traffic Safety Administration (NHTSA) and the Insurance Institute for Highway Safety (IIHS).
More info: Car Safety Ratings and How They Work from Kelley Blue Book.
When researching used vehicles, your goal is to answer the following questions:
- How reliable is this vehicle?
- What is the current supply and demand for this make and model?
- How much is this vehicle selling for in today’s market?
4. Finding Used Cars
Once you have narrowed your search, it is time to start looking for your desired vehicle. The internet is full of used car inventory websites. Of course, we are a bit biased because we have our own used car inventory feed. Regardless, we recommend you look at several used car sites to get a good idea of your desired car’s availability and price point.
Keep in mind that our CarPro Certified Team Members are happy to guide your search. Even if you do not see your desired car in our inventory feeds, reach out to our contacts to let them know you are in the market.
Search CarPro to find vehicles at our certified dealers for an added layer of confidence.
5. Test Drive the Car
Whether you are buying a used car from a dealer or a private party seller, next it's time to contact the seller to schedule a proper test drive. A test drive is critical to avoid buyer’s remorse. It becomes even more essential when buying a used vehicle that has some miles on it.
6. Get the Used Car Inspected
If you like the used car after driving it, consider taking it to a third-party mechanic for a professional inspection.
Exception: If you are buying a factory-certified, pre-owned vehicle, the dealer has already completed a stringent factory-required inspection process, and the vehicle is also under warranty.
7. Calculate the Deal
So you've found the perfect car for you. Congratulations! The next step is to talk numbers with your salesperson (or private seller). Be aware that financing for used cars is different from new cars.
>>Read more: What to Know About Used vs New Car Financing
A loan on a used car is considered higher risk, so interest rates are typically higher than on a new vehicle.
Concentrate on total vehicle price, not low monthly payments. Low monthly payments can result in an undesirable longer loan term. Make sure you are completely clear on the numbers before signing anything.
>>Read more: High Cost of No-Haggle Used Car Pricing
The finance part of car buying can make many people nervous, but if you are prepared and working with a good salesperson, you don't need to be.
These tips will help you navigate the finance office.
If you are financing through the car manufacturer's company (like Honda or Toyota), the finance department will run a credit check. Your credit score plays a role in determining your loan interest rate.
If you're buying a used car from a dealership, you'll also get a trade-in value for your vehicle if you have one. Here are tips on getting your car ready for the trade-in process. Also, keep in mind timing your trade-in is crucial, especially if you have a car that is five years old or newer.
8. Finalize Your Purchase
TIP: When looking at an actual contract, pay special attention to anything that has a dollar amount next to it.
Now that you have arrived at the final selling price, factoring in any trade-in and loan interest rate, you are almost at the finish line. At this point, the salesperson or finance person will present you with optional add-ons like extended warranties, vehicle protection and maintenance plans. These items may increase your total purchase cost but can save you money on repairs down the road.
Once you select or decline additional items, it's time to get everything formalized on paper. Take the time to read through the contract and look at everything listed, including dealer documentation fees, tax and title fees and anything else with a number next to it.
Question anything you do not understand.
Also make sure you get a "due bill" on anything promised to you, like work on the car, tinted windows, etc, in writing.
Find Your Perfect Used Car
By following the advice you've read in our used car buying guide and purchasing from a CarPro Certified Dealer's used car inventory, you can be confident in your car buying experience.
Enjoy your new (to you) ride!
