20 Tips to Buy a Used Car

20 Tips to Buy a Used Car

I won’t tell you if you should buy a used car or a new one. I will give you some parameters to help you decide. I will also help you beat the dealers at their own game.

When deciding between new and used for a car it depends entirely on the person and the situation. If you have tons of cash then it doesn’t really matter. If you have limited cash or you are going to take a loan then it really does matter. A new car should generally only be purchased when you know you are going to keep the car for 8-12 years. If you only plan to have the car for 3-5 years then a used car is better – at least from a pure financial standpoint. It’s all in the depreciation.

One of the key considerations is your current stage in life. For example, if you are a recent graduate then you don’t want to be “tied to a car.” Imagine you get an incredible opportunity overseas! Okay, what about a terrific opportunity in on the opposite side of the country? Or some other major life-move thanks to a quickly advancing career… You don’t want to feel any obligation to hang onto a car that is new.

You want to be able to take the job opportunity and dump the car if necessary. This will be easy to do with a gently used car (a few years old, low miles) – and you may not even lose any money on the car at all if you do this. Since new cars lose about 20% value the day you buy it (literally – because now it is just a low mileage used car) and about 20% of its value per year, a new car becomes a long-term commitment. And you really don’t want to make a long-term commitment until you know where your career and your life will take you.

Tips to Buy a Used Car

  • Set your budget first and know if you are willing to take a loan or not. If so, you should already have financing in place or at least know what your local bank/credit union are offering so you have a maximum rate.
  • Find similar cars offered by other dealers so you have an idea of what is a fair price. But keep in mind that whatever a dealer lists their car for, it is always higher than they are willing to actually accept.
  • Understand that you are playing a game with someone who has practiced, rehearsed, and been coached. You just showed up. Chances are they are better than you – simply because they have been practicing for a while.
  • Don’t allow the dealer to talk you into going over budget. What they are trained to do is take someone who has done a little homework on $10,000 cars and convince them they need the $13,000 car… but you don’t have any research on $13,000 cars so you no longer know if it is a good deal or not! But they do.
  • When they convince you they are giving you a “good deal,” explain that you are in the market for a “great deal.” Basically, one-up whatever adjective they use.
  • If you are borrowing money – Don’t talk about payments – talk about price. They want to get you into the longest loan term possible to make your payments lower.
  • Don’t get emotionally attached to the car or excited about it. Keep a poker face. Explain that you are “not completely sure you need another car, but you want to see what your options are.” If they realize you need a car, they know they have you and you lose negotiating power. Here is a funny clip from Futurama about using emotions to sell a car.
  • Make it sound like you don’t have much money – (if you are shopping with your parents, make it seem like they don’t have much money either) – if they even think your parents have money then they expect they will get to charge you more. Watch this clip from Futurama.
  • Don’t chat too much (they want you to become ‘friends’ with them. It is a basic sales tactic).
  • Never negotiate against yourself. If you make an offer, wait until they make a counter-offer (don’t raise your offer until you hear theirs first). Then you can counter again by about $100 higher. It shows you are serious, but not naïve.
  • They will likely ask you ‘yes’ questions to get you in the mindset of saying yes “Did you enjoy college? Do you like sports? Are you happy it’s not raining today?”
  • They may ‘give you something’ (free water, a test drive, etc.). That is another sales tactic – people emotionally respond to receiving something by feeling the need to give something back – like making the purchase.
  • If you throw out phrases such as “some of the other dealers we have been talking to…” or “based on my research of comparative models in this condition…” it makes it seem like you know just enough to be dangerous – and they probably cannot take advantage of you.
  • If you don’t know whether it is a good deal or not, be honest. Tell them you will go home and do some research and if they are offering a great deal, you will take it.
  • Be prepared to walk away. Unless you absolutely need the car that day, be willing to walk away if you don’t get a good price. You can always text them two days later a final offer and see if they move on price any more.
  • They absolutely know their best shot of getting you to buy is right then, while on the lot. Once you leave the dealership, their chance of making that sale shrinks significantly.
  • Check out sites like Truecar.com which lets you know what others are paying for a similar car – so you can make sure you are on the lower end of the price range when you buy a used car (you are looking for a great deal – remember that!)
  • When you are ready to buy the car – make the offer and tell them if they accept your offer, you will sign the papers today.
  • When you make a strong offer, keep silent. The first person to break the silence usually loses the negotiation.
  • If your negotiations get you close to the price you want, but you are off by a few hundred dollars, you probably don’t want to lose the car over that bit of money. So ask for other stuff instead – some free oil changes, new floor mats, better tires, etc. Be creative. This is easier to do with new cars, but still worth a shot when you buy a used car.

These 20 tips should help you get the best possible price when you buy a used car. Here is one more bonus tip:

  • Don’t let them combine the negotiations for a trade-in, financing, and the car purchase at the same time. Negotiate each separately so you know you get the best deal on all three pieces. Otherwise they can raise one to lower the other and confuse you into thinking you are getting a good deal.

If you want to get a new car, I have an entirely different strategy to make sure you get the absolute lowest price possible based on the true invoice price, minus incentives, rebates, holdbacks, etc. That sounds like a perfectly good follow-up post 🙂

The Graduate's Guide to Life and Money

Note: This post was originally an email response to a recent graduate who was preparing to purchase a car. I cleaned the email up a bit and decided the advice was solid and would make a great post.

What tactics have you used to get the best price on a used car – or how were you taken advantage of by a dealership? Let us know in the comments below!

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The three authors, Bill Pratt, Mark C. Weitzel, and Len Rhodes, are industry leaders in personal financial education. Together, they have a combined 75 years of experience in banking, economics, and entrepreneurship. Now, they teach thousands of students personal finance concepts and decision making skills, author textbooks and public press books on personal finance, and help schools develop innovative personal finance literacy programs. Recently, they were instrumental in developing a personal financial management certification program for leaders in higher education. The other books in The Money Professor series include The Graduate’s Guide to Life and Money and Extra Credit: The 7 Things Every College Student Needs to Know about Credit, Debt & Ca$h. Their books, lectures, and programs give students, parents, and educators the tools and knowledge to make good financial decisions all their lives.

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