Used cars are depreciating at such a fast pace that there’s almost never been a better time to buy a used vehicle.
Read more: Most and least expensive cars to maintain
Making vehicle depreciation into friend — not foe
The average value of a used car is now $15,300, which is down from $18,400 just a year ago. That kind of steep decline in value is nearly double the rate we had just three years ago in 2014!
So what’s going on? The biggest problem is that after seven straight years of rising car sales, we have a lot of oversupply of used cars.
You’ve probably heard that a new car becomes a used car the minute it drives off the dealer lot. Worse yet, there’s an instantaneous drop in value that accompanies that drive off the lot. The immediate drop in value called “depreciation.”
While there are some surprising ways you can combat depreciation — including buying a new car in one of these colors to ensure maximize resale value — there is no way to defeat depreciation entirely.
But here’s the thing: Depreciation is only a foe to a new car buyer who wants to resell their ride in a few years. When you buy a used car that’s two or three years old, you let somebody take the hit on depreciation while you get a vehicle that’s still has a lot of life left in it.
Another reason why we have so much oversupply of used cars is because of those three-year lease contracts that people love so much.
With the popularity of leasing, there’s a steady influx of cars coming back on the resale market each year.
In case you’re wondering, money expert Clark Howard is pretty firmly against leasing — with a couple of notable exceptions.
What you need to know if you’re going to buy used
With used car purchases, you buy “as is” — no matter what condition the car is in. The vehicle and all its warts become your problem. If it comes with any warranty, it’s usually very limited. Yet if you know how to buy safely, you can really get a deal!
Here’s what you should do…
Check a car’s repair record before buying
Buying a used car involves more risk than buying a new car because you never know how the previous owner treated that vehicle. One way to minimize that risk is to buy used car models that have proven to be reliable.
Vet out problem cars online
Flood vehicles are the biggest threat in this category. To the naked eye, there’s no telling that anything is amiss with these cars. But you’ll know you’ve got a flood car when you encounter failed electrical systems throughout the vehicle.
You also want to be sure you’re not buying a car that’s been in an accident and gotten welded back together. CARFAX, Autocheck and the National Insurance Crime Bureau (NICB) are a few websites you can use to look at the history of the car. They typically report any accidents where an insurance claim has been made, in addition to the registrations by state and the type of title the car has.
Now you can add to that list another newer service called VehicleHistory.com, which is free to use.
Get an inspection before purchase
Here’s Clark’s key rule of used car buying: Have the car inspected by a certified diagnostic mechanic of your choosing as a condition of purchase. You can leave a deposit if you wish, but specify in writing that the money must be returned to you if the car doesn’t check out. You can eliminate nine out of 10 used car buying disasters this way.
You want an ASE-certified (Automotive Service Excellence) mechanic to do the independent inspection. Garages that participate in the Blue Seal program typically feature the most highly trained ASE-certified mechanics. Visit ASE.com to find one near you.
Pre-arrange your auto loan financing
Car dealers are entitled to make money on a loan if you don’t do your homework and get pre-qualified elsewhere. Credit unions offer interest rates on car loans that can be 1% to 3% lower than other lenders. You may also want to check online lenders. Even your auto insurer may be able to give you a competitive interest rate.
If the financing department at the car dealership can beat the deal you’ve pre-arranged elsewhere, that’s fine. Give them a chance to make some money when they originate the loan. But don’t let them make money by gouging you on the markup of a loan.
Never trade in a car you still owe money on
In the worst-case scenario, you could come to find out that the dealership never pays off your loan when you trade your car in…and you don’t have the vehicle anymore. Yet you’ll still be responsible for payments on the car that you no longer own. Your credit will be dinged because of the missed payments and your new car may even be repossessed if you can’t meet both loans!