Money expert Clark Howard says buying a used car is one of the smartest financial moves you can make.
After decades of working with consumers, Team Clark has developed deep experience with how to get a great deal on a used car. We’ve heard the good, the bad and the ugly when it comes to purchasing a pre-owned vehicle.
How to buy a used car: Team Clark’s step-by-step guide
In this article, we’re going to break down the seven key steps you need to know about the best way to buy a used car.
- Arrange your auto financing
- Check reliability stats
- Research used vehicle values
- Start shopping online
- Run the VIN
- Get an inspection
- Seal the deal
The majority of cars sold in the United States are used, not new. Clark says those who buy used are making a good decision for their wallet:
“My preference is for you to buy a two or three-year-old used car, rather than a new car,” Clark says. “Because when you buy a new car, it loses value the minute you drive off the lot.”
The loss of value that a new car immediately experiences is called “depreciation.” But with a used car, the previous owner has already taken the hit on depreciation.
Read on to learn what you need to do to pick the right used vehicle, make sure it’s safe and get it at a fair price…
1. Arrange your used auto financing first
The first step to buying a used car is to arrange financing ahead of time with a credit union.
Clark says credit unions generally beat the financing you could get at a bank or a car dealership. Credit unions usually write loans at 1.5 interest points below a bank, and banks tend to write loans at one full interest point below the dealership.
“Most people finance at a car dealer and that is a recipe to shred your wallet,” Clark says.
In addition, members of some organizations like USAA may also qualify for a rate that’s comparable to what credit unions offer. Plus, USAA will often team up with select automakers to offer special price reductions to customers.
Finally, as a third alternative, Clark recommends paying for an affordable used car completely in cash if you can swing it.
Meanwhile, the longest auto loan you should ever take out is 42 months, Clark says. If you can’t afford the payment on a 42-month loan, then you should buy a cheaper car.
2. Check the reliability stats
The next thing to assess is how reliable is a used car you’re considering buying? And the best place to get this information is in Consumer Reports, specifically the Annual Auto Issue the magazine publishes every April.
The Auto Issue lays out Consumer Reports’ top used car picks by price category:
- Under $10,000
Meanwhile, the magazine’s reliability ratings are compiled from reports about 17 common trouble spots in more than a million cars on the road. This latter feature gives you a great vantage point on long-term reliability.
“I believe that if you stick to Consumer Reports’ annual recommended list of used vehicles, you shouldn’t have to buy an extended warranty at all — even if you have difficulty saving money for potential car repairs,” Clark says. “That’s how much I trust the collective wisdom of used car owners that’s culled for Consumer Reports.”
Visit ConsumerReports.org to get digital access to the used car ratings for $35 a year or $7.95 a month. You can also read the April issue for free at your local library.
3. Research used vehicle values
After you find some vehicles that check out on reliability, you next want to start researching used vehicle values. Check Edmunds.com, KBB.com or NADA.com for the true market value so you come up with a feel for the price of a pre-owned vehicle.
Clark says he likes for potential used car buyers to pay attention to the three Ms when researching:
- Make and model
- Model year
- Maximum mileage
Start with the makes and models you’re comfortable shopping for based on your past experience. But then try to broaden what makes it into “the funnel” for consideration.
“The big mistake people make is they only consider this Ford or that Toyota,” the consumer expert says.
The free online tools offered by Edmunds, KBB and NADA let you drill down and really focus so you can start to narrow the list. And here’s a bonus tip: Don’t automatically shy away from older models with higher mileage.
“It used to be that vehicles turned into pumpkins at 100,000 miles. Nobody wanted them. They were considered trouble-prone and near the end of their useful life,” Clark says. “But the Great Recession taught us otherwise. That’s why even as people recovered economically, the average age of a car on the road kept climbing up. Because cars are made so well today, the bar that used to be at 100,000 is now at 200,000 miles.”
4. Start shopping online
CarGurus lets you put in your zip code and the make/model of the vehicle you’re interested in at their website. They’ll comb through some two million listings available on published databases and rate the vehicles like this:
- Great deal
- Good deal
- Fair price
- High price
This website can greatly simplify the pricing and discovery part of the used car buying process.
When you’re getting quotes from traditional car dealerships, you want to make sure the quotes include all junk fees. Clark recommends you ask point-blank, “Does this quote include all made-up fees?”
Such “made-up fees,” as the consumer expert calls them, include paperwork fees and document fees.
Document fees alone can sometimes be $700. That’s where you’re basically charged for filling out the contract after you agree to buy a used car!
Editor’s note: USAA is only open to those in the military or who are affiliated with the military through direct family ties.
5. Run the vehicle number
Once you’ve found a vehicle you’re interested in, be sure to run the vehicle identification number (VIN) through a free VIN check tool. In doing this, you can find out if it’s a flood vehicle or if it’s been in an accident.
After much research, the three main places we recommend you get a free VIN check are:
6. Have it inspected by an independent mechanic
With used car purchases, you generally buy “as is” — no matter what condition the car is in. The vehicle and all its warts become your problem.
Never rely on any representations that the salesperson makes about the car, be it a commissioned employee at a dealership or an independent seller in your neighborhood.
And if it comes with any warranty, it’s usually very limited.
Bottom-line: Doing a free VIN check tool alone is not enough of a check; you need to take this additional step of hiring a mechanic to check out the entire vehicle!
“Have the car inspected by a certified diagnostic mechanic of your choosing as a condition of purchase,” Clark says. “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.”
Clark recommends that you find an ASE-certified (Automotive Service Excellence) mechanic. Garages that participate in the Blue Seal program typically feature the most highly trained ASE-certified mechanics.
According to Edmunds.com, you should expect to pay somewhere between $100 to $200 for this service.
7. Seal the deal
OK, you’ve done all your research and you’ve almost crossed the finish line!
If you’re going to a dealership to sign the paperwork, make sure there are no last-minute surprises. Be prepared to walk out if there are. With that in mind, let’s wrap up the loose ends:
Check your financing one last time. If the dealership can beat the lowest rate you’ve already secured on your own and all the other loan terms remain the same, it’s acceptable to go with the dealer’s financing.
Should you get an extended warranty? The question of the extended auto warranty is a tricky one and everyone has to come to their own conclusion on this subject.
If you’re buying from a traditional dealership, here’s how Clark says you should think about it:
- If you can afford the potential cost of car repairs, you should never buy an extended warranty.
- Can’t afford those possible costs? Then you may want to consider buying the vehicle manufacturer’s warranty if it gives you peace of mind. For example, if you are buying a used Ford at a Ford dealership, ask if you can buy Ford’s own warranty on that vehicle.
- Never buy an extended auto warranty from a third-party. Stick to the manufacturer’s own warranty only.
When you know the best way to buy a used car, you can get yourself reliable transportation at an affordable price and keep more money in your pocket over the long haul.
“Buying a used car involves a little more risk than buying a new car because you never know how the previous owner treated that vehicle,” Clark admits. “One way to minimize that risk is to buy used car models that have proven to be reliable. Another way is to get a mechanic to inspect a vehicle prior to purchase.”
Of course, buying used isn’t for everybody; some people just like that new car smell too much! If that describes you, be sure to check out our article on how to buy a new car in 5 steps.
Meanwhile, when it comes time to insure your vehicle, read our guide to the best and worst auto insurance companies.