Buying a used car doesn’t have to be a huge headache. But with around 40 million used cars sold each year, your choices can seem pretty overwhelming.1 But don’t get so swept away that you don’t do your research. If you’re going to invest thousands of dollars in a vehicle, it’s worth the effort to be smart and take the time to find a reliable used car.
Believe it or not, dependable used cars are out there. They haven’t gone extinct! You just need to learn how to buy a used car the right way so you can walk in with confidence and know what you’re doing. Don’t worry—you came to the right place. We’ve got all the info you need (and then some) right here. Start your engines! It’s time to find out how to buy a used car.
Why Buy a Used Car?
There are a ton of reasons why buying a used car is actually better than buying a new car. Don’t believe us? Let’s count the ways:
- Used vehicles don’t go down in value as much over time.
- Most used cars are just as dependable as new cars but are way cheaper.
- Buying used will save you money on car insurance.
- Used cars can have cheaper registration fees.
- Buying used means you’re less likely to have manufacturer recalls or new model problems.
Still not convinced? Listen to what Dave Ramsey says about new cars and how to buy a used one the smart way:
Of course, buying a used car doesn’t come without a few risks. That’s why you need to do your homework before committing to a vehicle. If you don’t do your research, you may be paying more than you should for your car or, even worse, end up with a used car that’s a total piece of junk.
How the Microchip Shortage Impacts Used Car Prices
Okay, before you set out to buy a used car, there’s something you’ve got to know about the prices these days—they’re higher than ever. In April 2021, the price paid for preowned vehicles hit an all-time record of $25,463.2 That’s the first time the price for used cars has cracked the $25K mark. Yep, that’s right. Used car prices have actually gone up, all thanks to a little something known as a microchip shortage.
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What the heck is a microchip shortage, and what does that have to do with cars? Great question! Nowadays, almost everything runs on those little computerized chips. Even cars. All those fancy buttons, doohickies and bright lights on the dash in a new vehicle need a chip to power them up. Yeah, we said new. Hang tight—we’ll get to how this impacts used cars in a minute.
The microchip shortage directly impacts new cars, but because of the shortage, there are fewer new cars available to be purchased. That means all those people in the market for a new car are switching gears and figuring out how to buy a used car instead. And that’s making the price of used cars spike. Since April 2020, the price of a used car has climbed 29%—and 10% of that jump happened in April 2021.3 It’s great news if you’re ready to sell off your used car (put it toward your debt snowball!) but not so great news if you’re in the market to buy a used car.
Microchip shortage or not, you can still be prepared while you’re learning how to buy a used car. Find out how to get the best deal on a car you love—download our free Car Guide!
How to Buy a Used Car
- Set Your Budget
- Find Your Ideal Car
- Shop for a Used Car
- Figure Out the Used Car’s Value
- Inspect the Used Car Yourself
- Go for a Test Drive
- Take the Used Car to a Reliable Mechanic
- Use Negotiation Skills
Step 1: Set Your Budget
You can buy a used car with cash or by taking out a car loan. Guess which way is the smartest.
We only recommend paying for a car with cash. No car payments here! Yes, that means you’ll have a serious dent in your savings, but you’ll skip the stress of spending hundreds of dollars on car loan payments each month. Isn’t that awesome?
For example, if you borrow $10,000 for a car with a 5% interest rate and a term of five years, you’ll end up spending an additional $1,322.74 in interest. Not so affordable anymore!
But before you lose hope, remember this: You can find reliable used cars in any price range. If you’re struggling financially, you can find a vehicle to get you from point A to point B for as low as $1,000 to $2,000. It may not be pretty, but you’ll get by.
If you aren’t happy with the cars you can afford, remember that you can take all that money you save on car payments each month and stash it away for an upgrade. Just make it a priority in your budget!
P.S. If you need a budgeting tool, give ours a test-drive in a Ramsey+ free trial. It’ll help you get moving on becoming debt-free and working your way to the car you really want.
Step 2: Find Your Ideal Car
Once you’ve set your budget, you can find your ideal car. Not your dream car. Your ideal car. It’s the one that best fits your lifestyle and your reasons for buying it.
Before you declare your loyalty to your favorite car brand, step back and take a look at the kinds of vehicles and what each was designed to do.
Trucks, for instance, were designed to carry goods and heavy materials. So unless you’re hauling heavy cargo on a regular basis (you know—gravel, timber, bricks), don’t buy a truck. For a good commuter vehicle, stick with options that are compact and energy efficient, like sedans, hatchbacks or hybrids.
Narrow down your choices with this quick checklist. Read through these statements and pick three that apply to your situation the most. Use your answers to help decide which kind of car is ideal for you.
____ I want a vehicle with plenty of cargo space.
____ I want a vehicle that can fit more people.
____ I want a vehicle with better fuel economy.
____ I want a vehicle that’s easy to get in and out of.
____ I want a vehicle that’s safe.
____ I want a vehicle that’s better for the environment.
____ I want my vehicle to carry heavy cargo.
____ I want to go off-road or on rough terrain.
____ I want my vehicle to be compact and light for city parking.
____ I want my vehicle to have towing capacities.
As you decide on your ideal car, you’ll have to make some sacrifices too. You won’t find a vehicle that does everything. So prepare your heart for that. Be honest with yourself about your wants and your needs, and think long term about how you’ll be using your car.
Want to Save a Little Extra Money?
Of course you do. So think about features you don’t need your car to have. Not just technology like in-dash GPS, Bluetooth connectivity and backup cameras—but the basics too.
What kind of basic things? Well, take cylinders, for example. Today, a 2011 Kia Sorento with six cylinders costs around $8,350 to $10,750.4 The same Kia with a four-cylinder engine? $7,750 to $10,150 (and these numbers change almost daily).5 Though it may not seem like a lot, you can take that extra (almost) $600 and put it toward your car insurance. Hint: Unless you’re hauling heavy cargo, just stick with four cylinders.
What about the transmission? Stick shifts are usually cheaper than automatics, some models even get better gas mileage, and last but not least—they’re just plain fun to drive.
And do you really need all-wheel drive (AWD), or can you get by with front- or rear-wheel drive (2WD)? Unless you live in the mountains or deal with lots of rain, snow and ice on your commute, stick with front- or rear-wheel drive if you’re just driving in the city.
Bonus Tip: When you’re comparing different vehicles, don’t forget to think about insurance costs as well. Work with an independent insurance agent who can help you save without losing on coverage on your car.
Step 3: Shop for a Used Car
Now that you know how much you can spend and what kind of car takes care of your needs, you can start shopping. But first, let’s talk about two places you should steer clear of.
New car dealerships. Even though most new car dealerships sell used cars, they’re always more expensive.
Buy-here, pay-here lots. These lots refer to dealerships that not only sell cars (buy here) but also offer car loans (pay here). You’ve seen these places. They usually have multicolor pennant streamers strung between light poles and a 20-foot blow-up gorilla shaking a “sale” sign. Yep, you know the kind. Avoid these lots too. Their cars have a ton of hidden fees, and they also usually have less than a 48-hour return policy.
With a little more searching, you can find better used cars somewhere else. Here are six places to start your search.
- CarMax has a huge online inventory and a super detailed car inspection.
- Carvana, like CarMax, has a massive inventory and does careful car inspections. The difference is that Carvana is totally an online car shopping experience. And Carvana delivers the car to you!
- Craigslist doesn’t charge you a purchase fee (like eBay does).
- eBay Motors sells cars through online auctions and buy-it-now direct purchases.
- Showroom lawns can be risky, but sometimes, the best deals come from buying from a private owner.
- Independent used car dealerships are also a smart place to look. Sure, you have to negotiate with pushy salesmen, but you can definitely find a deal at a solid dealership.
Step 4: Figure Out the Used Car’s Value
Now it’s time to figure out if the used car you’ve chosen is worth the price. Dig up all the information you can on the car so you can talk the seller down to a better deal.
1. Start with Kelley Blue Book (KBB). KBB uses data collected from actual sales transactions and auction prices to give you an accurate price range for the used car.
2. Buy a vehicle history report (VHR). A good VHR costs about $50 and includes accident history, ownership history, and a ton of other records.
A VHR removes a lot of guesswork about the used car since it will show you if the car has been in any accidents or has already spent a lot of time in the shop.
Vehicle History offers a free basic report, but if you’re about to drop a couple grand on a used car, buy a comprehensive report from CARFAX. You’ll need the VIN number (usually found underneath the windshield on the driver’s side). Pro tip: If the VIN number has been scratched off or removed, don’t buy the car. That’s a huge red flag. Chances are, the used car has been stolen or the seller is hiding something.
3. Figure out the ownership cost. That’s what you’ll spend to maintain the car (oil changes, new tires, fluid flushes) and what long-term repairs you should expect for the make and model you’re looking at. You’ll also need to know the costs and availability of replacement parts since parts for some cars are more expensive than others. You can use Edmunds True Cost to Own tool to get a good estimate.
4. Find online forums focused on the used car. Nearly every model has a forum with threads stretching back a good while. Look for common issues that owners have had with the type of car you want to buy.
5. Check the vehicle’s recall history. Don’t assume the seller has taken care of a used car’s safety recalls. In fact, over 70 million cars are on the road with open recalls on them.6 And yep, you guessed it—people still try to sell those cars without getting the recall fixed. So what can you do? Check the National Highway Traffic Administration for your vehicle’s recall history (if it has one).
6. Ask for an insurance quote. Used cars are normally cheaper to insure than new ones. In fact, a 5-year-old car is about 14% less expensive to insure than its brand-new counterpart.7 If you already have insurance, ask how much your premium will change if you buy a certain make and model. Work with an independent insurance agent who will do the shopping for you.
Step 5: Inspect the Used Car Yourself
Even if you’re not a mechanic, you can use this list of advice from the Department of Motor Vehicles to check for signs of damage and abuse. While none of these things alone should stop you from purchasing the car (except for major damage, like a blown head gasket), a bunch of these could prevent you from buying somebody else’s car problem.
Under the Hood
- Check the oil level and color. Oil dipsticks are located near the engine (usually a yellow stick). Oil should be light brown. If there’s no oil in the engine, that’s a good sign this is a bad deal.
- Check the color of the oil under the oil cap (located on the engine). If it’s milky—what some mechanics call “mayonnaise”—don’t buy the used car. If the oil is milky, it’s mixing with coolant, a common sign of a blown head gasket (sometimes a $3,500 repair).
- Check the belts. Belts are located around the engine, sometimes on the engine’s side, so you may need a flashlight for this step. Belts should be smooth with no cracks. Cracked belts aren’t a deal breaker, but you’ll need to replace them soon.
- Check the transmission fluid dipstick (usually a red stick). Transmission fluid should be pink or red. If it’s black and smells burned, that’s a bad sign. Transmission replacements are expensive, so if you find that the seller hasn’t replaced the fluid in a while, reconsider buying the used car.
- Check the level of the coolant. It should be between minimum and maximum. The coolant reservoir is somewhere near the radiator. If you can’t find the reservoir, ask the seller where it’s located. Warning: Don’t open the coolant cap while the engine is hot or if the car is running.
- Check the brake fluid. Make sure it’s at the highest level.
- Look at the car’s paint job. Check for dents and scratches.
- Check the tires. They should all be the same (not mismatched), and they should have even wear across the width. Look for scuffs, cracks and cuts along the sidewall. Check the spare tire too.
- Check the tail pipe. If it’s black, that means the car is burning oil—another bad sign.
- Open and close the doors, as well as the trunk, fuel door and fuel cap. Make sure they all work.
- Check the lights. Ask the seller to operate the turn signals, headlights and brake lights as you make sure (outside the car) that they work.
- Take a deep breath. If the car smells musty or if you notice mold under the seats, there’s a good chance the car has water damage that could lead to expensive electrical problems. If there’s an air freshener or if the car smells suspiciously perfumed, open the windows and leave them open as you test drive the car. When you’re done with the test drive, you’ll be able to smell the car’s natural scent.
- Check the wear on the steering wheel, seats and pedals. Minor wear can be expected—especially if it’s an older car.
- Lock and unlock all doors. Make sure they work.
- Check A/C and heating. Everyone takes these things for granted . . . until they don’t work.
- Idle the car and watch the temperature gauge. You don’t want to buy a used car that overheats. Make sure the radiator fans kick on when the temperature starts rising.
Step 6: Go for a Test Drive
When you’re taking the car for your first test-drive, turn off the stereo and ask your passengers (nicely) to stay quiet so you can listen for any problems.
Before you test-drive, pick a route with hills, bumps and, yep, even potholes. Even if you plan to use the car on highways and flat roads, test the car on rough roads to get a sense of how it handles the road.
Use your test-drive to answer these questions:
- How does it feel on flat roads? Smooth or bumpy?
- How does it feel when it hits a bump or pothole? Does it rock aggressively?
- Does the car struggle to pick up speed?
- Do the gears change smoothly?
- Is the brake squishy or too sensitive?
- How does your body feel after the test drive? Was the seat uncomfortable?
- Does the engine sound smooth when you accelerate?
- Does the engine rattle, knock or grind when you idle?
- Are there vibrations or odd sounds under the hood when you accelerate above 60 MPH?
- Do the brakes squeak?
- Can you see out of the car easily? Do you have to strain your neck to check your blind spots?
- Does black smoke come out of the exhaust when you start the car or accelerate?
- Is the RPM gauge consistent when you idle? Does it fluctuate too much?
- Turn the air conditioning to a moderate setting. Do you smell burning oil?
Step 7: Take the Used Car to a Reliable Mechanic
If the car has passed your personal inspection, good. Now let’s see if it passes the mechanic’s inspection. If the seller doesn’t want a mechanic to inspect the car, that’s a bad sign. Always have a mechanic inspect a used car, no matter the condition. A good mechanic will tell if you’re about to buy a reliable used car or if it has any problems.
When it comes to inspections, you have two options:
- Take the car to a trustworthy garage. Most car garages charge a flat fee for inspecting used cars. They’ll put the car on the lift, check for rust and corrosion, and tell you if the used car has severe fluid leaks.
- If you’re working with a private seller who doesn’t want you to take the car off his or her property, set up a mobile inspection. A mechanic will come to the car, perform the inspection, and print out the results.
If a mechanic tells you the car has damages that outweigh its value, kindly tell the seller you’re no longer interested, or use that knowledge to lower the asking price.
Step 8: Use Negotiation Skills
If you have good reasons to believe the seller should lower the asking price, you can use everything you’ve just learned about used cars as ammo to negotiate a better deal. Negotiations can be tough for people who don’t like to be confrontational. Haggle like a pro with these three tips.
1. Bring your research to the table.
Let’s say the seller wants $3,000 for his used Volkswagen Jetta. Kelley Blue Book says the average price range for that Jetta is $2,800 to $3,000. But you noticed that the tires are bald and a headlight doesn’t work. And you read online that this model has problems with radiator fans. Your VHR shows no owner has ever replaced the radiator fans. Ah-ha! Now you’ve got something. Bring all this info to the seller—factor in the cost of tires, a headlight and a radiator fan—and offer less.
2. Pay in cash.
Tell the seller you’ll be paying for your used car in cash—just don’t reveal how much cash you have. When sellers sniff green, they’re more likely to agree on your terms.
3. Be patient.
If the seller doesn’t budge, you can walk away. You have all the buying power. Most of the time, they need your money more than you need their car.
Get the Right Car Insurance
Hey! Congrats on the new-to-you car you just bought.
Nobody expects an accident—which is why you need to be insured the moment you start driving that new ride. With so many factors affecting the types of car insurance available, it’s easy to spend more money than your coverage is worth. To make the right choice, pick an expert who can answer your questions, run the numbers, and help you compare rates.
Connect with an insurance Endorsed Local Provider (ELP). ELPs are independent professionals who work with insurance companies to help you find the right coverage at the right price. We’ve vetted them, and you can trust that they’ll walk you through the whole process pain-free. Make sure you and your family have the coverage you need to protect you and your (awesome) used car. Find your ELP today!