The Ultimate Guide To Buying A Used Car

Cars are one of the most expensive things that we own that go down in value. A new car will approximately lose 60% of its value within five years. Most clients I have start out with a car loan, because it is normal to have a car payment. We are told that new cars equal reliability & dependability, when we all know that an engine is under the hood, problems could arise regardless of the year that the car was manufactured. A quick rule of thumb to see if you should sell your car is; 1) Your car(s) add up to more than half of your income; 2) If you have a large car payment and you are unable to become debt free in two years using the debt snowball method.

Here are the steps that I recommend when buying a used car:

  1. Set your budget

  2. Determine which type, make, model, and year that you want

  3. Research the value ranges of the car on Kelley Blue Book

  4. Find the car through Craigslist / Facebook Marketplace / CarGurus

  5. Request the Carfax

  6. Visual inspection, test drive & perform ODB2 Code Scan

  7. Make an initial offer

  8. Take the car to an independent mechanic

  9. Make an adjusted & final offer

Set your budget:

This is the most subjective part of buying a used car. If you are on a debt free journey, you are likely looking for an older car with high mileage. So, how much should I spend on this car? Great question, my personal rule of thumb is no more than 10% of your annual income (for example - $35,000 income = $3,500; $72,000 = $7,200). Be prepared to pay with cash and remember that this is only temporary whilst you are trying to claw your way out of debt. If you want to upgrade after you have a six month emergency fund, go ahead! When you are debt free you have options and keeping your budget lower on this transaction will go a long way in your path to financial freedom.

Determine which type, make, & model that you want:

Type - This is a great first filter. Narrowing down the type from the beginning will aid in your following selections. Picking a type will depend on your situation or preference. If you have a family you may want to purchase an SUV or crossover. However, if you are single, you may opt for a fuel efficient sedan or hybrid.

The make & model -There is a reason why some cars are purchased more often that others. We all want a dependable and reliable vehicle, but how can we ensure we don't pick a lemon? Research, research, research. Look at sites such as consumer reports, edmunds, JD power, etc., so that you can make an informed decision on the make and model before you begin to search. After deciding on a make & model, I like to research common issues that the car has such as drive belt issues, transmission, etc. This will make you a very knowledgeable purchaser when speaking with the seller and also give you an indication of future work that may be needed.

The year - Typically car manufacturers bring out a new edition of car model every year. If you have your heart set on a particular model, it will be easy to learn what fits in your budget after the next step. I own a Lexus RX 330. If I had dedicated more money in my budget, I could have gone up to the newer Lexus RX 350. However, if I dedicated less money in my budget, I could purchased the older Lexus RX 300.

Research the value ranges of the car on Kelley Blue Book:

This step and number two go hand in hand with each other. If you decide on a make/model and quickly realize on this step that it is out your price range, then you will have to start from scratch and adjust the make/model. If you are unfamiliar with Kelley Blue Book (KBB), their website is free and they give you everything you need to research a car. My favorite tool that KBB has is the fair market range chart. After you select the make and model, you can select pricing based on either buying from a dealer or by a private party. Record both of these ranges as this will be your gauge as you explore the open market and give you ammunition for your negotiations.

Find the car through Craigslist / Facebook Marketplace / CarGurus:

The fun part, the hunt! Patience is key if you are not in a pinch to buy. Craigslist and Facebook Marketplace are great places to find a deal. Most sellers are looking to sell as quick as possible, but remember you hold all of the leverage. There are thousands of cars out there, so do not get emotionally involved with that one car you find. CarGuru's is a great website where you can set up price alerts for a specific make, model and year. They will email you when your selected car comes on the market at a local dealership with a great deal. There are numerous other websites out there that you can look at such Carmax or Autotrader. I personally prefer private party sale as you typically get the best deal, but these other sites will ensure that all of the bases are covered.

Request the Carfax:

Before you agree to meet, request the Carfax report from the seller. What is Carfax? Carfax utilizes the VIN number to search a car history database. The Carfax report will show: Title information, including salvaged or junked titles, flood damage history, total loss accident history, odometer readings, lemon history, number of owners, accident indicators such as airbag deployments, State emissions inspection results, etc. I would find it highly suspicious if a seller is not willing to provide a Carfax and I would move on if they do not provide one. Do not buy a Carfax on a car that you do not own. If I see any red flags on the Carfax such as accidents or numerous owners, I move on to the next car.

Visual inspection, test drive & perform ODB2 Code Scan:

So you have all your ducks in a row and the car checks out on Carfax. Let's take a look at the car:

Visual inspections - These are important and when performed correctly can save you more money when negotiating. Bring a pen and paper and write down any imperfections. Be sure to check all sides for dents and chips, items that have rust, rough/stained interior, and any oil leaks.

Test drive:

Before the drive: Is it easy to get into and out of? How is the seating for each area of the car? Plenty of trunk space? Does it have all the bells & whistles that you need? How is the visibility when driving?

During the drive: Acceleration: Does the car downshift quickly and smoothly? Is there enough power to pass on the highway or to go up hills? Engine and road noise: How does the car sound when you strongly accelerate? Is there a lot of noise from the tires? Is the cabin quiet? Braking: How is the pedal feel? Do the brakes "grab" suddenly? Steering and handling: Is the vehicle responsive? Can you feel the road through the steering wheel? Suspension: Is it stiff or soft? Does the vehicle ride comfortably on a rough road?

ODB2 scan - You can perform a quick diagnostic of the car by owning a ODB2 scanner for around $20. These scanners read over 3000 generic and manufacturer specific engine codes. You can also look at other data such as engine RPM / coolant temperature, calculated load value, fuel consumption, etc. Along with buying a scanner, you will also need to download an app to surface the data picked up by the scanner. I personally use inCarDoc as it was free on iOS. These scanners are well worth the investment, because you can also diagnose your own engine lights.

Make an initial offer:

I recommend sleeping on it before you make an offer, but if you are 100% this is the car for you, go ahead and make an initial offer when you are face to face with the seller. This is when you remember the KBB values and put in an offer that is towards the lower range of the private party sale. Use common sense and offer low enough that if they negotiate that you have some wiggle room. Be sure to say that you offer is pending a mechanic inspection. If you are paying cash, which I highly recommend, be sure to tell them that.

Take the vehicle to an independent mechanic:

Next up, inspection time. If possible, take the car to a mechanic that specializes in this make. If not, take the car to a mechanic that you know and trust. This step will cost you roughly $150-250, but it will give you the peace of mind that this car will be as reliable as possible. It is a step that many skip, but in my opinion it is an essential step in the buying process. Also, if you decide to buy the car, you will have a list of possible issues that you can address over time.

Make an adjusted final offer:

There will likely be a laundry list of items that the mechanic recommends that you replace. Ask the mechanic which issues are the most critical or what they would address if they were buying the car and list these out with their associated costs. Present this to the seller and see if they are willing to come down a little for this work. I have lost cars at this stage with the seller calling my bluff but I have also saved $1,000 at this step as well. If the seller calls your bluff and will only take your initial offer then you are faced with a decision to make. My thought process on this is if the car repairs take it back up to a price that you would not initially pay then you should walk. Remember, do not get emotional over a car purchase.

Hopefully this provides you with all the tools and knowledge you need to purchase your next used car. Good luck!

Ray Robertson