Shopping for and buying used cars is not something most people do every day, which means the task can be daunting – especially if it's your first time trying to find the best-used car and a great car loan to go with it. To make sure you get a fair deal on a used car, prepare yourself for the search, negotiation, and financing process by considering the following used car buying tips.
The Best Used Cars –10 Tips to Guide Your Car-Buying Search
1. Research and Compare to Find the Right Car
The first step to finding a used car should be considering your needs and desires, and then doing your best to find them in a reliable used vehicle. Make a list of everything you require of your car: for example, good gas mileage, a high safety rating, enough seating, 4-wheel drive, a place for your dog to ride comfortably, or backup cameras. Really taking stock of your requirements will ensure you find a vehicle that aligns with your needs and enhances your life, rather than choosing something that catches your eye because it's flashy and attractive. With a thorough list, you can even find a vehicle with both style and functionality.
2. Check the Used Car's Market Value
Once you have a year, make, and model in mind, use a reputable pricing guide, such as the Kelley Blue Book or the NADA Guide to get an estimate of the car's high and low retail value in your area. You can use this to get an idea of whether you'll be able to afford the car of your choice, and you can also use these values to negotiate with the seller.
3. Pull a History and Safety Report
Before deciding on a specific vehicle, take a look at the vehicle identification number (VIN) on the vehicle's title and where it's stamped on the car. If any of these numbers don't match, this is an indication of a problem. You can also use the VIN to pull a history report from a company like AutoCheck or Carfax. Then pull a safety report from the National Highway Traffic Safety Administration to check on any vehicle safety recalls.
4. Never Buy a Used Car without Having It Checked by a Mechanic
When purchasing a used car, the biggest risk is that you could be buying someone else's problems. Prior to purchasing a used car, you should always have a trusted mechanic of your own (not one located on the lot or representing the seller) do a full inspection of the vehicle. They'll be able to spot signs of unreported accidents, damage, or other potentially expensive wear and tear.
5. Clean Up Your Credit Before Applying for a Loan
When you're after a car loan, your credit trends really matter. If your credit history shows responsible behavior like a good credit score and on-time payments, you'll likely score a loan with favorable terms. But if your credit's been slipping with late payments or lots of debt, you might end up with higher rates or even a loan rejection. You can research and pull your credit history report for free from annualcreditreport.com. To ensure you can get a great interest rate on a car loan, pay off any collection accounts that have not been settled and pay all your monthly payments on time for at least 12 months. No history of collections or late payments is best, but if you have them, be sure you can prove that you've learned to be financially responsible.
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6. Set a Budget for How Much Car You Can Afford (and Stick to It)
As a rule of thumb, all of your monthly loan payments, credit card payments, and housing costs should equal no more than 36% of your gross monthly income. Take a look at your current budget to determine how much you can afford to spend monthly on a vehicle. Be sure to consider your estimated loan payment in addition to insurance, maintenance, and fuel costs.
If you're uncertain about this step you can get pre-approved and your lender can use the application to help you calculate your debt-to-income ratio to determine how much car you can responsibly afford.
7. Get Pre-Approved Before Visiting a Dealer
One of the best negotiating tools available to you at a used car dealership is pre-approval from a lender. Getting pre-approved for a loan automatically places you in a safe buying space on a car lot because you'll avoid having to wrap your head around the dealership's sometimes tricky and misleading negotiating tactics that are tied to too-good-to-be-true interest rates and prices.
Plus, you'll know exactly how much you can spend, and you can use this information as a negotiating tool to get a sales-eager dealership representative to lower the price on the best used cars.
9. Save as Much as You Can for a Down Payment
Unless you're in possession of a truly antique vehicle, the inherent value of your car will almost always decrease over time. If your vehicle's value depreciates more quickly than you pay down the principal balance on your loan, this can put you at risk of owing more on your car loan than your car is worth (also known as being “underwater”). In order to protect yourself from this financial risk, it's advisable to pay at least 20% of your vehicle's sale price in cash and finance the remaining amount. If you can afford to put more than 20% down, do it! This will save you money in interest over time and further protect you from being underwater in your car loan.
9. Pay for Extra Costs and Fees in Cash
For the same reason you need a down payment, it's also advisable not to roll extra costs into the financed portion of your loan. You can get an estimate of loan closing costs, document costs, sales taxes, and registration fees ahead of time from your lender, so you can come to your loan closing prepared to cover those items in cash.
10. Keep Your Car Loan Term as Short as You Can Afford
A loan term is the number of months you have to repay your loan. The shorter the term, the higher the payments. Although shorter loan terms come with higher monthly loan payments, they also usually feature lower interest rates because they pose less risk to lenders. Once you've determined your budget, it's usually best to choose a car loan that you can pay off as quickly as possible because this will save you money in interest.
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These tips will help you find the best used cars and a car loan that suits your needs and budget. If you still encounter uncertainties throughout the process of shopping for a used car, determining your budget, or looking for a car loan, contact us!
For more details on how to find the best used cars and car loan for your needs and more tips to save you time and money on your car buying journey, review our "Car Loans 101: Car Buying Made Easy" complete guide!
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