3/21/2011 11:23 AM ET|
How to shop smart at a used car lot
A good pre-owned vehicle is usually a better deal than a new one. But lemons are lurking out there, so do your homework and know the warning signs.
Seven years ago, when Alysia Welch-Chester needed a new car, she settled on a 2001 Toyota Prius that she found at a used car dealership.
"(It was) the best $7,000 I've ever spent!" she says.
Secondhand cars present a great option for consumers, because a new car depreciates in value almost as soon as the dealer hands the keys to the owner.
"There is no better deal than buying a quality 2- to 3-year-old used car," says Consumer Reports' Mike Quincy, a car expert. That's because the average new car loses 47% of its value in the first three years of ownership.
CeliaSue Hecht has purchased four used cars in her life and has had few problems, but when she bought a used Subaru Legacy station wagon, she discovered it had almost 250,000 miles on it at the time of purchase.
"(The dealer) turned out to be dishonest," she tells MainStreet. "I had to pay $1,000 immediately to get it up and running, then paid for normal wear and tear. It lasted about three years."
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So how do you tell a deal from a lemon? Read on as we break down exactly what you'll find on a used car lot and provide tricks to help you find a quality vehicle at a great price.
Determine the price
Admittedly, used car prices have gone up over the past few years because of a decrease in new car sales, which has made inventory tight. Prices will vary by make and model, but according to Larry Gamache, the communications director for CarFax.com, used cars currently cost an average of $12,000 to $15,000.
That's not to say you can't get a good used car at a lower price, but it does mean that if you see a 5-year-old SUV for only $7,000, you might want to start asking questions.
To determine whether a price is too high or suspiciously low, you'll need to do some research.
Various online tools can help you determine a fair price for a particular vehicle. Kelley Blue Book, for example, provides suggested retail values for used cars by looking at dealers' traditional asking prices for a particular model and the going rate for trade-ins. You can also enter the vehicle's current mileage into the quote search to get a more accurate estimate.
There is also this interesting distinction: "It's not always about how much it sold for when new," says James Bell, an analyst for Kelley Blue Book. "It's about how well it sold."
That is why vehicles that failed to catch on when they were initially released can be particularly good buys as used cars. As an example of how this can work in the consumer's favor, Bell cites the Kia Virago, a two-seater coupe released in 2009. The subsequent influx of that particular vehicle into the used car market caused its secondhand price to plummet.
"There was nothing wrong with the car," Bell says. "It was just a victim of bad timing in the marketplace."
Get the facts about financing
One drawback to purchasing a vehicle used is that you can end up paying more to finance it.
Bell says interest rates on loans for used vehicles traditionally run about a few percentage points higher than those on loans for new ones. Rates on new cars tend to run from 0% to 4%, while rates on used cars are often from 6% to 7%.
However, "the rate will be completely dependent on your credit score," Quincy says.
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With gas prices the way they are, used, larger vehicles can be a great deal right now. Who knows where the gas prices are going though. . .
"Reputable dealers" Most franchise dealers are so concerned with customer satisfaction that they simply will not put a questionable car on the lot, or will segregate those type units into a "bargain corral" and disclose to the customer anything that might be questionable.
"Carfax" Carfax is but one vehicle history reporting service. Another is Autocheck. Many dealers use one or the other, but they don't always contain the same information. Most dealers subscribe to one or the other, so if you ask for a history report and are given an Autocheck report, get the Carfax on your own. In any event, get both.
Your best bet for getting a reliable, fairly priced pre-owned vehicle is an independent leasing company. Most vehicle are just coming off lease and, in an effort to avoid excess wear and tear or mileage charges, are meticulously maintained. Since lease financing has more stringent credit requirements, the lessor is generally much more responsible, demographically speaking.
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