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.
Two types of financing can be used to purchase your used car. In-house financing, known in the business as "buy here, pay here," is convenient, because you can do the paperwork on the premises, but this financing doesn't always offer the best deal. If you have more time on your hands, you may be able to get a lower interest rate from a bank or credit union.
"You just have to be willing to do your research," Quincy says.
Check the inventory
Of course, doing your research means more than finding the lowest interest rate to purchase a used vehicle. You've also got to ask about the inventory.
Most of the vehicles on a used car lot are purchased from new car dealerships after coming off a lease, or they're trade-ins from customers now in the market for a different car. Other used cars are typically bought at auctions or from rental car companies or insurance companies. If a dealer tells you that a vehicle is from that last category, consider it a big red flag.
"You don't want to buy a car that was purchased from an insurance company," says Sergio Stiberman, the CEO of LeaseTrader. "It means the car was totaled."
Conversely, vehicles that have just come off their leases are often less likely to be lemons, since people who lease don't want to pay fees when they return the car to the dealer.
Keep in mind, however, that no origin represents a sure thing. A lemon can come from anywhere, especially if the dealership you're visiting buys its cars indiscriminately. Once you're on the lot, your job is not simply to learn where the car came from, but also what it has experienced.
Stiberman says you can do this by asking the following questions:
- Has the car ever been in an accident?
- Has it been totaled?
- Has it had body work done?
If you want something in writing, many experts say, you could also ask to see a CarFax Vehicle History report, which will tell you whom the car was purchased from, how many times it changed ownership and whether it was involved in any wrecks. Some dealers, especially the more reputable ones, will provide this report for you, but you can get one yourself for $34.99.
Consider a certified vehicle
There's also the option of purchasing a Certified Pre-Owned Vehicle, a car that a dealership repaired and inspected after receiving it back from a lease in good condition.
These cars aren't always found on a traditional used car lot. You might need to find a dealership that sells both new and used vehicles, since such dealerships are more likely to invest in the inspection process.
Additionally, these cars can cost more. Bell says you can expect to spend an additional $1,000 for a compact car and as much as $3,000 to $4,000 more for a luxury vehicle.
However, Bell says, the cars have been formally inspected and often come with special warranties that make the extra cost worth it to consumers who want peace of mind.
Check the books
If you want to further minimize your risk of getting hosed, you should stick to models that have proven reliability records. Consumer Reports has a ranking of the best and worst used car models to buy. Among the best are the Acura MDX, the Honda Accord and the Lexus GS. Quincy says cars that have good track records when they're new will also have good track records when purchased secondhand.
Regardless of whether these models fit your needs or preferences, it's a good idea to have a car in mind and know its current going price when you arrive at the lot. That reduces your odds of getting steered toward a damaged car by a predatory dealer.
If a dealer is pushing a car and you find yourself drawn to it, be prepared to go home and do your research on that make and model before you buy.
Once you have found what looks like a good vehicle at a fair price, there are two things left to do, experts say.
First, take the car for a test drive to make sure it's running properly. Second, have it inspected by a third-party mechanic.
Gamache says consumers can have a basic inspection done for $50 to $100, though savvy shoppers may be able to get the dealership to pay with the promise of a sale.
Our experts say these requests are perfectly reasonable and that if the dealer gives you any pushback, it may be an indication you need to take your business elsewhere.
"You've got to be prepared to walk away," Bell says, noting that finding a reputable dealer is an integral part of buying a used car. "You've got plenty of options. You should be able to find a comparable deal elsewhere."
This article was reported by Jeanine Skowronski for MainStreet.
VIDEO ON MSN MONEY
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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