How to Buy a Used Car
There are many things to consider when buying a used car. The first thing to figure out is how much you can afford to pay. See my budgeting page to help figure this out. If your current car still fits your needs and is still in good working condition don’t upgrade just to keep up with the neighbours. Ask yourself if you really need a new car.
How Much Can You Afford?
If paying cash It’s good to keep the car price under 10% of your net worth. Keep in mind that a car is a depreciating asset. If you do decide to take out a loan, a good rule to follow is to keep the car payment under 10% of your take-home pay. Ex: Someone making $2000 per month after taxes can have a $200 per month car payment. I recommend not borrowing money to buy a car if you can help it. Another thing to consider is, a used car that’s out of warranty might need a few repairs so keep money set aside for that. Here’s a list of all the expenses associated with owning a car.
Car payments
Insurance
Registration
Repairs/Oil changes
Fuel
Drive license renewal
What to Buy
The first thing to consider is if you’re buying a car for the long term or if you plan to upgrade in the near future. Buying a newer car can be a good idea if you plan to keep it for over 5 years.
5 Main Considerations
How big is your family?
The number of people you need to fit in the car should be the first thing to consider.
Do you need to tow anything?
It is possible to add a hitch to many different vehicles. However, if the vehicle you buy does not have enough power for towing it will be very expensive to upgrade. Also, the manufacturer will specific a towing weight not exceed.
Do you need off-road abilities to get to your destinations?
If you need off-road abilities an AWD vehicle is usually enough unless you’re extreme off-roading in which case you need a 4 x 4.
What is the range?
Cars with long-range travel long distances before you have to fill up. This could make a road trip more efficient by having to stop less often. See my blog for road trip suggestions.
What is the fuel economy?
A car with good fuel economy means you will pay less in gas than a car with bad fuel economy. The trade-off is generally less power.
Below is a list from most fuel-efficient/expensive to least fuel-efficient/expensive car types:
There are many items that can be added to vehicles aftermarket but the physical size of the vehicle isn’t one of them. Adding power is expensive and hard work installing parts. There is very little you can do to the car to get better fuel economy. One of the simplest ways to improve fuel economy is to have your tires properly inflated and carry around less excess weight in the car.
Once you have a list of all your car requirements, make a list of all the car makes and models that meet your requirements that are in your price range.
What Makes a Good Value Car?
I’m assuming if you’re reading this, you want to find a good value car and not the most expensive one you can find. Here are some things to look at to find good value cars:
Low price compared to similar models.
Sites I use to compare car prices:
autotrader.ca - They have a rating system on their site that directly compares vehicles on their site based on location, kilometers, year, make, model, trim, options etc…
Their rating system goes from best to worst; great price, good price, fair price and above average.
kijijiautos.ca - Their rating system directly compares vehicles based on location, kilometers, year, make, model, trim.
Their rating system goes from best to worst; great, good, fair and above average.
Facebook marketplace is another good site but does not show a rating comparison.
Reliable and cost of maintenance.
One of the first things to look at when you find a car you like is the CARFAX. The CARFAX contains the following info about the car:
The number of accidents the car has been in.
Province/State it was last registered
Service records
US history
Open recalls
If it’s stolen
Import records
The number and type of accidents and service records are the most important items. Make sure the car you want has not been in a very serious accident and has had regular maintenance. A poorly maintained or damaged car will not last long. You can sometimes find the CARFAX at autotrader.ca and kijijiautos.ca. Car dealerships should also always have the CARFAX available.
Inexpensive to insure.
Check how much insurance costs before you buy a car.
What to Do Once You Found A Car You Like
Once you found that special car, take it for a test drive. Import to keep the music volume off to listen for any usual sounds. While parked, “try” to get the infotainment system working with your phone. I test drove many cars and only one was easy to get connected to. It was the Volkswagen but it was a bit out of my price range. Also, look for any dents or damage that you didn’t know about before. Then after the test drive move on and keep looking. There will always be more cars. Don’t fall in love with one car because then you’ll pay whatever the seller wants for the car. Test drive at least three cars that meet your requirements.
How to Buy a Car
With new cars, the markup is usually only around $2500. It’s difficult to negotiate much more than that off the price. With used cars, the dealerships buy traded-in cars at rock bottom prices and mark them up to market value. There is more opportunity with used cars to get a better deal. Always look very carefully at what you’re signing before buying a car. Sometimes dealerships add fees that you weren’t expecting.
There are two main ways to buy a car:
In-person at the dealership (Traditional Way)
If you go to a car dealership the salespeople could use high-pressure sales tactics to try and sell you a more expensive car. When you buy a car in person you can form a relationship and see the reactions of the salesperson as you’re negotiating. One major disadvantage is that a dealership will keep you there for a long time during negotiations going back and forth to the manager and to fill out paperwork. They will also try to upsell you features or swag you don’t need. Go into the negotiation knowing the absolute max price you’re willing to pay for the car and never go above that.
Online
It’s becoming more and more common for people to buy cars online. You should always test drive a car before you buy it but negotiating and all the paperwork can be done online. One disadvantage is you lose the power to read what the other person this thinking during negotiations.
How to Negotiate
I like to start car price negotiations with a lowball offer. Don’t be outrageously low or they’ll think you’re stupid. I start with 20% off the asking price. EX: for $20,000 my starting offer would be $16,000. They would only accept this if they were very desperate to get rid of the car. It continues back and forth until you agree on a price. If the dealership will not come down below your absolute max price walk away. There are more cars in the sea. Or they might agree to your price another day. The goal is for both parties to leave satified.
Registration/Insurance
It’s not the most fun part of car shopping but you need registration and insurance to drive legally. Everyone pays the same amount for registration but insurance can be a good way to save money. I recommend getting at least quote three quotes before buying insurance. You can save a significant amount of money by shopping around. If you have a great driving record you may qualify for accident forgiveness. That means your insurance rates don’t increase if you have your first accident. You need to have your insurance first before you get your registration.
Summary
There’s a lot to think about when looking for a used car. I hope this guide helps make your decision easier. See below a list of the topics covered:
How Much Can You Afford?
What to Buy
How to Buy a Car
Registration/Insurance