Future Planning

Buying Wisely in Today’s Frenzied Used Car Market

BY Anne Johnson TIMEJuly 20, 2022 PRINT

New car shortages have put pressure on the used car market. Although used car prices are settling down, they’re still 22 percent higher than in 2021. And according to the consumer price index, as of June 2022, used car prices were over 44 percent higher than in the first quarter of 2020.

Buying a vehicle has always been expensive, but at least you could always get a break by buying a used car. Not anymore. That makes shopping around and making an informed buying decision more important than ever. How do you go about looking for and purchasing a used vehicle? What are the pitfalls to avoid?

Matching Your Vehicle and Your Budget

The best way is to start with your budget. By looking around the web, you’ll know what inventory is available. You’ll also have an idea of what type of budget you’ll need to buy a car.

If the type of car you want has a higher average cost than your budget allows, take a realistic view of what you can pay. Don’t look for a used Lexus SUV when your budget is in the Ford SUV range, no matter how great a deal that Lexus is.

Once you’re comfortable with both the type and average cost of a vehicle, decide how you will pay for your purchase.

buying a used car, used car, car loan
Car prices have skyrocketed over the past two years. That includes used vehicles.(YAKOBCHUK VIACHESLAV/Shutterstock)

Car Loan or Cash?

There are two ways to buy a used car. You can either pay cash or take out a loan.

If you are paying cash, be careful not to exhaust your savings in one fell swoop. You’ll still need a nest egg for emergencies or if your used car has a problem down the road. Also, remember to put aside funds for taxes, fees, registration and title.

Taking out an auto or personal loan is a viable option as well. The benefit to borrowing is that it doesn’t deplete your savings. You will be able to make monthly payments over a specified period.

If You’re Borrowing: Caveats

Some used vehicles are sold above book price, particularly in today’s inflated market. Be aware that if the car’s price is inflated, it could cause you to be upside down on your car loan: in other words, the car’s worth could be less than what you borrowed.

Plus, if you buy a vehicle with an inflated value, and it’s totaled or stolen, there may be a gap in your insurance coverage. Auto insurance companies settle claims based on actual cash value. That means that if your car depreciates, you won’t be reimbursed for what the selling price was. Instead, you’ll be paid for the depreciated value. That could be a big difference, leaving you unable to easily purchase a replacement.

 

buying a used car, used car, car loan
Paying cash for the car of your dreams is ideal but may not always be feasible. (G-Stock Studio/Shutterstock)

Finding the Car You Want

There are various ways to find a used vehicle that meets your needs and budget. Private sellers list cars online, and dealerships sell the used cars they take as trade-ins. While going from dealership to dealership—or from website to website—is one option, using a central vehicle listing site like Auto Trader will save you time.

Auto Trader features both dealerships and private sellers. Search filters include location, type and model of vehicle.  You can also search by budget, including a desired monthly payment. And since all Auto Trader sellers, whether dealership or private, must pay, there is less likelihood that you’ll encounter scammers.

Craigslist also lists used cars.  Listings are free, and may be a good source for both high or low-end vehicles. However, because sellers don’t have to pay to use Craigslist, it can attract scammers.

Evaluating a Used Vehicle

Once you find the vehicle you’re interested in, several factors should be examined. Check the year, make and model. Look at what options it has. Does it have a navigation system or a backup camera? These add to the cost but also add to the enjoyment. Decide what options are important.

Mileage is a big factor. How much mileage does the car have? Keep in mind that more miles a car has, the more likely it is that the car will need major repairs, sooner rather than later.

And finally, what is the car’s condition? There are several levels used to rate the condition of a vehicle. In the United States, conditions range from 0 (inoperative) to 5 (excellent). When it coes to a vehicle’s worth, even one difference in grade could affect the price substantially.

If you are purchasing the vehicle from a private seller, have a mechanic drive the car and evaluate the engine. You’ll also want to examine the body. Surface rust could indicate deeper problems.

buying a used car, used car, car loan
If purchasing a vehicle from a private seller, have a mechanic do a diagnostic. (Africa Studio/Shutterstock)

Research the Vehicle’s History

Is the title clean? If you’re buying from a private seller, does the person truly own the vehicle? Beware of stolen cars. It’s always a good idea to run the vehicle identification number (VIN) through the National Insurance Crime Bureau (NICB) VINCheck. This free service could save you a great deal of trouble.

Check to see if the title has “salvage” on it.  A salvage vehicle may be a bargain—and it may look great—but it could have hidden structural issues from an accident.

Finally, run a CARFAX or similar vehicle history report. Carfax currently charges $39.99 for one report, but the company offers multiple report plans that may save you money as you shop around.

A vehicle history report includes major accidents, airbag deployment, and red flags such as “not actual mileage” or “true mileage unknown.” While this could mean that someone simply typed in incorrect mileage at some point, it could also mean that the odometer has been rolled back.

buying a used car, used car, car loan
“Not actual mileage” could signal an odometer rollback. (Courtesy of David Taylor)

Negotiate a Price

With the current landscape, this one might be tough, but it can’t hurt to haggle.

If you’re buying a car from a dealership, salespeople will often focus on the monthly payment. Don’t negotiate for a lower monthly payment. Instead, the goal is to negotiate the total cost of the vehicle. The monthly payment may seem low, but it would have been even lower if you had negotiated the vehicles’ overall price.

Write down the prices that are being thrown around so you don’t get confused. And ask about fees and taxes, as these can inflate the price.

Finally, don’t fall in love with the car before you buy it. Be ready to walk away if the deal doesn’t go the way you want.

The Bottom Line

New vehicle shortages have increased the demand for used vehicles. That makes purchasing a used. car trickier than usual. So be prepared when you talk to that seller or dealership. Check the vehicle’s history. And don’t be afraid to walk away if negotiations don’t go the way you want.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.

Anne Johnson
Anne Johnson was a commercial property & casualty insurance agent for nine years. She was also licensed in health and life insurance. Anne went on to own an advertising agency where she worked with businesses. She has been writing about personal finance for ten years.
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