Frugal Guide for Buying a Used Car

Are you in the market to buy a used car soon or do you have plans down the road to pick one up?  If so, then this frugal guide for buying a used car can save you hundreds and help you find a great vehicle!

Read on to learn more!

1) New vs. Used

I’m going to write this whole article assuming you already recognize the savings benefits of owning a used car versus buying a brand new one from the dealership.  You could go out and get a new BMW or Mercedes and windup paying $3,000+ per year, or you could go the frugal route and easily be able to get your annual costs for a vehicle below $500 a year (not including maintenance, gas, oil, insurance, etc.).  If you’re the flashy new car type, then this article may convince you to try a used car and save thousands of dollars a year in the process!

 

2) Don’t Buy From a Dealership

OK, a lot of folks feel like certified pre-owned from a dealership is the way to go.  They get some kind of reassurance that the car has had a once over, and it’s probably going to come with some kind of short warranty (most likely 30 days).  Some sites like CarMax tout a 125+ point 12-hour “reconditioning” to get the car ready for sale.

All of this is great, but is it worth paying potentially several thousand dollars more for this type of reassurance?  I really don’t think so.  Read on below to find out why.

 

3) What Type of Car to Plan On?

When buying a used car, one of the most important things to look for is long term reliability.  This will save everyone time and headache down the road if you make this your primary focus (we’ve already decided to give up on having the coolest and flashiest new car).

When going for reliability, I think it’s pretty much a given that Honda and Toyota have this down to a science.  My family has owned six different Toyotas over the years, and I have never had any major repair bills to deal with.  They really are top notch vehicles.  Here’s what you should be focusing on to keep repair costs to a minimum:

• Corolla / Camry / Sienna
• Civic / Accord / Oddessy

Anything else will probably be a waste of resources in the long run and not the most frugal decision.

 

4) How to Find the Best Deal

There is a bit of math here, so bear with me.  If you aren’t very math inclined, then you can try to skip this process and just use Kelley Blue Book to get your information.  To do this process justice, you’ll need to fire up your favorite spreadsheet program and Craigslist.

OK, here are the steps:

1. Determine how many miles you will drive each year (for me it is ~15,000 miles/year)
2. Assume an end-life number of miles for the vehicle (I use 250,000 miles).
3. Take 250,000 miles and subtract the Current Miles on the vehicle for sale.  This will give you the miles of vehicle-life left
4. Divide “miles of vehicle-life left” by number of miles driven per year
5. This will give how many years the vehicle will last you
6. Now, divide the asking price by the number of years the vehicle will last
7. This will give you dollars per year ($/year) to purchase the vehicle
8. Plot out the $/year versus the model year of the vehicle (see example plot below)
9. Add a trendline to get the “best-fit”.  Any vehicle that you can find below the line in good condition is a good deal
10. Target a model year you would like to focus on based on the $/year price range that fits your budget

Here’s an example.  Say we have a 2004 Toyota Corolla with 93,100 miles for $7,200 on Craigslist.  The miles of vehicle-life left = 156,900.  156,900 Divided by 15,000 miles/year = 10.4 years.  $7,200 / 10.4 years = $688 / year.  You can see this point on the plot above for 2004.

In my area, it appears that I can get a 10 year old Corolla (2003 model) for ~$496 / year. This is a better deal than even some of the older cars.

If you calculate the cost per year out in a spreadsheet for 20-30 cars available through Craigslist and plot the results, a couple of things will jump out at you:

• In my area, the sweet spot for Corollas seems to be the 10-12 year old vehicle.
  • A very new or really high mileage Corolla will cost 2-3+ times as much per year vs. a ~10 year old one
  • There are several 15 year old Corollas with high miles that will actually come out a worse deal than the 10 year version
  • The CarMax cars (pre-owned dealership – shown in salmon color above) are all way above the average line compared to what you can get from a private owner (the 2003 car is double the cost each year!)

Now that you know how to pick out a good vehicle that will give you the best bang for your buck, let’s move onto some tips around making sure you avoid a dud.

5) The Evaluation and Test Drive

You don’t have to shop at a dealership to find a vehicle in good condition!  There are several ways you can make yourself more comfortable that the car is OK before making the decision to purchase it.  These include:

• Get a CarFax report (you can get unlimited reports for $55)
• Take the car to a trusted mechanic WITH the seller for a once-over ($50-$100)
• Take it for a test drive.  Look for the following:
  • Brakes work well
  • Accelerate quickly to check for smooth shifting between gears
  • Car stays straight when letting go of the steering wheel
  • No vibrations in the steering wheel when moving
  • No funny or loud sounds while driving
  • Open hood while parked and check for funny sounds
  • Funny smells (burned oil smell) or smoke
  • Check for any engine pinging/knocking/dieseling after car is turned off
  • Lights / brights / blinkers / AC / heat / seats / windows / wipers / doors / locks / controls & instruments / radio / glove box all function properly
  • Push down on all four corners of the vehicle, it should stop bouncing in under 2 seconds
  • Windshield has no cracks
  • A more exhaustive list can be found here
• State inspection sticker is up-to-date (if applicable)
• Inspect all previous maintenance records to ensure routine maintenance was being performed on schedule
• Have a friend that knows a bit about cars come along with you to check it out
• Ask the seller what issues have occurred with it
• Look for a low number of previous owners (1-3, anything more could be fishy)
• Look where it was parked for signs of oil leaks on the pavement/gravel
• Lift up trunk carpet to check for signs of rust (flood damage)
• You get a feeling from the seller that they are honest
• The reason for selling the car seems legit

Make a mental checklist of the above and running through it when you evaluate the vehicle.  This will help you to feel better that the car you’re interested in is worth your hard earned money.  Most dealerships will only warrant the car for 30-days, buy running through the exhaustive list above, you’ll have the same degree of confidence and potentially save thousands!

 

6) Check the Consumables

In addition to the items above, you’ll also want to check all of the normal “consumables” to assess their condition and determine when they were last replaced.  These include:

• Timing belt and other belts
• Hoses
• Brake pads and rotors
• Tires
• Transmission fluid
• Oil change

Don’t worry if you don’t know how to check these yourself, your mechanic will look them over for you.

If you find any issues in any of these areas, that is OK.  You just need to ensure you factor this information into your offer.  If it will take $300 for all new tires because the ones on the car are in bad shape, then negotiate for this!

 

7) Negotiating Tactics to Close the Deal

There are a couple of things to keep in mind here to really get the best deal you can on your used vehicle:

1. Be willing to walk away!
2. I repeat, be willing to walk away!!!
3. Time is your friend, never rush into a decision or put time constraints on yourself or you will almost certainly miss the best deal.
4. If something seems too good to be true or you get a bad vibe from the seller, then trust your gut and move on.
5. Portray to the seller that you are a reluctant buyer.  Do not seem over anxious to purchase the vehicle.  You want to portray that you are always on the fence.
6. Come prepared with the rough fair value range the vehicle should be priced in.  You should already know this based on the analysis you did above in step #4, or from a site like Kelly Blue Book.
7. Use everything you can find wrong with the car as a bargaining chip.  This could be cosmetic (scratches), mechanical (window doesn’t roll down), or consumable (hoses need to be replaced).
8. Appeal to a higher authority: “this sounds great, but I’ll have to check it over with my wife to make sure she’s OK with it.”  This gives you an out if you’re not interested, or a way to negotiate for a lower price when you come back the next day.
9. Remember, negotiating takes time and makes many folks uncomfortable, BUT it is a way to literally save yourself hundreds of dollars per hour of your time if you are willing to step outside your comfort-zone for a brief period of time.

 

How I Used these Tips to Save $2,200 On My Used Car

I recently put all of these tips to good work to find a 2007 Corolla for $2,200 less than Kelley Blue Book.  Read all about How I Got a Free Corolla here.

 

Summary

If you’ve followed all of this frugal guide for buying a used car, then you should be able to find a high quality used car at a great price that will last for years!  Good luck, and let me know if you have any upgrades to the guide!