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Cars have gotten expensive, and that even includes used ones. Learn what to watch out for when you purchase a used vehicle.
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Buying a car has never really been cheap (unless you were buying a true junker), but car prices these days are absolutely outta sight. For example, Kelley Blue Book found that the average new car buyer in July 2023 paid $48,334 for their vehicle. As someone who paid less than half of that for a new car the last time I bought one, that’s mind boggling — granted, I did buy my car almost 15 years ago.
One way you may be able to save money on the whole process is by buying used. Prices for used cars haven’t exactly been low, but there is a little bit of good news if you’re hoping to buy one from a dealership. KBB reported that the wholesale price of used cars (what dealerships pay for the used cars they sell) fell 2.3% in October.
So you want to buy a used car? Here are some pitfalls to watch out for.
1. Not checking your financial status first
Before you start looking at used cars, take a little time to sit down with your finances. I know, I know, it’s not sexy, but remember, a lender is going to get up close and personal with them, and you want to beat that lender to the punch. Your credit score and down payment will have the largest impact on the auto loan you qualify for and the interest rate you’ll get. And since a higher interest rate will make the purchase more expensive, it’s worth taking this time to assess your finances.
You can likely access your credit score (ideally, your FICO® Score, as it’s the one 90% of lenders use) through your bank or a credit card issuer. Go to AnnualCreditReport.com and pull your credit reports for free to see what an auto lender will find. And if you spot errors, you can ask the credit bureau to remove them, which will boost your score.
Finally, decide how much money you can put down for the purchase. Ideally, 10% to 20% shows a lender that you have skin in the game, and are therefore less likely to stop paying on your loan, leading that lender to repossess your vehicle.
2. Only considering monthly payments
Another major mistake you might make when buying a car (used or new) is thinking that an affordable monthly payment means you can absolutely afford to buy that car. Not so fast! While it’s true that the monthly payment is the biggest cost you’ll pay regularly for the privilege of owning a car, it doesn’t come close to telling the whole financial story.
Remember, you’ll also need a car insurance policy. You’ll need to pay for gas (or EV charging) and maintenance. And if something goes wrong, you might be staring at a big repair bill. This is a bigger risk for a used car because they generally don’t come with a manufacturer’s warranty. So don’t fall into the trap of thinking a car is affordable on the basis of a monthly loan payment alone.
3. Going with dealer financing automatically
The dealership where you’ll buy your vehicle likely has in-house financing. And it might even be good — the used car I bought before I got my current car came from a dealership that worked with banks you’ve actually heard of, and that’s how I first came to join the big bank I still have accounts with today.
But it’s worth exploring a few options for auto loans before you go to the dealership to see what kind of rates you might qualify for. Remember, loan interest has the potential to make your purchase a lot more expensive, so give yourself the option to find a lender besides the one the dealership works with.
4. Skipping the vehicle history report and mechanic check
Finally, don’t assume that the car you’re buying is in good shape, and I’d caution against taking a dealer’s word for it. Remember, the dealer has a vested interest in you buying that car. So ask for a vehicle history report (this will tell you all kinds of vital information, including whether the car has been in a wreck), and get a pre-purchase inspection.
If a dealer balks at the prospect of you taking the car off site to a mechanic or having a mobile inspection service show up to have a look, that’s your sign that you shouldn’t buy that car. After all, if an inspection makes you feel more confident about buying and helps the dealer close the sale, that should be reason enough to allow you to seek a third-party inspection. In buying a used car, as in all major purchases, knowledge is power.
Buying a used car rather than a new one can help you shave some money off the purchase. Just avoid the above mistakes to sidestep a major hit to your personal finances.
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