How Much Should You Pay For a Used Car?
Buying a new car off the lot is a fairly straightforward process. You can negotiate with the salesman to some extent, but because you’re going to be the first owner and the car is defect-free, you can only lower the price so much. If you want to avoid car depreciation, you’ll go straight to buying a used car, but here’s today’s “million dollar question,” how much do you pay for a used car?
Everybody has their own used car stories and you might call them lemons, rattle-traps, diamonds in the rough, back-to-school cars, or a bargain.
Case in point: nobody wants to overpay for a used car because you don’t know exactly what you’re getting. You don’t want to overpay and then get stuck with necessary repairs that the previous owner failed to disclose or didn’t know about. With a brand-new car, these repairs might be covered by warranty, but you’re responsible for them when you buy used. On the bright side, repairs are cheaper than a monthly payment if you buy a used car with cash.
Of course, buying a vehicle protection warranty can cover the costs of the most expensive mechanical defaults and can be worth it if you can find a warranty at a reasonable price or you can buy the car at a reduced price to stay within your purchase budget.
Price the Car Online First
Before you contact the seller, get a ballpark figure of how much the car will cost. Compare the advertised price on Craigslist or the dealer’s price compared to the estimated price on these three websites:
Kelley Blue Book is probably the most popular of the three rating services, but they don’t all have the same suggested price. There can be a difference of two or three thousand dollars between them which means you can have lots of wiggle room if you find a motivated seller.
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By getting a quote from all three places, you know the highest you should be willing to pay for the car in its current condition, so you can establish a price ceiling. After having an initial conversation with the buyer, before you schedule a test drive, you will know if he’s willing to come down on the price within your price range.
As a general rule of thumb, average the three prices together and make that your target purchase price (if the seller won’t sell it for the least expensive quote). So if you get three estimates for $4,000; $4,750; and $5,000; the average would be $4,583 which means you should pay no more than $4,600 in most cases.
Compare Similar Listings and Alternative Vehicles
You should also compare the price of the vehicle listing you want to similar models. If you want a 2012 F-150, look for other F-150s with the same model year with similar mileage and features. Vehicles prices in your local market might be higher or lower than the Blue Book price and you might be able to use this information to your advantage.
If you think the price of the vehicle you want is too expensive, consider another model. This might not sit well if you’re loyal to a Ford, even though you can get a better deal on a Toyota or Chevy, but being open-minded and flexible can save you some cash as long as the alternative model still has enough cargo space, seat belts, or adequate fuel efficiency.
Ask These Specific Questions
If you’re semi-serious about buying a particular car being sold by the owner, you should ask certain questions that can help you accurately determine the value:
- Are there any check engine lights?
- What issues have you had with the car?
- Do you have any current issues?
- Why are you selling the car?
- Does any maintenance or repairs need to be completed?
- What recent maintenance or oil changes have been performed?
- Is there any rust?
- Has the car been involved in a wreck or flood damaged?
- Does the car have a clean title? If not, why?
- Will the car pass emissions and safety inspection?
You can also read the Consumer Reports reviews or visit an online forum to look for common issues for the year of the vehicle you’re looking at buying.
Hopefully, the owner will disclose most of this information in the listing. Ask these questions to help ascertain if you’re getting a good deal or a lemon.
If any repairs need to be completed and aren’t factored into the listing price, try negotiating with the seller to reduce the price to offset the known repairs he hasn’t completed yet. If the vehicle needs a new exhaust system, you might try paying $300 less to offset those repair costs.
Be Extra Cautious If The Car Is At Least 10 Years Old
Brand new cars can be money pits too. The odds are more likely if you have a used car that’s at least 10 years old and has had multiple owners.
Like everything else, cars eventually break down and need repairs and routine maintenance. Certain parts have a limited lifetime and you usually have to start paying for larger, more expensive repairs when the car approaches its 10th birthday. You should always pay the least amount possible for any vehicle but pay as little as possible when the car is older to hedge against any potential, unforeseen repairs.
If the car has been well-maintained in previous years, the odds of making expensive repairs are less likely because of preventative maintenance and responsible driving habits. When a car has been taken care of: clean engine, smoke-free interior, and a polished exterior, you might consider paying more (instead of less) for the car.
There are still plenty of good, reliable 10-year vehicles that make an excellent addition to your garage, just perform your due diligence.
How Much is Too Much to Pay?
Getting an online quote from at least two online websites and comparing the vehicle listing to similar models for sale gives you a ballpark idea of what you’ll pay for the car in the current used car market.
How much you pay the seller is one known expense, but don’t forget about these hidden expenses:
- Vehicle registration fees
- Monthly insurance premiums
- Vehicle protection plans
- Upcoming repairs that will need to be completed soon
If you don’t feel comfortable with the purchase price, don’t be afraid to walk away. Ask for a couple hours to make a decision before the seller shows the car to another person. This gives you time to look for similar vehicles after test driving the current one and having a face-to-face conversation with the seller. If you leave the test drive not trusting the seller or hesitant to buy the car at it’s current price, that’s okay.
Cars are for sale every day. You don’t want to see life pass by kicking tires more than necessary. However, it can be better than paying too much.
Disclosure: The information provided by The Financial Genie is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other professional to determine what may be best for your individual needs. The Financial Genie does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any investment decision without first consulting his or her own financial advisor and conducting his or her own research and due diligence. Additionally, some of the organizations with products on our site may pay us a referral fee or affiliate commission when you click to apply for those products.