Buying A Used Car : Tips and Checklist

Let’s drive home a basic fact of life short of the occasional hermit, monks chanting away in some far-flung monastery, or the most dedicated of urbanites who hasn’t seen an open parking space since Eisenhower was president, almost everyone needs a car. That truth takes on an even greater scope in the United States, where car ownership supersedes necessity to blossom into an absolute God-given right. Buying a car particularly your first brand-spanking-new model is as much a rite of passage as moving out of your parents’ house into your first apartment.

But, like many first apartments where sweet independence can quickly give way to leaky pipes, insects the size of briefcases, and neighbors who insist on watching ”Hee Haw” at deafening levels your foray into the world of automobile ownership can prove less than idyllic. The trick is to know how to shop intelligently and to use every tool at your disposal to make your money go as far as it possibly can.

The first step is to back up and decide whether leasing may be a better option that buying. The distinction is simple. When you buy a car you’re taking actual ownership of it, while leasing is a form of rent. When the lease is up, you simply return the car to a dealer or other leasing agent. Buying makes the most sense if you’re genuinely interested in a low-cost, long-term means of transportation. No matter how much you spend, sooner or later you will own the car if you make the payments and keep it long enough.

Buying also works if you know you’ll be driving a lot; leases levy a mileage cap, beyond which you’re obligated to pay a penalty upward of 15¢ per mile. On the other hand, leasing can work if you plan to trade in your car every few years. Leasing also makes sense if you lack a sufficient down payment or if you want to check out a car before actually buying it.

Let’s tackle the first scenario and assume you’ve decided to buy a car outright. The choice comes down to buying new versus buying used car. Admittedly, there’s a lot to be said for the sexiness of a brand-new ride, not to mention that incredible new car smell. But do think long and hard about opting for buying a used car. The primary reason is that a new car’s value plummets quickly, starting the second that you tool off the lot. In fact, the Kelly Blue Book estimates that a car’s trade-in value drops as much as 40% in its first two years. That may not mean all that much if you intend to drive that new car until the day it up and dies, but it carries a lot of weight if you expect to trade it in a few years. One additional caveat, especially if you want to get the most when you resell: Keep an eye peeled for significant changes in body styling in newer versions of your car. Historically, depreciation in used models is particularly sharp after the “new version” is released.

If you think a used car might be the better choice if the price of a new car is sufficiently outlandish to put it out of your price range or if you won’t be driving it forever that doesn’t necessarily mean you have to settle for some rattling old clunker. One good tips strategy is to keep your eyes open for a car that’s coming off a two-or three-year lease not only is it likely to be in good shape and available at a good price, but it may also have some of its new car warranty in place. Estimates hold that between two and three million cars come off short-term leases every year, so be sure to ask your dealer if there are any for sale. That gives you the best of both worlds a cut-rate used-car price, but with some of the new car pluses intact.

When haggling over a used car, be aware that, for the most part, auto dealers’ profit margins the difference between what the dealer pays for the car and the price you pay the dealer are usually considerably higher than those for new cars (profit margins for used cars can range upward of 25%, as opposed to 10 to 12% for new cars.) One good rule of thumb for used cars is to try offering 80 to 85% of the asking price and never to pay more than 90%. That way, you get a car at a reasonable price while the seller also makes a decent profit.

If you’re set on doing the shopping yourself, look into services that help ensure you’re getting the best deal possible. For instance, Nationwide Auto Brokers (800-521-7257) gives shoppers an item-by-item breakdown of what a particular car cost a dealer (lovingly known as a “cheat sheet.”) That way, you know precisely what the dealer paid so that you can dicker from a realistic perspective. In other words, if you want to add air conditioning and the dealer says it cost him $500 but your sheet says he laid out only $300, you can correct his “honesty” with whatever level of decorum you choose. Cost of one report is $11.95, and additional reports are $9.95 each.

Also be on the lookout for additional discount programs that many car manufacturers offer to recent college grads. Ford, for instance, dangles an additional $400 discount to recent college graduates who purchase a new car, over and above whatever other incentives might be available (for further information on this program, go to Ford’s special programs Web page at http://www.ford.com/us/collegegrad/. Be sure to check out the particulars, since each manufacturer defines “recent” differently. To find out more, call the manufacturer’s toll-free 800 number or check out its Internet Web site (usually the name of the company, followed by.com).