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5 Simple Steps to Purchasing a Used Vehicle:

Although Aaron and I try to run our cars into the ground, there comes a point when putting money into an older vehicle just doesn’t make sense anymore.

Unfortunately, that happened to our daughter this past week.

Two years ago we had purchased a 2001, Oldsmobile Alero with around 120,000 miles for $500 from a neighbor.  They told us exactly what was wrong with the vehicle and we spent another 1,500 fixing it up for her to drive.

Over the past two years, she has driven it to work virtually every day (which is a commute of around 30-40 miles each way) and put another $1,000-1,500 into the car.

Last week, she called Aaron because one of the light had come on indicating the coolant was low.  He told her to bring it over and he’d help her take care of it.

I don’t need to go into details, but the coolant wasn’t added to the vehicle.  The next day as she was driving to work the engine overheated.  I wasn’t there, but I guess it was pretty scary with tons of smoke and all that fun stuff.

Lesson learned – Always follow dad’s advice when it comes to cars.

Unfortunately, this is a very expensive lesson.  As in around $1,000 according to our mechanic.

At this point, it just isn’t worth putting the money into fixing the car.  It looks like we will be junking it in the next couple of days.

In the meantime, our daughter needed a new vehicle.

I hate vehicle shopping with a passion.  I seriously think it is a form of torture.  Fortunately, Aaron loves this kind of stuff and took care of everything.

I’d love to take credit for the steps below, but need to be transparent and give my husband full credit for his shopping skills.

Every vehicle purchase will be slightly different depending on your needs, but below are 5 steps to follow when purchasing a used vehicle.

1.  Set your budget (and stick to it).

When setting your budget, be realistic.  If you make $40,000 a year and are paying off student loan debt then getting a $20,000 vehicle doesn’t make sense.  Dave Ramsey recommends that the value of all your vehicles combined doesn’t total more than 1/2 of your annual income.  I think this is pretty good advice.

Don’t fall into the trap of thinking that because you can make the loan payment, you can actually afford the vehicle.

When purchasing a vehicle there are two methods, paying cash or taking out a loan.  I’m sure you can guess what I’m going to recommend.

  • Cash Purchase

Obviously, this is the ideal way of purchasing a vehicle.

There is nothing like working with a private seller or dealer when you have cash in hand.  Being able to pull cash out and show it to someone can save you a lot of money.

Based on our daughter’s financial situation we were able to go this route with her.

She set a price range of $5,000 with the expectation that we would match up to $2,500 of her money.  This was a deal we had made with our children years ago.

  • Car Loan

Taking out a car loan really sucks and if there is any way to avoid a car loan I highly recommend that route.

I know it sucks, but if you can purchase a beater for $1,000, use it for a year while you save up and then upgrade you will end up much further ahead.

If you do have to get a car loan, I really, really, really encourage you to go with a beater car and take out the smallest loan possible.

Use a secondary source like MyAutoLoan, which will market your application to multiple loan companies.  This gives you the option of choosing from a variety of lenders.

If possible I also like to go through local credit unions.

Your number one goal is to avoid financing through your local dealership.  They will do everything in their power to upsell you.

Also, if you can set up your loan prior to purchasing your car, you will be significantly less likely to go over budget.

The most important thing to remember is that just because the dealership or loan center qualifies you for a larger amount, doesn’t mean that it is smart to take the larger amount.

Once you have determined your budget, stick with your numbers regardless of the “amazing deals” you may find.

2.  Research, research research

Aaron uses AutoTrader and Craigslist, but I know there are many other resources.  He ran searches based on our budget and quickly narrowed his search down to three specific vehicles models.

Once he had the search narrowed to three models it was easy to sort through the information to find good deals.

While he was working on this portion he had our daughter use Kelley Blue Book and Edmunds to verify pricing.  His goal is to have a secondary verification that the prices being asked are legit.

Once he had a few cars he was interested in, he would call the various private parties.  He wanted to get a feel for the seller prior to taking the time to meet with them.  You can often get enough information on the phone to rule out a specific vehicle.

Aaron asks them a variety of questions to make sure that their assessment of the cars condition, matched up with the KBB value.

For example, a car can only be listed as excellent if it has service records.  Very few people actually keep all of their service records.  Does this disqualify a car from excellent, not necessarily, but it can give you a valuable negotiating point.

When speaking with the owner it is important to get a feel for who they are.  One of the first private party owners they spoke with Aaron got a weird vibe from.  They ended up meeting the guy anyway and he was really sketchy.  They both decided really quickly that they wouldn’t be purchasing from him.

If something seems off, don’t waste your time.

On a related side note, this is also the time to contact your insurance company.  There is nothing worse than getting a new car to find out that the insurance is through the roof.

Make sure that the cost of insurance, licensing and registration is included in your budget.

3.  Test Drive Vehicle and Verify

Once you have found a few vehicles and spoken with the owners and visually inspected the cars it is time for a test drive.

When I test drive a vehicle I always do freeway and street driving.  The goal is to notice anything unusual about the vehicle.

  • Leave the radio off and listen for unusual noises.
  • Inspect the tires.  Is the wear even and when driving is the alignment straight?
  • Visually inspect the entire vehicle.
  • Look for unusual wear spots, dents or other indicators of past accidents.
  • Open the hood and trunk, they should be relatively clean.
  • I always look at the battery connections.

It sounds stupid, but you want a vehicle that is clean.  It isn’t a guarantee, but clean people typically take better care of their vehicles.

Ask to inspect any maintenance records.  Question everything.  The seller may lie, but at least you are trying.

If you are still interested in the vehicle after a visual inspection and test drive always have a trusted mechanic do a secondary inspection.  They won’t catch everything, but they will notice little details you may miss.

If the vehicle has passed a mechanics inspection, it is always a good idea to run a VinAudit verification on the VIN Number.  You don’t want to purchase a salvaged title.

It is also smart to check for any potential recalls.

Don’t rush into a decision at this point because you have fallen in love with a vehicle.  You must always be prepared to walk away.

4.  Negotiating a Price

Once you have found your car, it is time to negotiate.  This is the part that I suck at.  I don’t know enough about vehicles to be knowledgeable enough to negotiate the price down.

Fortunately for me, Aaron loves this part.  When working with a dealership, he’ll go back and forth with them for weeks before making a final deal.

He gets great deals because of it, but I’m sure the dealerships don’t like him.

With a private party transaction, it is slightly different.  Many private sellers have bank loans to pay off and can’t negotiate much on price.  They also tend to get more attached to their vehicles and may have unrealistic expectations of their value.

If they won’t negotiate and the price is too high, walk away.  It sounds harsh, but their poor financial decisions don’t mean that you should be taken for a ride either.

This is why it is so critical that you do your research.  You can’t negotiate effectively if you don’t know the value of the vehicle.

You should have car value information from KBB and Edmunds.  Don’t be afraid to call a seller on their classification of a vehicle.  If it has stains and dents it isn’t in excellent condition.

Two negotiating tactics that always work when purchasing a car, are the ability to walk away and having cash in hand. 

If you are always willing to walk away you will rarely get taken advantage off.

On the other hand, if you have cash, the negotiating power is in your hand.  There is nothing more persuasive than seeing a whole bunch of Benjamins.  Now with that said, I would be very cautious when carrying large amounts of cash.

It isn’t always possible to have a cash purchase, but if possible have your financing lined up prior to the purchase.  Most sellers aren’t going to wait around for a few days while you get your financing in place.

5.  Finalize all Legal Paperwork

Once you have negotiated a fair price make sure that all of the legal paperwork is completed. This includes licensing, registration, title transfer, insurance and any other regulations in your area.

If you are working with a dealer, this is a very easy process since they will take care of everything for you.  With a private party transaction, I recommend doing your final transaction at the DMV to ensure everything is processed correctly.

You don’t want to give someone cash only to find the title they provide isn’t clean.

Call your insurance company and add the new car to your policy.

On a side note, this is a great time to review your current policy and verify your current limits and deductibles.  I always ask the agent if there are any changes he would recommend to my policy.   Obviously, it is his job to upsell, but I’ve often received some great advice and help by asking this simple questions.

End Results:

Purchasing a used vehicle is never fun (or at least I don’t think it is).  It is time-consuming and expensive.

However, if you take the time to do your research you will hopefully avoid purchasing a lemon.  Our daughter has had her car for a week and so far she really loves it.  Hopefully, it will end up being a great vehicle that will last her for the next 4-5 years.

In the meantime, anyone want a 2001 Oldsmobile Alero?