Everything We Learned About Buying a Used Car

I know this isn't exactly a parenting topic, but it's relevant to most parents at some point, so I decided to share. Normally we like to keep our posts really short, but I’ve forgone length limits on this one because I wanted to put everything in one place (to help myself in the future when I need to buy a car again).

Kathy and I had our first experience buying a used car three months ago. It was a super time-consuming process because we'd never shopped for a used car before and because we're pretty intense about doing our homework. After two months of owning that new car (a minivan, actually), a deer slammed into it when Kathy was going 80 mph on the highway. Our family was okay, but now we had to go through the whole car-buying process again!

Having refined our car-shopping skills (twice!), we have quite a few recommendations:

Figure Out Exactly What You Want

This might be the hardest part, but the goal is to define what you want so specifically that a quick search on Craigslist or vast.com or cars.com or autotrader.com or ksl.com will pull up no more than 20 or 30 cars that fit your criteria. We took the approach of looking for an 8-seater that will be super reliable, will last 10+ years, and that will have the lowest cost/mile driven possible. A car depreciates the fastest in the first 30,000ish miles, so we looked for something with 30,000-50,000 miles, will last 150,000+ more miles, has really good gas mileage, and few maintenance requirements. That meant a Toyota Sienna or a Honda Odyssey. So we went and drove one of each, liked the Sienna way more, and decided to only look at Siennas.

We also learned that cars have "generations," and that the differences between each year's model within that generation are minimal. For example, the first year of the current Sienna generation was 2011, and it’s very nearly the same as a 2014 Sienna. But if you compare a 2011 Sienna to a 2010 Sienna, they're worlds apart. Since the current generation of Siennas gets better gas mileage than the older generations, we wanted to get a 2011 or newer. And, to get even more specific, when we were looking at prices of 2011s and 2012s with the same number of miles, the 2011s were usually close to $1,000 cheaper, and same for comparing 2012s and 2013s. So, we specifically focused our searches on 2011s since we’d pay thousand(s) less for a van that’s almost exactly the same as the newer ones.

Also, get to know the different trims (trims, in case you don’t know—I didn’t!— are the different levels of interior and exterior features on a car to add to its appeal; usually there are 2-4 trim levels for each car ranging from a base trim with little but the bare necessities to a high-end trim sporting leather, navigation, entertainment, etc.). So decide on the features you want and which trims have those features. Avoid higher trims because they’ll generally have tons of features that you don’t care about but make the car more expensive. For example, a Sienna LE has everything we want except leather seats. A Sienna XLE has leather, but it also has navigation, a power liftgate, a sunroof, and lots of other features we didn’t care so much about but make it at least $4,000 more expensive than an LE. So we decided to get an LE and then have the dealership add leather, which cost an additional $1,350.

If You’re Financing, Get Pre-approved

You'll see why this is so important when we get to the negotiating. Go to a few local credit unions (even if you don't have an account with them) and see how much they will approve you for, and at what rate. Do this within a 2-week window since all credit checks within a 2-week period count as a single credit check. We had way better luck with credit unions than banks, and don't even touch internet car loans! They are only for people with horrible credit, and even then their interest rates were sky high.

Get to Know the Market

Now you can start seriously looking at what's available. Do it online using one of the websites listed above. The hard part about figuring out what's the best value is that they all have different amounts of miles and are in different conditions. How to deal with this: It doesn't take too long to figure out about how much a car depreciates for each additional mile. You can be a nerd and plot them on a graph, or you can estimate. We found that Siennas depreciate by about $0.11 per mile, so we adjusted all the list prices to make them all be priced as if they have 40,000 miles. Email me if this is confusing. After the mileage adjustment, it was pretty clear which cars were the best deal, assuming they are in equivalent condition. To find out the condition, you can look at pictures, check out the carfax (which is a useful tool, but does not necessarily have all the pertinent information—see below), or go test drive them. Don't forget to take into account how much tread is left on the tires, the number of keys and key fobs they have, when the brakes were last replaced, and if the car has had its recommended maintenance. If two cars are priced the exact same but one has new tires and new brakes, that's a way better deal! And remember that it's riskier to buy a car that hasn't had regular oil changes and recommended fluid flushes, so those ones should be priced lower.

Dealer vs. Private Seller

I've heard that you can get better deals from private sellers, which makes sense because they don't impose a "dealer fee" and they're usually not experts at negotiating. They also probably don't know the market quite as well as you do at this point, and often they're desperate to just get rid of the vehicle so they'll go down in price more than a dealer would. But we didn't get the chance to try buying from a private dealer because the Siennas we were looking at were new enough that people who bought them 3 years ago aren't selling them! The only ones on the market were lease returns, so we could only get them at dealerships.

The dealer fees are standardized in some states (e.g., Ohio) and not in others (e.g., Utah), so if you're shopping at dealerships, make sure you find out what fees they add on when you're doing your price comparisons since the fees can range by more than $400. Also, some dealerships have "no-haggle pricing" and others are willing to reduce price, so it's good to find that out too when you're comparing prices.

This is a good time to mention why dealerships do that stupid "I don't know if I can sell the car to you for that cheap a price, I have to go ask the manager" thing. An individual salesperson has an incentive to lower the price almost to whatever you're willing to buy it for (as long as they make a little bit of commission still) because they're that close to getting a sale and a bunch of commission. They don't want you to leave without buying from them. But the manager has a different perspective. If the manager lets a salesperson sell a car for much cheaper than what it could be sold for, the profit that goes to the dealership from that sale is suboptimal. So the manager's job is to keep salespeople from selling cars just to get quick sales, even if it means you end up leaving without buying a car.

By the way, as a general rule, dealerships that sell the most cars are generally the ones with the low-margin high-volume strategy (i.e., they make a relatively small profit from each sale but they sell a ton of cars to make up for that), so you're more likely to get a good deal from them. I don't know if there are listings of dealerships with the most car sales/year or something, but that would be a good place to find out the dealerships likely to offer the best deals. But this isn’t necessary if you’re doing your homework as recommended above!

Test Drive Some of Them

Now you are at the point of going out and test driving the ones you've figured are the best deal. The most important things to do when going to look at a car are to drive it and make sure it runs properly and then do a super thorough inspection of the entire car, inside and out, to find anything wrong with it. By super thorough I mean: push every button, move every seat, look in every nook and cranny. If, after doing all of that, you think you'd be willing to buy it for the right price, then you get to start the negotiating!

Negotiating

First, remember that there are lots of cars out there that are great deals, so don't get attached to any of them. If you get attached, it's a problem because you'll feel like you can't let it go, so you'll feel like you can't walk away without buying it, which means you'll end up paying more than you should. Before you even test drive the car, decide what your "walk price" is. This is the biggest bargaining tool you have. People trying to sell cars really really don't want to spend all that time with you only to see you leave without buying their car. So set that price beforehand, then adjust it up/down when you test drive and inspect the vehicle super thoroughly. So if, for example, you decide the vehicle is worth $15,200 after driving and inspecting it (and taking into account its tires, brakes, maintenance history, etc.), this means you'll actually walk away if they are unwilling to go any lower than $15,300. And since you know the market so well that you know you can get a better deal on one of the other cars you've been looking at, it's okay if you don't end up buying that one! This is the key point with the walk price: you have to truly be willing to walk away if they won't meet your walk price. We walked a handful of times when our negotiating couldn’t bring the price low enough for us.

Second, remember that people who like you are more willing to help you out (i.e., give you a better price). So don't see the salesperson as an adversary--see them as an advocate and friend helping you make such an exciting purchase! Enjoy being with them. Talk to them like a normal person. Have fun with the experience.

Third, keep some information to yourself. If this is easily the best deal (and you know that for sure because you've done your homework), don't tell them! Of course you'll set your walk price accordingly, but remember that you could get the car for less than that, especially if they don't know this car is listed for $500 cheaper than any other equivalent car you've been looking at. Good thing you know the market better than they do! If you've already been approved for a loan through a credit union, don't tell them. Just tell them you'll be financing. They like this because now they're thinking, "I can go a little lower on the price because we'll be making some extra money off them through the financing." Then, when the finance guy talks to you, that's when you tell him you'll be happy to finance through their dealership if they can beat the rate you've already been offered by the credit union. This is what allowed us to get a 1.99% rate from the dealership because we'd already been approved for 2.19% by our credit union. And if you're going to have them add leather or something, don't tell them until you're in the negotiation because then they’ll be thinking, "We'll make some profit off the leather too, so I guess I can lower the price a little more than I was planning on just a second ago."

When you make your initial offer, be specific with it. Make sure they know it's contingent upon them fixing all the stuff you found wrong with it (and, if necessary, what your mechanic finds wrong with it—see the Odds and Ends section for when you should have a mechanic look at a car you’re looking to buy), and explain your offer. We said something like this: "We were planning on buying this van today if we got the price under $21,000, but there's that rust on the door hinges, which is causing some concern. I know it's just aesthetic, but it may indicate rust elsewhere that's not just aesthetic. It's hard to know if that will ever be a problem, but there's a risk it will, so we're trying to quantify that risk, and we feel like the car is worth about $300 less because of it, so we are thinking $20,700 sounds fair." If you offer something not rounded to the nearest $1,000 or even $500, it indicates you know pretty precisely how much you'll be willing to pay and you're getting close to that limit.

You don’t have to prepare a speech or anything when you’re making an offer. They see through that. Just be yourself and be straight with them. This also will come easily if you’ve been treating them like a human from the get-go.

Then throw in some intangibles. We looked at the dealership's ratings on Google and Yelp before we went in. They had over 200 ratings on Google, almost all of them 5 stars, but they only had 1 review on Yelp. So we said we'd throw in a glowing review on both Google and Yelp and mention our salesperson's name specifically. That's worth a lot to some people even though you don't have to pay them any more money to do it, so it will often make them feel good about giving you an extra good price. I think this is what helped us and our salesman feel good about a super-low price.

The overall atmosphere of a negotiation shouldn’t be adversarial. Rather, you should be thinking, “I’m looking for a great deal, and I know a great deal when I see one (because I’ve done my homework). If you can help me get that, awesome! So let’s work together to see what we can come up with that will be acceptable to both of us. And if we can’t come together on something, that’s totally fine! No harm done, and it’s been fun to get to know you.” And since you’re friends with them already, this atmosphere should come easily.

And in general, you will have an easier, less stressful time looking for a car and negotiating if you don’t need to get a car immediately. The more time you have, the lower you can set your walk price because if the best deal won’t go low enough for you, no worries—there will be lots of time for more cars to come onto the market. Also, you might have noticed that this whole process takes some time, so that’s another reason to start nice and early.

Talking to the Finance Guy

This is also an important juncture now that you've agreed on a price and you've committed to buying the vehicle. The finance guy (I say "guy" because every one I've ever seen is male) has the job of eeking out as much extra money from you as possible while working out financing for the vehicle. Remember this principle when deciding whether to get any of their extended warranties, gap insurance, and whatnot: You should never buy insurance on something you can afford to purchase outright. I won't go into detail explaining why this makes sense, but it's a true financial principle. So if you think you can afford to pay for the maintenance that may become necessary on your car in the next 2 years, don't get the extended warranty! As long as you're not living paycheck to paycheck and have at least a reasonable amount of savings in your account, there's never a reason you'll have to get any extras from the finance guy.

Oh, and don't forget to look at the contract in detail to make sure all the amounts and other provisions are good. Don't worry about wasting his time while you do it because this is important. One thing, for example, is to see if there's a penalty for paying off the loan early, and to see if there are any fees you didn't know they'd be adding on.

Other Odds and Ends

You might consider going to look at a couple of the cars that are lower down on your list first just to get an idea of what condition you can expect them to be in, and also for the experience of doing your thorough inspection since you’re sure to miss stuff the first few times you do one. Then you could go look at the second or third best car on your list to see how low you could negotiate them down. If they meet your walk price, great! If not, you’ve gotten the practice negotiating and you will hopefully get the one that’s the best deal for even lower than your walk price.

Call a mechanic you trust and see if he'll be available to look the car over if you're looking at one from a private party or from a small dealer. Generally this isn't needed if it's a big, well-known dealership (but it never hurts) or if your car is "certified pre-owned." The mechanic's time will cost you something, so you don’t want to spend the money on this unless you’ve settled on a final purchase price and are going to buy the car. Just make the deal contingent upon it passing your mechanic's inspection and having no problems you're not already aware of.

Carfax and its equivalents don't have everything on them. It's very possible for a car to have been in an accident and then repaired at a place that doesn't publicly report its service records. Same goes for oil changes and maintenance places. If the Carfax has regular oil changes listed on it, you know for sure it's had its oil changes. If the Carfax doesn't have any oil change history listed on it, that's not telling you anything conclusive.

The U.S. government is getting a vehicle history reporting system going, but all states aren't participating yet. Regardless, it might have information on it that the Carfax doesn't have, and it's usually less than $5 to get one, so you should invest in one of those before you buy your new car. http://www.vehiclehistory.gov/

NMDA car values and Kelley Blue Book car values are great, but I found them to be useless. Don't rely on them--instead do your homework to thoroughly understand the market, and that's the best way to get an idea of what a car is worth.

Some dealerships focus specifically on finding the cleanest vehicles with branded titles (meaning they've had significant damage done to them or have been stolen or some other things), then they fix them up to perfection and sell them for much cheaper than you could get an equivalent vehicle with a clean title. These can be amazing deals, and I highly recommend it! But first make sure it’s a dealership that has been around for a while and is relying on its good reputation to continue to stay in business (e.g., Prestman Auto and Auto Source, which are both in Utah). You’ll also want to pay extra careful attention to how well and smoothly it drives. And be aware that the risk of getting a vehicle with a branded title is that if you try to resell it anytime soon (or if it gets totaled by a deer and insurance has to determine what its value was), you'll probably lose money.

Well, there you have it. I hope this saves you some time and helps you get an amazing deal like we did—twice!