I’m going to teach you how to buy a used car from a dealership without getting a shitty deal. There are a few stages to the process, and they take some time. I completed the entire process in about a week, but if this is your first time buying a used car from a dealership it might take you a bit longer. I suppose this process will work with new cars too, but buying new cars is a foolish thing to do if you still have any sort of debt. Also, if you buy a car that is about 5 years old, you can generally find out what types of problems it will have by certain mileage cutoffs. You get to know the REAL reliability of the car, instead of hand-waving and magical thinking that is used to guess the reliability of a new car.
Step 1: Figure out what car you want to get. You’ll need to know the make/model and the year. I’ll use the Prius V as the example car, because this is what I recently bought. Make = Toyota, Model = Prius v wagon, year = 2012. I chose this car because it has enough cargo room for the projects and gear I typically haul around, and it consistently and reliably gets to 200k in miles with no issues (I have seen a few in the upper 300k ranges still on the road). In addition, it gets 40 mpg and should have no major issues prior to hitting 200k in miles. I chose the year 2012 because this was the first year it was offered. I would not choose a car that was built prior to 2008, because I wanted to ensure the car I bought was post-recession engineered/marketed. Full disclosure: my post-2008 preference is simply my opinion, I have nothing solid to back up why cars made after this period are any better than cars made prior.
Step 2: Figure out the maximum number of miles the car should have. This is when you use math, not your gut. How many years are you going to keep the car? How many miles do you expect to drive each year? At what mileage does the car you want to buy start to have major issues? I find that keeping a car for 10 years is a reasonable and comfortable thing to do, but if you are more badass than me, you can certainly keep one for longer (as long as it’s not bleeding you dry from a financial standpoint). As for miles per year, I drive between 5k and 12k miles per year. Given that I’ll be driving more for kid-related stuff, I’m going to estimate that my per year driving will be 7k miles. So I multiply 7k miles per year by 10 years, and I come up with 70k miles. Now, I look at how many miles I can reliably get out of the car hassle-free. The hassle-free mark I assigned to the 2012 Prius v wagon is 200k miles. I subtract the number of reliable miles with the amount of miles I need, and come up with 130k miles. This means that the car I buy should have, AT MOST, 130k miles.
Step 3: Figure out how far you are willing to travel to get your car. If you are in a rural area, and don’t want to travel more than 50 miles to get a car, you have a very limited supply to choose from. Where I live, most people are more interested in buying gas-guzzling Ford F-250 Super Duties, and not the gas-sipping/weird looking Toyota Prius v wagons. So I knew I would have to do some traveling. Given that I live close to an airport, I would go anywhere that I could fly to and drive back home within 24 hours. This broadened my potential car buying market to include the entire midwest. The most expensive plane ticket for this radius cost $176. The cost for gas to drive back would be (at most) $45.
f you do decide to fly, there are some risks: when you test drive the car, if it doesn’t pass your muster, now you need to find a way home. There are other risks, and they are obvious, so try to mitigate them as much as possible. You don’t have to fly somewhere to get your used car, but you should at least be willing to travel a few hundred miles.
Step 4: Do your homework. There is no single used car database in the US (unlike the MLS for real-estate). This means that for each database a dealer lists their inventory on, they have to pay a separate fee. The best deals are rarely found on all databases (which makes sense, if the dealer’s costs are kept low, this may be passed on to you). I routinely searched 4 databases: www.cars.com, www.cargurus.com, www.autotrader.com, and good ‘ol www.craigslist.com. Search the make, model, year, and maximum mileage in the geographic radius you identified in the previous steps. Get an idea for what a “good” price is for what you are looking for. Keep in mind, you will pay less than what is being asked. Figure out what your max price will be.
Step 5: Figure out financing. You should pay for your car with cash. If you can’t pay cash, you should wait to buy the car until you save enough cash. If you can’t wait, and can’t pay cash, you may finance, but you must pay the car off as soon as you can. Do not rely on a dealership for financing – if you do this, they can more easily negotiate a higher price for the car, in addition to charging you even more more money in interest. A note on trade-ins: you will make a lot more money if you sell your old car on Craigslist than if you do a trade-in with the dealer. Often you’ll make more than $1,000 by selling it yourself, and this requires about 5-10 total hours of work. Do the math and find out if it’s worth your hassle.
Step 6: Make a list of 10-20 cars you would be willing to buy within your radius. Get the Carfax for each car (the dealerships often post these on the database websites, but if not, contact the dealer for it). Only accept Carfax brand reports – they are the most complete, and virtually every dealer already has them ready to be sent to you. Remove cars from your list that have accidents, are salvaged/rebuilt, are part of a fleet or rental group. Essentially, if the car has already had a major issue, you don’t want it. Also, you may want to consider only buying a car if it has only had 1 owner. Lastly, if there is an open recall on the car, and the dealership has not fixed the issue, you should not do business with the dealer. If there is an obvious problem with the car (the recall), and they didn’t fix it, there may be other less obvious issues they haven’t fixed either.
Step 7: Email each dealership that you are interested in buying a car they are selling, and also let them know you are reaching out to other dealers. Virtually every dealer will want you to come in and take a test drive before talking firm numbers. Politely decline and tell them you will not be going into the dealership without a firm deal in place, as your time is valuable. Eventually, you will get 5-10 dealerships who are interested in negotiating online. This is when things get fun…
Step 8: Every morning, email each dealer and let them know the best offer you received the previous day and ask if they are willing to beat or match it. Keep doing this until you have narrowed down your search to 2-3 cars. Keep in mind that some dealerships are busy, some salespeople are bad at email, etc., and send out just one reminder email if you haven’t heard back from someone. Often, when a used car salesperson knows they won’t get the sale, they just stop responding. If they don’t respond to your morning email or the reminder email, remove them from your list of possibilities. Also, keep in mind some salespeople will not get you a firm offer until they talk to you on the phone. This is normal, so accept their phone calls, but stick to the basic strategy: get the lowest offer in front of each salesperson and see if they will beat or match it.
Step 9: Get firm agreements from 2-3 salespeople. Explain you will be test driving and buying in the same day, and ensure that you will not do any additional negotiating at the dealership. It is common for dealerships to ask for identifying information such as your SSN in order to move forward with the paperwork associated with the deal. You may want to provide sensitive info over the phone instead of via email. Once you are confident you have 2-3 firm offers, pick the dealership that has the best option and go to the dealership to test drive and inspect the car.
Step 10: Inspect the car. You should do a test drive and a physical inspection. If you want, you can also take it to a mechanic you trust. Here’s what I do during a test drive:
- From a complete stop, floor the gas pedal until you reach 60 mph (or more if possible)
- On a slow street, go 30 mph and sharply turn the steering wheel a few times, then let it go back to center and see if the car drifts
- On a slow street, go 35 mph and SLAM on the brakes until the car stops (you should hear screeching tires and feel the ABS kick in)
- Drive on a road that is at least as rough as the roughest road you will drive on (this tests the suspension)
There’s other things you can do during the test drive, but these are the ones I’ve found reveal the most serious issues. If you don’t notice any problems during those 4 tests, that’s a good sign.
After the test drive, go over the exterior of the car and try to find dents, scratches, etc. that may have indicated an accident that did not get reported. Ask about any damage you find. Also, check the body for rust – this only gets worse as time goes on, so ensure that if you willfully buy a rusty car you know what you are getting into. If you are able, look underneath the car for damage to the exhaust (or repairs to the exhaust).
After inspecting the exterior, go over the interior of the car and try to find problems. Look for alterations the previous owner had done, and consider if you are OK with those alterations. Check the odometer. Look for small dings/cracks in the windshield. Test EVERY function in the car (lights, wipers, locks, windows). Seriously, check everything. If something doesn’t work, make the dealership fix it before you take the car home.
A note on keys: most newer cars have special keys and key fobs. If your car only comes with one of these keys, make the dealer give you another set. Many dealerships are part of a massive chain, and have their own special locksmiths. If you are unable or unwilling to give you a second key, take $500 off your asking price. Getting one of these special keys made can cost up to $500. Make sure this is understood as a non-negotiable part of the deal. If there are 2 keys, test both of them to ensure they actually work.
If the test drive, exterior, and interior inspections look good to you, and the car comes with 2 keys, it’s time to go inside and finish up the sale. There will be a lot of paperwork, and you need to read all of it. Seriously, all of it. Just do it. Read all of it. Do not trust that the dealership is explaining what you are signing correctly. If what you read is different from what is explained, ask for more details. If you don’t understand something you are asked to sign, and the dealership is unable to properly explain it to you, stop the sale and go elsewhere.
Buying a used car from a dealership is generally a safer option than buying from a private party, but the process is more complicated. If you decide to buy from a private party, much of the info in this post is relevant. Just make sure you get a legitimate title.
You can get extra bonus man points if you put the maximum allowed portion of the sale on your credit card (and pay it off at the end of the month in full). This allows you to get those sweet, sweet cashback dollars offered by your credit card.