Buying used is a great way to save money on a car, but you must do your homework to ensure the vehicle you’re buying is worth the cost. Here’s how to buy a used car on a budget – and ensure the car’s in it for the long haul.
1. Set a realistic budget
Before anything else, calculate how much you can afford to spend on a used car.
That means saving for a down payment and estimating how big of a monthly car payment you can afford. It also means making room in your budget for fuel costs, routine maintenance, and car insurance.
You can use an online calculator to estimate what type of car you can afford based on your income and expenses. But online resources aren’t perfect. Use them to guide your decisions, but never spend more than you’re comfortable with, even if a calculator says you can afford to.
Here are a few tips for setting your budget:
- Start saving now: Use a high-yield savings account to save for a down payment. The larger the down payment, the lower your monthly payments will be.
- Get pre-approved for a loan: You can explore your loan options online and may be able to apply for pre-approval without hurting your credit score. Pre-approval can help you understand how much interest you’ll likely pay over the life of the loan. Check out our guide on pre-approval vs. pre-qualified to learn more.
- Pay cash: Don’t want to worry about financing? If you’re in no rush for a new daily driver, save enough money to pay cash for a used car.
- Don’t forget other expenses: When reviewing your monthly budget, leave some wiggle room for additional costs associated with buying a car. For example, used cars will likely need more maintenance and repair work over time – make sure your budget includes those costs.
Pro Tip: If you choose a shorter loan term (like three years instead of five), you’ll pay less in interest over the life of the loan. But that also means your monthly payments will be higher. Decide whether your budget can handle higher payments before choosing a shorter term.
2. Research online
Shopping for a used car should start online, but not on dealership websites or used car marketplace sites.
Instead, check out sites like Kelley Blue Book (KBB) and Edmunds, which often rank the best used cars under $20,000, $10,000, or even $5,000. These websites can give you an idea of the best cars within your price range.
You can also use data from J.D. Power Vehicle Dependability studies, which measure cars’ reliability over their first three years. KBB’s 5-Year Cost to Own ratings can also give you an idea of models that typically require less car maintenance.
After you have an idea of the best used car for your budget, you can start looking for used cars from dealers and private sellers.
3. Buy at the right time
If you’re shopping for a used car because your old vehicle was totaled in an accident or is too unreliable to drive safely, you don’t get much say when buying a used car. You’ve got to buy it now.
But if time is on your side, wait for one of the better times to buy a used car – when dealers run promotions and are more motivated to make a sale.
So when’s the best time to buy a used car?
- At the end: Salespeople are trying to hit their quotas at the end of the month, quarter, and year. They may be more motivated to haggle and make a deal, giving you more negotiating power.
- Around certain holidays: Many car dealerships run promotions during certain holidays, including Memorial Day, Labor Day, and Black Friday.
- In the winter: Winter is generally less busy for car dealerships. Who wants to test drive in the cold? That makes it an excellent time to head to the dealership and find a good deal.
Note: These tips don’t apply to private sellers.
4. Know where to shop
You can usually get a better deal when you buy a car privately. Individual sellers don’t have the overhead of a dealership and used car lot, meaning their prices are typically lower.3 Individuals aren’t trained salespeople, so they’re less likely to (successfully) out-negotiate you.
But there’s more risk involved when buying privately. Independent sellers don’t have a website of reviews to back them up, so you don’t know whom you’re dealing with.
It’s easy to research dealers. You can read reviews before deciding to do business with one, and dealerships shouldn’t try to offload a bad car on you intentionally – they’ve got a reputation to uphold.
Used cars at a dealership may also come with a warranty, and you can test drive multiple vehicles on the lot before making a decision.
The downside? Buying a used car from a dealership is usually more expensive.
5. Get the vehicle history report
A vehicle history report is essential when deciding whether to buy a specific used car. The report includes several details that can help you make a decision, like:
- How many previous drivers the car had
- Past accidents (if there was a police report or insurance claim) and repair work
- Flood damage
- Odometer readings
- Inspection history
- Open recalls
- Past usage (was it a rental or leased car, for example)
These details can help you determine if the car is worth the cost. If you don’t like something on the report, you can walk away from the sale or negotiate a lower price.
Some dealerships will offer a vehicle history report to potential buyers free of charge. If the dealer doesn’t offer the report or you’re buying privately, consider spending the extra $25 to $40 to get a report.4 It may stop you from making a bad deal.
6. Consider certified pre-owned
Certified pre-owned (CPO) cars are more expensive than other used cars, but they’re worth the cost for some drivers.
Each automaker’s CPO program varies, but typically there are strict requirements for a used car to be certified – usually, it must pass a multi-point inspection and be below a certain mileage threshold.
In addition, buyers usually receive a vehicle history report for free, and CPO vehicles come with a limited warranty.
The point of CPO is to instill more confidence that a used car is in good condition and might have fewer mechanical issues.
But nothing is guaranteed when buying a used car, CPO or not.
7. Test drive it to a trusted mechanic
You should always test drive a car before buying it, especially when buying used.
But don’t just take it for a spin around the block. Go to a mechanic you trust – whether from experience or online reviews – and pay to have them inspect it.
While you can do your own inspection, like looking for rust on the body or listening for weird noises when driving, a mechanic can spot potential problems you might not know to look for.
Ask the mechanic to list any repair work the car would need to run smoothly and how much it would cost.
You can then determine if the car is still worth the price. If not, use the information to negotiate the price or walk away from the sale.
