How to buy a used car

You may miss out on the new-car smell, but buying a used or pre-owned vehicle often offers the benefits of affordability, flexibility and overall attractiveness.

Purchasing a used vehicle, however, does require a bit more attention to detail and planning. A few things to keep in mind:

• Online car shopping tools are your friend.
• Negotiate for a lower price when you can.
• Always get the vehicle history report.

9 steps for buying a used car

Here are nine steps to buying a used car, truck or SUV.  Some of these steps are interchangeable, and not all of them apply to every situation. Read through the list before you begin so you can plan out the right process for you.

1. Set a budget.
2. Figure out what kind of car you want.
3. Research vehicles.
4. Start hunting for a car.
5. Check the vehicle history report.
6. Take the car for a test drive.
7. Figure out your plan for financing.
8. Negotiate the price.
9. Close the deal.

Step 1: Set a budget.

Start with a number in mind for what you want to spend. In August 2021, the national average price for a used car was $25,829, according to Kelley Blue Book. However, the range of prices in your area could vary significantly.

Look at your finances and see how much you can afford and how much you’re comfortable putting toward your next vehicle.

Your monthly budget should factor in your monthly car loan payment and the cost of auto insurance. You should also consider fuel costs, maintenance costs, parking fees and potential repair costs (these can be offset with an extended warranty, which we'll discuss in more detail below).

You should also consider your annual percentage rate (APR), insurance premiums, maintenance fees and taxes. It’s tempting to only think about the vehicle’s sticker price, but factoring in these additional costs should help keep your budget realistic.

Step 2: Figure out what type of car you want.

Decide what type of vehicle you want by thinking about how you intend to use it. If you have a long commute or want to take long road trips, look for a car with good gas mileage and not too many miles on the odometer. If you have a family, consider a minivan or large SUV that can fit everyone comfortably.

Start by considering how you use your vehicle.

Many car buyers start by thinking about the make of their next vehicle, but this should really be a decision for later in the process.

Next, rank the importance of the following factors, according to your personal preferences:

• Performance
• Safety
• Reliability
• Styling
• Efficiency
• Capability
• Comfort features
• Fuel economy

Think about your needs and how they may change in the future. For instance, if you are a soon-to-be parent, a vehicle with four doors and ample cargo space may be at the top of your list — and two-door coupes might automatically be off your list. If you need a lot of cargo and passenger space, consider an SUV or minivan.

Performance might be important if you’re shopping for a sports car, but it’s less of a priority in a commuter vehicle. Likewise, if you want maximum comfort, it’s a good idea to compare the availability of features like Bluetooth connectivity, heated seats and blind-spot detectors.

If you drive a higher number of miles and want better fuel economy, getting a plug-in hybrid electric vehicle (PHEV) or traditional hybrid vehicle may be at the top of your list.

Step 3: Research vehicles.

Once you know what you want out of your vehicle, you can start searching for the makes, models and years that meet your needs. It’s not a bad idea to do some research on car brands as a whole, but it’s more efficient to look at the models offered by different automakers that meet your requirements.

In addition to comparing factors like performance, comfort and styling, be sure to research aspects unique to used cars, including:

• Current values
• Current owners’ experiences
• Long-term reliability ratings
• Costs of ownership
• Projected resale values

As you narrow down your search, make a list of your top three to five vehicle options, combining similar model years if necessary. Then, research and compare these vehicles using the criteria you've established.

Step 4: Start hunting for a car.

This is the fun part of the process. Go out to dealerships or get on your computer and look for a specific vehicle that meets your requirements.

The make, model, age, mileage and price range you chose earlier are the most important factors in finding the right vehicle. Don’t get too specific with your filters if you’re looking online — not all sellers enter that information correctly.

If you don’t immediately find the right vehicle, don’t feel like you have to compromise. Most online car buying sites, like Carvana, Vroom and CarMax, let you save your searches and set up alerts for when new vehicles matching your criteria are posted. Likewise, many salespeople will follow up with other vehicles that meet your needs if they know you’re still looking.

If you have a short timeline, adjust your sense of urgency as necessary. Don’t give up or settle just because your search isn’t immediately successful, though. You can continue your car shopping experience by letting dealerships and car buying sites do the work for you.

You can also consider increasing your search range. It might be worth traveling a bit farther to find the right car at the right price.

Step 5: Check the vehicle history report.

Remember, you are buying a used car, and a casual glance at the vehicle may not be enough to tell you how well the previous owners took care of it. The car you're thinking about buying might look almost new, but it does have a history.

Vehicle history reports can provide information on the car’s maintenance record, recall status, registration and accident history. This information is critical for assessing the car’s actual value.

You may not want to buy a car that’s been in a major accident, but even if you do, you can use that information to drive the price down in negotiations. Just be aware that if you eventually sell the car, the next buyer might do the same.

Vehicle history reports can help you identify:

• Any accidents the vehicle was in
• Gaps in a vehicle’s maintenance history
• Where the vehicle has been registered
• Whether the vehicle was ever a rental or commercial vehicle
• How often the vehicle was driven
• How many owners the vehicle has had
• If the vehicle was ever sold at auction

Not all of these are red flags, but it’s better to know. Some vehicle history reports include the extent and area of the damage after an accident, which helps you judge how it affects the vehicle’s value.

Also, don’t assume that all gaps in a maintenance record are accurate. Not all shops send info to vehicle history reporting services, and a previous owner could have done simple jobs like oil changes at home.

Be careful, though — some repair shops take a long time to report information, especially body shops. Sometimes sellers will have a car repaired and then sell it before the accident makes it onto the report.

Step 6: Take the car for a test drive.

Whether you’re buying from a car dealer or a private party, seeing the car in person before you buy is incredibly helpful.

Look at the exterior and check for marks and dents. Inspect the interior for stains, tears and smells. Climb inside and get a feel for the ergonomics and driving position. With the seller’s permission, take the vehicle for a test drive so you can evaluate how it runs. Make sure the ride is smooth and quiet and that you feel comfortable behind the wheel.

Additionally, consider getting a pre-purchase inspection from a third-party mechanic. Even if the car seems to be in excellent condition, a mechanic can examine the engine bay and underside of the motor vehicle and spot potential issues.

Some sellers might say they’ve already done a pre-purchase inspection, but their interest is in selling the car, not necessarily in making sure you’re happy months down the road.

Pre-purchase inspections are more common when buying from a private seller. An inspection is crucial for these purchases because you may have no recourse if the vehicle turns out to be a lemon.

Be sure to approach the topic politely and choose a reputable inspector that you trust.

Step 7: Figure out your plan for financing.

When deciding how to finance your vehicle, ask yourself a few questions:

• How’s my credit?
• Do I have a trade-in or enough cash for a down payment?
• How long do I want to make payments for?
• Do I want to get preapproved or go with dealer financing?

Used cars are cheaper than new cars, but they still cost thousands of dollars. You still might need an auto loan, either from the dealership or a private lender. If you're purchasing a used vehicle through a private seller, you'll likely need to find your own financing.

It’s smart to get preapproved by a bank, credit union or other lender before you go car shopping. Getting preapproved lets you shop around for better rates — dealer financing often doesn’t give you much wiggle room. Preapproval also helps you negotiate rates and terms, and dealer financing isn’t even an option if you’re buying from a private party.

If you decide to get a loan through your dealership, financing is often just part of haggling over the vehicle’s price.

Each car dealership should have a dedicated finance department with a straightforward credit application. Finance applications can vary, but expect to provide some personal information, such as proof of income, proof of residence and your Social Security number.

Step 8: Negotiate the price.

If you did your research early on, you should have an idea of what the vehicle is worth and what you’re willing to pay. Compare the seller’s price with the average market price to ensure you're getting a good deal.

Focus on the total price of the car when negotiating.

If you’re preapproved for a loan, this is easier, since you have a firm limit that the seller has to accommodate if they want to make the sale.

Try to open negotiations with an offer that’s low enough to give you some wiggle room but not so low as to insult the seller. Also, avoid going over your budget, no matter how much you want the car.

If you’re at a dealership, focus your negotiations on the price of the car, not your monthly payment. While establishing your monthly payment helps you understand what you can afford, dealers may just alter your financing to get the right monthly payment. This might seem fine at the time, but it can lead to spending far more money in the long run.

Keep in mind that you should also leave roughly 10% of the loan amount in your budget to cover taxes and fees. Trading in your current vehicle should help free up some money. Keep in mind you may still need cash in the bank for repairs that come up.

Step 9: Close the deal.

Closing the deal at a dealership is relatively simple since you have a salesperson to guide you through the process. Just read all the fine print before signing to ensure you're getting what you’re paying for and only paying for what you want.

If you’re buying from a private party, make sure you get the title, a bill of sale and whatever other paperwork your state may require. You’ll also have to discuss your method of payment with the seller. This will depend on your financing status and your seller’s preferences — just be careful to avoid scams.

Finally, make sure you’re square with your state’s motor vehicle department and you have at least the minimum amount of car insurance required by law. Nearly all states require some level of car insurance, which helps protect you financially in case you cause injury or property damage while driving.

Protecting your investment

As the second-largest purchase most people will make in their life, buying a vehicle is a big deal. One of the first decisions you'll need to make is whether to buy a new or used vehicle.

An extended auto warranty can protect your investment by helping cover the cost of repairs.

One of the biggest disadvantages of buying used is that the warranty may be expired. That’s when it makes sense to consider protecting your investment with an extended automotive warranty. Similar to an original manufacturer's warranty, an extended car warranty offers financial protection if your vehicle suffers a covered failure.

Some car owners like having a plan so they won't be saddled with thousands of dollars of repair bills. If you use it for one big repair or several smaller ones, a good extended auto warranty will likely pay for itself, especially for higher-mileage vehicles.

Unfortunately, not all warranties are legit. Here are the questions to ask a car warranty provider to make sure you’re getting a good deal.

Pros and cons of buying a used car

The beauty of purchasing a used vehicle is that they're more affordable than new cars and you can choose from a range of styles. Best of all, you can buy a pre-owned vehicle with a high level of confidence if you check the vehicle history report. Many first-time car buyers purchase used cars because they're more affordable and easier to find.

Bottom line

Purchasing a used car doesn't have to be difficult. Understanding the process, asking the right questions and doing your research should help you get the right vehicle at a price you can afford. From there, it’s a matter of maintaining your car to get the most out of it and keep its value high.