How to Buy a Used Car

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You have two choices: pay in full or finance over time. If you finance, the total cost of the car increases. That’s because you’re also paying for the cost of credit, which includes interest and other loan costs. You’ll also have to consider how much you can put down, your monthly payment, the length of the loan, and the annual percentage rate (APR). Keep in mind that annual percentage rates usually are higher and loan periods generally are shorter on used cars than on new ones.

Dealers and lenders offer a variety of loan terms and payment schedules. Shop around, compare offers, and negotiate the best deal you can. Be cautious about advertisements offering financing to first-time buyers or people with bad credit. These offers often require a big down payment and a high APR. If you agree to financing that carries a high APR, you may be taking a big risk. If you decide to sell the car before the loan expires, the amount you receive from the sale may be far less than the amount you need to pay off the loan. If the car is repossessed or declared a total loss because of an accident, you may be obligated to pay a considerable amount to repay the loan even after the proceeds from the sale of the car or the insurance payment have been deducted. If your budget is tight, you may want to consider paying cash for a less expensive car than you first had in mind.

If you decide to finance, make sure you understand the following aspects of the loan agreement before you sign any documents:

• the exact price you’re paying for the vehicle
• the amount you’re financing
• the finance charge (the dollar amount the credit will cost you)
• the APR (a measure of the cost of credit, expressed as a yearly rate)
• the number and amount of payments
• the total sales price (the sum of the monthly payments plus the down payment) Used cars are sold through a variety of outlets: franchise and independent dealers, rental car companies, leasing companies, and used car superstores. You can even buy a used car on the Internet. Ask friends, relatives and co-workers for recommendations. You may want to call your local consumer protection agency, state Attorney General (AG), and the Better Business Bureau (BBB) to find out if any unresolved complaints are on file about a particular dealer.

Dealers are not required by law to give used car buyers a three-day right to cancel. The right to return the car in a few days for a refund exists only if the dealer grants this privilege to buyers. Dealers may describe the right to cancel as a "cooling-off" period, a money-back guarantee, or a "no questions asked" return policy. Before you purchase from a dealer, ask about the dealer’s return policy, get it in writing and read it carefully.

State laws hold dealers responsible if cars they sell don’t meet reasonable quality standards. These obligations are called implied warranties—unspoken, unwritten promises from the seller to the buyer. However, dealers in most states can use the words "as is" or "with all faults" in a written notice to buyers to eliminate implied warranties. There is no specified time period for implied warranties.

Pre-Purchase Independent Inspection 

It’s best to have any used car inspected by an independent mechanic before you buy it. For about $100 or less, you’ll get a general indication of the mechanical condition of the vehicle. An inspection is a good idea even if the car has been "certified" and inspected by the dealer and is being sold with a warranty or service contract. A mechanical inspection is different from a safety inspection. Safety inspections usually focus on conditions that make a car unsafe to drive. They are not designed to determine the overall reliability or mechanical condition of a vehicle.

To find a pre-purchase inspection facility, check your Yellow Pages under "Automotive Diagnostic Service" or ask friends, relatives and co-workers for referrals. Look for facilities that display certifications like an Automotive Service Excellence (ASE) seal. Certification indicates that some or all of the technicians meet basic standards of knowledge and competence in specific technical areas. Make sure the certifications are current, but remember that certification alone is no guarantee of good or honest work. Also ask to see current licenses if state or local law requires such facilities to be licensed or registered. Check with your state Attorney General’s office or local consumer protection agency to find out whether there’s a record of complaints about particular facilities.

There are no standard operating procedures for pre-purchase inspections. Ask what the inspection includes, how long it takes, and the price. Get this information in writing.

If the dealer won’t let you take the car off the lot, perhaps because of insurance restrictions, you may be able to find a mobile inspection service that will go to the dealer. If that’s not an option, ask the dealer to have the car inspected at a facility you designate. You will have to pay the inspection fee.

Once the vehicle has been inspected, ask the mechanic for a written report with a cost estimate for all necessary repairs. Be sure the report includes the vehicle’s make, model and VIN. Make sure you understand every item. If you decide to make a purchase offer to the dealer after considering the inspection’s results, you can use the estimated repair costs to negotiate the price of the vehicle.

An alternative to buying from a dealer is buying from an individual. You may see ads in newspapers, on bulletin boards, or on a car. Buying a car from a private party is very different from buying a car from a dealer.

• Private sellers generally are not covered by the Used Car Rule and don’t have to use the Buyers Guide. However, you can use the Guide’s list of an auto’s major systems as a shopping tool. You also can ask the seller if you can have the vehicle inspected by your mechanic.
• Private sales usually are not covered by the "implied warranties" of state law. That means a private sale probably will be on an "as is" basis, unless your purchase agreement with the seller specifically states otherwise. If you have a written contract, the seller must live up to the promises stated in the contract. The car also may be covered by a manufacturer’s warranty or a separately purchased service contract. However, warranties and service contracts may not be transferable, and other limits or costs may apply. Before you buy the car, ask to review its warranty or service contract.
• Many states do not require individuals to ensure that their vehicles will pass state inspection or carry a minimum warranty before they offer them for sale. Ask your state Attorney General’s office or local consumer protection agency about the requirements in your state.

Whether you buy a used car from a dealer, a co-worker, or a neighbor, follow these tips to learn as much as you can about the car:

• Examine the car yourself using an inspection checklist. You can find a checklist in many of the magazine articles, books and Internet sites that deal with buying a used car.
• Test drive the car under varied road conditions—on hills, highways, and in stop-and-go traffic.
• Ask for the car’s maintenance record. If the owner doesn’t have copies, contact the dealership or repair shop where most of the work was done. They may share their files with you.
• Talk to the previous owner, especially if the present owner is unfamiliar with the car’s history.
• Have the car inspected by a mechanic you hire.

In addition to a mechanical inspection, you should: 

Take a look. Make sure the body parts line up, the paint matches, doors open and close easily, and the tires show even wear. 

Lift the Hood. Check under the hood for leaky hoses, worn belts, and dirty oil. Automatic transmission fluid should be clear and reddish, and not smell burned. Radiator water should have a light yellow or green color. 

Take a seat. Turn the ignition key to accessory and make sure all of the warning lights and gauges work. Start the car and check all lights and accessories and make sure no warning lights remain lit on the dashboard. Pay close attention to the airbag indicator lights. If these lights fail to illuminate as you start the car, or stay lit after the car is running, it is a warning that the car's airbags are not functioning correctly. 

Perform a Safety Check. Try on the seat belt and take a test drive to ensure that you are comfortable while driving the vehicle. Make sure head restraints, roof structures, and windshield designs do not interfere with your ability to see clearly. Test the vehicle at dusk or early evening to determine your comfort with the visibility provided by the headlamps. If you already have a child safety seat, install it to check for compatibility. 

Hit the Road. Take the vehicle up to 35-40 MPH. Make sure shifting is smooth and steering is straight. When braking, a pull to the left or the right could indicate a brake problem. The steering wheel should not shimmy at high speeds and cornering should be smooth. 

Check the Sources. Buying through the classifieds? Check the name on the title and match it to the name on the seller's driver's license. Many individuals disguised as private sellers are actually unlicensed, unregulated curbstoners, who may pass problem cars on to unsuspecting buyers.

POTENTIAL PROBLEMS/WARNING SIGNS 

The most sought after used cars are probably less than five years old and have less than 50,000 miles on the odometer. When you're looking for a used car, you'll probably want to find one that has been driven no more than 15,000 miles per year. But you can't assume that a low-mileage car is necessarily in great shape. 

One major concern is odometer tampering. The National Highway Traffic Safety Administration (NHTSA) estimates that consumers lose billions of dollars a year to odometer fraud. Odometer readings may be rolled back or documents can be forged. Making miles disappear helps increase the car's value to the seller, but can mean increased maintenance and repair costs to the buyer. 

In addition to odometer fraud, there are other significant events in a car's past that unscrupulous sellers may try to hide. Every state has laws designed to protect consumers from buying used cars that may not be road worthy. Consumers should be direct when asking sellers about a vehicle's past, and they should get a detailed vehicle history report. The person selling you a used car should provide a detailed vehicle history that answers questions to your satisfaction. 

If the seller cannot provide a detailed vehicle history report, you can use the 17-digit vehicle identification number (VIN) to secure a history from either the state or a private vehicle history company. These companies have compiled data from multiple sources to help you get a better picture of the car's past. You can search the web to find the companies providing this service by looking under the topic of "vehicle history." 

OTHER PROBLEMS 

Other problems you may want to avoid include: 

Damage Disclosure, Salvage & Rebuilt Titles. These titles are issued by states when the vehicle has sustained damage as a result of one or more incidents. States issue salvage titles when an insurance company takes possession of a vehicle as a result of a claim. This generally occurs after a vehicle has been declared a total loss. A state may issue a rebuilt title if a vehicle sustained damage and was rebuilt or reconstructed, then placed back on the road. States issue junk titles to indicate that a vehicle is not road worthy and cannot be titled again in that state. 

Lemon Laws (Manufacturer Buyback Titles). "Lemons" are sometimes resold to consumers as used cars. The lemon laws were enacted to protect consumers from having to keep a new car that has recurring problems. If someone buys a new car with major problems, and the manufacturer fails to repair the defect in a certain amount of time, the manufacturer may be required to refund the consumer's money by buying the vehicle back. Unfortunately, some of the vehicles which are bought back are subsequently resold as used cars. 

Flood Damage Title. States issue flood titles when a vehicle has been in a flood or has received extensive water damage. 

Warranty of Merchantability 

The most common type of implied warranty is the warranty of merchantability: The seller promises that the product offered for sale will do what it’s supposed to. That a car will run is an example of a warranty of merchantability. This promise applies to the basic functions of a car. It does not cover everything that could go wrong.

Breakdowns and other problems after the sale don’t prove the seller breached the warranty of merchantability. A breach occurs only if the buyer can prove that a defect existed at the time of sale. A problem that occurs after the sale may be the result of a defect that existed at the time of sale or not. As a result, a dealer’s liability is judged case-by-case.

Warranty of Fitness for a Particular Purpose

 A warranty of fitness for a particular purpose applies when you buy a vehicle based on the dealer’s advice that it is suitable for a particular use. For example, a dealer who suggests you buy a specific vehicle for hauling a trailer in effect is promising that the vehicle will be suitable for that purpose.

If you have a written warranty that doesn’t cover your problems, you still may have coverage through implied warranties. That’s because when a dealer sells a vehicle with a written warranty or service contract, implied warranties are included automatically. The dealer can’t delete this protection. Any limit on an implied warranty’s time must be included on the written warranty.

In states that don’t allow "as is" sales, an "Implied Warranties Only" disclosure is printed on the Buyers Guide in place of the "As Is" disclosure. The box beside this disclosure will be checked if the dealer decides to sell the car with no written warranty.

Dealers who offer a written warranty must complete the warranty section of the Buyers Guide. Because terms and conditions vary, it may be useful to compare and negotiate coverage.

Dealers may offer a full or limited warranty on all or some of a vehicle’s systems or components. Most used car warranties are limited and their coverage varies. 

A full or limited warranty doesn’t have to cover the entire vehicle. The dealer may specify that only certain systems are covered. Some parts or systems may be covered by a full warranty; others by a limited warranty.

If the manufacturer’s warranty still is in effect, the dealer may include it in the "systems covered/duration" section of the Buyers Guide. To make sure you can take advantage of the coverage, ask the dealer for the car’s warranty documents. Verify the information (what’s covered, expiration date/miles, necessary paperwork) by calling the manufacturer’s zone office. Make sure you have the Vehicle Identification Number (VIN) when you call.

Like a warranty, a service contract provides repair and/or maintenance for a specific period. But warranties are included in the price of a product, while service contracts cost extra and are sold separately. To decide if you need a service contract, consider whether:

• the service contract duplicates warranty coverage or offers protection that begins after the warranty runs out. Does the service contract extend beyond the time you expect to own the car? If so, is the service contract transferable or is a shorter contract available?
• the vehicle is likely to need repairs and their potential costs. You can determine the value of a service contract by figuring whether the cost of repairs is likely to exceed the price of the contract.
• the service contract covers all parts and systems. Check out all claims carefully. For example, "bumper to bumper" coverage may not mean what you think.
• a deductible is required and, if so, the amount and terms.
• the contract covers incidental expenses, such as towing and rental car charges while your car is being serviced.
• repairs and routine maintenance, such as oil changes, have to be done at the dealer.
• there’s a cancellation and refund policy for the service contract and, whether there are cancellation fees.
• the dealer or company offering the service contract is reputable. Read the contract carefully to determine who is legally responsible for fulfilling the terms of the contract. Some dealers sell third-party service contracts.

The dealer must check the appropriate box on the Buyers Guide if a service contract is offered, except in states where service contracts are regulated by insurance laws. If the Guide doesn’t include a service contract reference and you’re interested in buying one, ask the salesperson for more information.

If you buy a service contract from the dealer within 90 days of buying a used vehicle, federal law prohibits the dealer from eliminating implied warranties on the systems covered in the contract. For example, if you buy a car "as is," the car normally is not covered by implied warranties. But if you buy a service contract covering the engine, you automatically get implied warranties on the engine. These may give you protection beyond the scope of the service contract. Make sure you get written confirmation that your service contract is in effect.

The Buyers Guide cautions you not to rely on spoken promises. They are difficult to enforce because there may not be any way for a court to determine with any confidence what was said. Get all promises written into the Guide.