The United States is one of the most heavily car-dependent countries globally. In fact, according to recent estimates, there are currently about 276 million cars in use in the United States, which is slightly more than the number of adults living in the country.
As a result, people in the US and elsewhere often find themselves shopping around for cars all the time. And if these shoppers are hoping to reduce the amount they end up spending, that means they’ll very likely have to consider the possibility of buying a used vehicle.
The average lifespan of a car is around 12 years, which is why the used car market usually has quite a bit more inventory than the new car market (even though the gap between new and used vehicles has been closing). However, even though there will be seemingly countless used cars available to choose from, you’ll still want to keep some key steps in mind when making your final decision.
The Ultimate Guide to Purchase a Used Car
In this guide, we will briefly discuss five of the most important things to consider when purchasing a used car. By planning in advance and doing just a little bit of research, you’ll be able to find the used car that’s right for you.
1. Set Your Budget
Of course, the first thing you’ll need to think about when comparing used cars is your budget. Within the broader used car markets, you’ll be able to find lightly-used exotic sports cars worth over $100,000 and you’ll also be able to find heavily-used older sedans that might cost as little as $1,000. In other words, your budget will significantly affect the range of vehicles available to you.
As a general rule of thumb, it is a good idea to avoid spending more than 10 percent of your vehicle on your car and more than 20 percent of your take-home income on all car-related expenses (including repairs, insurance, taxes, and possibly gas).
Suppose you take home $60,000 per year—that means you are bringing in about $5,000 per month. This means that the most you should spend on your car will be around $500 per month (plus another $500 for car-related expenses). If you’re financing the car over the course of five years, that means the upward limit of your used car budget will probably be around $25,000 (and there are a lot of good options around that price point).
There are also other important factors you’ll want to consider, some of which might require making some changes to your budget. Where you live, whether you are married, your current sources of debt, and whether you need the car for work purposes can all affect your final budget.
2. Build a Target List of Used Vehicles
Once you have determined your used car budget, you can then begin building a list of vehicles. To get started, try creating a list of the must-haves for any vehicle you might end up purchasing. Do you want a convertible for nice weather? A car with four-wheel drive that’s ideal for off-roading? Car with new technology, leather seats, or any other special features?
Well, the only way you are going to find the car of your dreams is by narrowing down your options. In any given year, about 17 million used cars will be sold in the United States alone. You should also think about the make and models of used vehicles you’re considering, as well as the range of years you like best.
3. Check the Car History
Once you have a shortlist of used cars you are considering purchasing, the next thing you should do is take a close look at their history. On average, a used vehicle’s value will decrease by about $500 if it has been in an accident, though this will vary depending on how severe the accident actually was. Using CARFAX and other resources can help you learn more about the state of the car you are thinking of buying.
4. Select the Best Used Car Loan
After you’ve finally found the car you’ve been looking for, you will then need to think about how you want to finance it. In general, it is a good idea to have a lender in mind (and even a pre-approval) before you apply for financing. Otherwise, you will be left at the mercy of the dealer.
It’s important to remember that just because someone approves you for a loan, that doesn’t necessarily mean they are the best option available. Once you’ve secured an offer, take a look at a few sources that might have a lower interest rate. Though applying for a loan can knock your credit score down a few points, shopping around can still help you save a lot of money over time.
5. Compare the Best Used Car Loans
Be sure to take the time to compare multiple different used car loans offers. The most important things you’ll need to think about include the length of the loan (3-5 years is considered standard for used cars) and the annual percentage rate (APR). Both of these factors will directly affect your monthly payment. You should also consider directly speaking with each loan provider in order to get a better understanding of what your experience as a borrower might be like.
In addition to the interest rate, you’ll want to think about the length of your auto loan. Shorter loans have higher monthly payments but take less time to pay down. At the same time, a longer loan will allow you to pay less each month but, thanks to the compounding effects of interest, will typically end up costing you more.
Purchasing a used car can be a very exciting adventure. However, before you get too excited after looking at your first option, be sure to go into the process with a well-developed plan. By taking the time to set a budget, narrow down your options, investigate car history, and compare various loan options, you’ll be one step closer to finding your dream car.