How to Buy a Used Car (and Get a Great Deal) in 10 Steps

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how to buy a used car

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Buying a new car can be a fun experience. It’s shiny and clean, smells great, and has the latest features. But did you know that new cars depreciate by a whopping 20 percent their first year?

If you bought a $15,000 base model, after a year it’d be worth $12,000. After five years, it will lose approximately 60 percent of its value.

If you’re short on cash or have student loans you want to focus on repaying, skipping the new vehicle and buying a used car can be a smart decision. It’s quite possible to get a great car at a budget price, as long as you do your homework.

Here’s a step-by-step guide on how to buy a used car.

How to buy a used car in 10 steps

Trying to find a used car that will last can be difficult, especially for first-time buyers. But by following these steps to buy a used car from a dealer, you can ensure you get a good deal and a reliable vehicle.

1. Set a budget

When you’re car shopping, it’s easy to be swept away by sleek design and performance. Before you know it, you’ve signed the paperwork for a sporty, gas-guzzling monster when you really needed a fuel-efficient sedan. That’s why it’s so important to know what you can afford and avoid looking at anything over that amount.

Before starting your research, create a budget for your money. List all of your recurring expenses and see how much you have leftover each month.

From that surplus, decide how much you want to use for a monthly car payment. You probably will regret spending all of your discretionary income on a car, so be realistic with how much you can actually afford to set aside.

When buying a used car, remember that the purchase price is only part of your expenses. Taxes, title, and registration fees can add approximately 10 percent to the car’s cost. If you’re buying a $15,000 car, that means you could need $16,500 to drive off the lot.

In addition, consider the cost of car insurance in your area and include that in your monthly budget. According to The Zebra, the average annual premium in 2016 was $1,323, or $110.25 a month. That cost can add to your transportation expenses and hurt your budget if you’re unprepared.

If you plan on using an auto loan to fund your purchase, evaluate the total cost of the debt, not just the monthly payment. Financial expert Suze Orman recommends that you buy a car that you can pay off in three years or less. If you need a five- or six-year loan, it’s likely more than you can afford.

Edmunds has a car loan affordability calculator to see how much you can budget for a car. For example, if you lived in Florida, had a down payment of $1,000 and could afford a monthly payment of $150 for 36 months, you could afford a used car that costs $5,700 or less.

2. Research makes and models

If you aren’t sure where to start, think about your needs for a vehicle. Some things to consider are:

  • Fuel efficiency
  • Cost of repairs
  • Cargo space
  • Seating
  • Transmission type

Once you identify your priorities, you can search for makes and models that fit your lifestyle on sites such as Edmunds or Kelley Blue Book. You can find detailed reviews of models and production years, with real drivers sharing their experiences.

3. Test drive your target vehicle (but don’t buy it)

Once you’ve narrowed down your list, look for used car dealers who have the year and model for the cars you want to test drive. How the car feels and how well it drives can help you decide on the exact car model you want to buy.

Contact dealers to let them know you’re researching your options and want to try driving the vehicle. Most dealers will be happy to have you come in for a drive, but be prepared for a strong sales pitch. Just keep reiterating that you are in no way going to make a deal that day. If they’re too pushy, don’t be afraid to walk out.

4. Check car prices

After doing your research and test driving your shortlist, compare your favorites’ prices. You can use a site such as Kelley Blue Book to find out how the make, model, and year of the car you’re considering is priced. The site also allows you to search within your zip code, so you know exactly how much other buyers are paying for the same car in your area.

Once you’ve narrowed down your selection and picked one model, pull the pricing from several different sources. Four good sites to look at include:

Having documentation about what the price should be from several sources will give you more negotiating power later on.

5. Find financing yourself

You will have more power at the dealership if you don’t need financing through them. You’ll be able to negotiate using the out-the-door cash price rather than monthly payments, so you’ll know exactly how much you’re spending.

Your local credit union is a great place to start. They often offer lower interest rates and more generous repayment terms than banks or large financial organizations. Also, they’re more likely to work with you if you have less than perfect credit. You could get a better deal on a loan with a credit union than a dealership.

Once a credit union has approved you for the amount you need, you can walk into any dealership and complete a deal quickly.

If a bank or credit union won’t approve you for a loan, you will likely need to lower your car budget or put down a larger down payment. If you have poor credit, you might be able to get a loan with a reliable co-signer.

6. Search local inventory is a helpful place to find the make, model, and year you’re looking for near you. While you can buy from an individual, doing so is riskier than buying from a large dealership. Most reputable dealers offer warranties on their used cars, whereas an individual will not.

Since you’re shopping for a used car, it’s helpful to be flexible on things like color or sound system. If you’re willing to compromise for a less desirable color or a lower caliber radio, you can save hundreds or even thousands.

7. Look up each car’s history

Once you’ve found cars nearby, do your research on each vehicle’s past. Unless you’re buying a car from someone you know and trust, it’s a good idea to purchase a copy of the vehicle history report.

Ordering a report can be an added expense, but it’s well worth the investment. The vehicle history report will show if the car has been in major accidents or gone through significant repairs. It will identify red flags such as a bent frame, recall information, or if the car was ever salvaged. That vital info can stop you from buying a lemon.

CarFax is one of the most well-known vehicle history report companies. You can purchase one report for $39.99, or pay $69.99 for unlimited reports within a 60-day timeframe. To get a report, enter the car’s vehicle identification number (VIN) or license plate number into CarFax’s website.

8. Contact the dealership

When you’ve found a car you like, reach out to the dealer via phone or email before showing up in person. Contacting them ahead of time ensures the car is still in stock, and you might get additional information that might cause you to change your mind.

Here are some questions you can ask that might impact your decision:

  • Do you have the service records for the vehicle?
  • Are any repairs needed?
  • Does it need new tires?
  • Has it ever been in an accident?

If the dealer can answer the questions to your satisfaction, don’t jump to negotiating price. Instead, make an appointment to see the car in person and do a pre-purchase inspection. The car’s condition might look different when you’re on the lot, and that can affect what pricing you think is fair.

9. Schedule a pre-purchase inspection

If at all possible, hire a mechanic to do a pre-purchase inspection. An inspection can cost about $100, but it can save you money in the long run.

A skilled mechanic can find issues that already exist, but can also identify repairs that you’ll need to make soon. That can help you budget accordingly or, if they find major issues, give you a chance to walk away.

Most dealerships will have no problem with you bringing in an outside mechanic for an inspection at the dealership. If a dealer tries to discourage you or says they won’t allow it, look for another dealer. Skipping the inspection could lead you to buy a money pit instead of the reliable car you hoped for.

10. Be prepared for paperwork and a hard sell

If the car passes it’s pre-purchase exam and you’re happy with its condition, it’s time to negotiate the price. From your budget and the research you did on sales in your area via Kelley Blue Book, you should have a strong case for the price you want.

For example, let’s say you’re planning on buying a 2015 Nissan Versa SV that’s in good condition. The median price for it is $10,702; some people were able to get a great price of $9,409, while others paid a much higher price of $11,934. In this case, it would be a good idea to hold to the median price of $10,702.

You could try negotiating toward the lower end, but know that you might not be able to get that price. However, if a dealer tries to charge you $11,000 or more, it’s reasonable to refuse their offer.

As long as your goal price is in the middle range, it’s likely the deal will go through. If the dealer won’t budge on the price, save time by walking out the door — it’s unlikely you’ll get a deal you’re satisfied with in that situation. Many times, you’ll have a message on your phone by the time you get home that says they’re willing to make the deal.

Once you‘ve agreed on the total cost, you’ll have to complete a mountain of paperwork. During this time, the dealership will likely try to sell you extra warranties and services, which can add thousands to your costs. If that happens, repeatedly say no and stick to the price you agreed to with the dealer.

Review the paperwork carefully and make sure the price on the contract matches what you discussed with the salesman before signing. When you’re satisfied, sign the paperwork and go collect your new car.

Owning your (kind of) new car

After all that hard work, you finally have the car you wanted. Figuring out how to buy a used car can be overwhelming, but by doing your homework ahead of time, you’ll know exactly what to look for and how much you should pay.

Take care of your new baby and keep up with its maintenance, and it will last you for years.

Interested in a personal loan?

Here are the top personal loan lenders of 2019!
LenderAPR RangeLoan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Fixed rates from 5.990% APR to 16.990% APR (with AutoPay). Variable rates from 5.74% APR to 14.70% APR (with AutoPay). SoFi rate ranges are current as of March 18, 2019 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.72% APR assumes current 1-month LIBOR rate of 2.49% plus 4.28% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.
    See Consumer Licenses.
  3. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  4. SoFi Personal Loans are not available to residents of MS. Maximum interest rate on loans for residents of AK and WY is 9.99% APR, for residents of IL with loans over $40,000 is 8.99% APR, for residents of TX is 9.99% APR on terms greater than 5 years, for residents of CO, CT, HI, VA, SC is 11.99% APR, and for residents of ME is 12.24% APR. Personal loans not available to residents of MI who already have a student loan with SoFi. Personal Loans minimum loan amount is $5,000. Residents of AZ, MA, and NH have a minimum loan amount of $10,001. Residents of KY have a minimum loan amount of $15,001. Residents of PA have a minimum loan amount of $25,001. Variable rates not available to residents of AK, TX, VA, WY, or for residents of IL for loans greater than $40,000.
  5. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (

2 Includes AutoPay discount. Important Disclosures for Payoff.

Payoff Disclosures

  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.

3 Important Disclosures for FreedomPlus.

FreedomPlus Disclosures

  1. All loans available through are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details. The following limitations, in addition to others, shall apply: FreedomPlus does not arrange loans in: (i) Arizona under $10,500; (ii) Massachusetts under $6,500, (iii) Ohio under $5,500, and (iv) Georgia under $3,500. Repayment periods range from 24 to 60 months. The range of APRs on loans made available through FreedomPlus is 5.99% to a maximum of 29.99%. APR. The APR calculation includes all applicable fees, including the loan origination fee. For Example, a four year $20,000 loan with an interest rate of 15.49% and corresponding APR of 18.34% would have an estimated monthly payment of $561.60 and a total cost payable of $7,948.13. To qualify for a 5.99% APR loan, a borrower will need excellent credit on a loan for an amount less than $12,000.00, and with a term equal to 24 months. Adding a co-borrower with sufficient income; using at least eighty-five percent (85%) of the loan proceeds to directly pay off qualifying existing debt; or showing proof of sufficient retirement savings, could help you also qualify for the lowest rate available.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.79% – 20.89% (6.79% – 20.89% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

5 Important Disclosures for LendingPoint.

LendingPoint Disclosures

  • Loan approval is not guaranteed. Actual loan offers and loan amounts, terms and annual percentage rates (“APR”) may vary based upon LendingPoint’s proprietary scoring and underwriting system’s review of your credit, financial condition, other factors, and supporting documents or information you provide. Origination or other fees from 0% to 6% may apply depending upon your state of residence. Upon LendingPoint’s final underwriting approval to fund a loan, said funds are often sent via ACH the next non-holiday business day. LendingPoint makes loan offers from $2,000 to $25,000, at rates ranging from a low of 9.99% APR to a high of 35.99% APR, with terms from 24 to 48 months. The loan offer(s) shown reflect a 28 day payment cycle which is being offered as a courtesy as many of our customers are paid on a biweekly schedule and thus this may better align the loan payment dates with your actual income receipt schedule.

6 Important Disclosures for LendingClub.

LendingClub Disclosures

All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.

†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at

**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.

7 Important Disclosures for Earnest.

Earnest Disclosures

  1. Earnest does not lend in Alabama, Delaware, Kentucky, Nevada, or Rhode Island.

8 Important Disclosures for Avant.

Avant Disclosures

* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.

** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33

* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

* Your loan terms are not guaranteed and are subject to our verification and review process. You may be asked to provide additional documents to enable us to verify your income and your identity. This rate includes an Autopay APR reduction of 0.5%. By enrolling in Autopay your payments will be automatically deducted from you bank account. Selecting Autopay is optional. Annual Percentage Rate is inclusive of a loan origination fee, which is deducted from the loan proceeds. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. All loans made by WebBank, member FDIC. Please refer to Upgrade’s Terms of Use and Borrower Agreement for all terms, conditions and requirements.

** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.

5.74% – 16.99%1$5,000 - $100,000

Visit SoFi

7.54% – 35.99%$1,000 - $50,000

Visit Upstart

7.99% – 35.89%*$1,000 - $50,000

Visit Upgrade

5.99% – 24.99%2$5,000 - $35,000

Visit Payoff

5.99% – 29.99%3$7,500 - $40,000

Visit FreedomPlus

6.79% – 20.89%4$5,000 - $50,000

Visit Citizens

9.99% – 35.99%5$2,000 - $25,000

Visit LendingPoint

6.95% – 35.89%6$1,000 - $40,000

Visit LendingClub

6.99% – 18.24%7$5,000 - $75,000

Visit Earnest

9.95% – 35.99%8$2,000 - $35,000

Visit Avant

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

Published in Big Money Decisions,