Recent data indicates that 60% of US consumers have been priced out of the new car market. As a result, used vehicle purchases now account for 72% of automotive sales. With the average used car purchase price coming in just under $20,000, consumers can’t afford to make a mistake. A vehicle history report can be a powerful tool in avoiding a vehicle with a troubled past. Few used car buyers have their prospective purchase independently inspected for mechanical issues before the sale. Ignoring these steps can be a costly mistake.
Finding the car you want
DO YOUR HOMEWORK
What size and type of vehicle do you want?
Will you transport several people at once?
Do local weather conditions require an all-wheel drive vehicle?
How many miles do you drive each year?
Does the vehicle use regular or premium fuel?
Fueleconomy.gov is a great tool for comparing different vehicles side by side. The site allows you to customize your annual miles driven and your city/highway ratio to show actual fuel cost estimates.
Safercar.gov is a good resource for safety ratings going back 25 years. You can look at specific makes and models as well as search by vehicle class (trucks, sedans, etc.). The site also has tips on airbag safety, child safety and rollover prevention.
Insurance cost can very greatly between vehicles. Get a quote from your current provider for the different makes and models you are considering. Many companies will even let you get these quotes online.
Edmunds.com provides a useful True Cost to Own™ calculator. It looks at price, fuel, maintenance, financing, insurance, repair estimates and other factors to provide a five-year total cost of ownership. The calculator only works for the previous six model years.
Test-drive each of your top contenders to get a feel for the car and its features. You might find out you are too tall to sit comfortably in that convertible you have always wanted.
WHERE TO SHOP
A number of web sites provide classified-style ads listing cars. Autotrader.com, Cars.com, and Craigslist are just a few. Many dealerships list their inventory online. Most have tools to refine your search to a local area, or you can expand and look nationally. eBay Motors is another option for finding cars online. eBay is primarily an auction site but does offer Buy It Now pricing options for direct sales.
Used car superstores, such as CarMax, usually have a large inventory and specific age and mileage criteria for vehicles they include on their lots. Local used car dealers will have a variety of options and are often regulated by a state agency. In many states this means the vehicles for sale will have already passed the state inspection requirements. Most dealers also handle tax, tag and titling services for the consumer.
NARROWING THE FIELD
Condition – Has the car been maintained to factory specifications? Any accident or flood damage? A number of apps (such as My Vinny) can scan VIN numbers and pull up a history report. (link to history report section once completed) (put in checking National Highway Traffic Safety Administration website to see what safety recalls have been issued and advise to check if repairs have been made)
Mileage – As mileage goes up so do repairs and maintenance costs. Many late model cars perform well beyond 100,000 miles. Your driving needs will help to determine the mileage balance you are comfortable with.
Options and Color – Have your heart set on a red car? Do you want a sunroof? How about Bluetooth for hands-free calling? Find out what model years have the options you want. Many online listing sites also allow you to refine your search by color and other options.
Inspection and test drive
When you go for a test drive make sure you get a good look at the exterior and interior condition. Never go see a car in the rain; a wet car can hide a lot of paint and body issues.
Take the car on local streets and a highway to get a feel for different speeds. Test all the switches and knobs. Test the radio buttons to make sure they tune to local stations; if they don’t it could be a sign that the car has come from a different area. A look at the GPS programming can also provide clues.
Look to make sure the car has all the accessories and options that were advertised. Little things like wheel locks are easily lost and can be costly to replace when needed. Car enthusiast websites often provided lists of all the accessories a make and model included.
Before you buy you need to obtain two reports, a vehicle history report and a report from an independent mechanic. Both go a long way in providing you with the rest of the picture on a prospective vehicle.
VEHICLE HISTORY REPORTS
Vehicle history reports contain a collection of vital records from public and private sources that document important events in the life of a vehicle. It can help you make a more informed buying decision.
Reports may include:
- Vehicle identification number (VIN)
- Odometer readings
- Salvage or junk vehicles
- Damage from hail, flood or fire
- Mileage discrepancies or odometer rollback
- Lemon title brand records that indicate a malfunction under warranty that makes the car inoperable or unsafe to drive
- Vehicles used as rentals, taxis or fleet
- Records of theft and loans/liens that represent ownership interests or unpaid judgments
- Recorded accident data
Unreported accidents and full service histories are not included in reports.
AutoCheck reports include exclusive auction-announced vehicle inspection data not available on other reports. Nearly half a million cars go through the auction process each year. Every AutoCheck report also includes an AutoCheck Score®, a number you can use to easily evaluate a car’s history and compare multiple cars.
Be careful to choose a vehicle history report that provides extensive data coverage. Many inexpensive reseller reports only show NMVTIS data provided by the Federal Government and do not include coverage of title brand from all 50 states, collision records from police reports, total loss data reported by insurance carriers or auction announced vehicle inspection data.
The National Insurance Crime Bureau provides a free check to see if the vehicle has been reported stolen or been issued a salvage title by its member insurance companies.
Some apps even let you scan a VIN with your smartphone to pull a report instantly.
Having a more complete vehicle history can point to possible safety issues as well. Correct airbag replacement should be checked on any vehicle that was in an accident.
Private reports may also offer a buyback guarantee for eligible vehicles. These offers apply to failure to report data in their possession at the time the report was generated. They don’t cover data that wasn’t available to the provider at the time of the report.
The history reports tells you a vehicles past, a mechanical inspection will tell you about its present and can possibly save you thousands in the future.
It is a good idea to have a mechanic do a pre-purchase inspection before buying. This is different from your state required inspection. This inspection should look into the mechanical condition and soundness of the vehicle.
A good mechanic can notice deferred maintenance as well as current issues like a burned out check engine or ABS light that could be part of a bigger problem.
Even if you are buying from a dealership, always have a non-affiliated mechanic look over the car. Be wary of any seller who refuses to work with you and allow a mechanical inspection at your cost. (See our scams section.)
A good place to start your search for a pre purchase mechanical inspection:
HOW WILL YOU PAY FOR YOUR CAR?
You’ve found the right car and it has a clean bill of health, now you are ready to buy.
Cash, money orders or cashiers checks are commonly used. Personal checks are less widely accepted due to the fear of fraud.
Make sure your contract with the seller spells out full price being paid for the vehicle. It is always a good idea to have a sales agreement in place. Even a simple document listing the make, model, and VIN of the vehicle for sale as well as conditions, such as “As-Is,” signed by both the buyer and seller can protect both parties should a problem or dispute arise. Consider attaching a reputable vehicle history report to the document, signed by both the buyer and the seller, to attest to the condition at the time of sale.
Since large sums are often involved it is a good idea to meet a private seller at a bank. This way funds can be verified and safely deposited. Banks often have a notary on site that can notarize a sales agreement.
Be wary of any seller who asks you to overpay and promises to return the difference.
Financing is a popular option for vehicle purchases. Banks, credit unions, and dealerships all offer car loans. Never focus solely on the monthly payment; it is important to consider the total price of the car and the terms of the loan. Always multiple the monthly payment amount by the term of the loan to find out the true cost of the vehicle transaction.
Once you know that you are in the market start to look into your credit score. Check your credit files to make sure they don’t have any mistakes that could drag down your score and possibly raise the rate on your loan. It is always a good idea to know before you go.
Call For Action recommends getting your annual free credit report from a different credit agency every four months. This helps you stay on top of your credit files and it’s free. Visit https://www.annualcreditreport.com to start the process.
Once you’ve looked at your credit go to financial institutions where you have an existing relationship to find out their current used vehicle loan rates. You can also check other local and national banks for comparison; often they list current loan rates on their websites. Pick your top two choices and apply for preapproval. This lets you know the exact rate you qualify for as well as the amount of the loan you can borrow.
The Consumer Financial Protection Bureau has some great auto loan related resources online.
You can compare your preapproved loan with the rates and fees the seller offers for financing. It is always important to read the terms of any agreement carefully before you sign.
You have probably seen a lot of “Second Chance” or even “Last Chance” financing ads, sometimes called “Your Job is Your Credit.” It is especially important to know the total you are paying over the life of the agreement they offer. The APRs can be above 10%. This can adds thousands to the total cost of the loan.
Another popular option at dealerships is rolling the remaining loan on your current car (after taking off the trade-in value) into your new loan. This instantly puts you “underwater” on your car and could mean you have to pay cash out of pocket to cover the shortfall should you be forced to sell or have an accident that totals your new car.
Applying your tax refund to the purchase of a vehicle has become popular. This can seem like a great way to quickly get a down payment, however it can create problems. If the deal falls through after your tax return has been submitted to the IRS it can be a time consuming process to get your refund, often taking months.
An equally important part of the purchase process is complying with state rules and regulations.
Each state will have this information on their Motor Vehicle Departments website about paying sales tax and getting tags and title. We have compiled a list of links to that information here.
States tend to use a value guide, such as NADA, to figure the amount of sale tax due. Having a notarized sales agreement can help to challenge the tax due if it is based on a higher value then the price you paid.
Often dealers will handle tax and title services for you, normally covered by the processing fee they charge. Private sellers will generally give you the signed title and you must go to the local Motor Vehicle Department to complete the title and tag process. Look into the availability of temporary or “purchase” tags in your state to be used between the time of the sale and registration. This could keep you from getting a costly ticket for not having tags on the vehicle. Stand-alone tag and title service companies are also available to help you navigate the process for a fee.
Does your resident state require an inspection and certification process on vehicles?
Some state inspections need to be completed prior to or at the time of sale. In other states they are done every year or two years and remain valid for the entire period regardless of a transfer of ownership occurring.
It is important to look into the state inspection requirements for the state in which you want to purchase. This way you know what is required and what has been checked for functionality. Never assume another state has the same inspection standards as your state.
Most states require minimum insurance coverage amounts and these must remain in place to have valid tags and registration. Check with your current insurer to see if they provide coverage as soon as you purchase a vehicle. Knowing you have instant coverage can save you the cost of gap insurance from a dealership.
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Most auto dealers and private sellers are reputable but some are not – here’s how to watch out for common scams.
Title washing is a practice used by sellers to remove brands and other negative information from a vehicle’s state issued title.
In many states once a car is totaled or flooded its title will be marked “salvage,” “rebuilt,” or with a similar brand. Some states don’t recognize or carry certain brands over to their titles. By having a car retitled in a state that does not brand titles it effectively creates what appears to be a clean title for the vehicle. This new clean title can then be used for a sales transaction or taken to a third state to obtain a local clean title for sale, making the car not only appear to have a clean history but also local origin. The car itself doesn’t have to ever leave the state, only the title paperwork moves around.
Title washing is often done with flood vehicles and other cars totaled in natural disasters. The loss of a salvage or rebuilt brand can be dangerous to consumers since often airbags and other safety features are not checked following a rebuild.
A good private history report will often uncover title washing and other important events in the vehicles past.
Buying a used vehicle “As-Is” leaves the buyer on the hook for any repairs needed from the moment the transaction is complete. Many consumers believe that there is a three-day cooling off period or right of return on used cars. No state has this law for vehicle purchases; it is normally only applicable to “in home” purchases (door to door sales).
Nationally it is legally required that all car dealers must place a window sticker on vehicles being sold “As-Is”. Most states use the Federal Trade Commission’ Buyers Guide while a few states such as Wisconsin and Maine have their own version.
Buying “As-Is” can also mean a number of possible safety issues may need to be addressed, like airbags and manufacturer recalls. To find recalls for the make and model you are considering visit the Nation Highway Traffic Safety Association’s website. Once you know the recalls to check for, call an authorized dealer for the make and model you are considering and have them check the VIN number of your perspective purchase to ensue the recalls have been completed.
An important note about “As-Is” sales and service contracts: If you buy a service contract from the dealer/seller within 90 days of the time of sale, state law “implied warranties” may give you additional rights.
A third party warranty is a contract for service that will be fulfilled by someone other than the dealer or seller. They vary greatly in what they cover and pricing. It is important to ask for the service contract and look for exact wording about what is covered.
If the service contract can’t be provided for your review don’t include it as part of the sales agreement. Remember you can always buy the contract later from the same place or from an independent reseller.
These are often available from many sources and don’t have to be purchased from the dealer/seller. Most dealers mark them up over ten times their true cost.
Some dealers have been caught using ads that don’t provide the complete picture on price and payment information. Some will show a monthly payment price that is contingent upon a large down payment amount not mentioned in the ad. Others will create the price based on certain discounts that not all buyers qualify for, such as college graduate, military status and others.
Sometimes a low monthly payment will be advertised but it is only for the first few months of the loan, after that a higher monthly payment applies for the remainder of the loan. Another scheme used to advertise or offer a low monthly payment is balloon loans. These loans involve monthly payments for a set time, such as 48 months, plus a final “balloon” payment at the end. These balloon payments are typically thousands of dollars.
“Yo-Yo” financing is another tactic used by some unscrupulous dealers. They allow you to leave with the vehicle after accepting your trade with the promise of certain loan terms. When you return to complete the transaction the terms have changed and your trade-in “has been sold”. Another variation has you sign all the documents needed only to be called back later and told the financing you agreed to isn’t available and you need to comeback in and sign different, often higher, terms. Many states have laws that allow the consumer to return the vehicle and walk away (with their trade-in and downpayment returned) if financing falls through, but not all states have these protections.
Always carefully read the entire financing agreement and look for these unexpected terms before signing.
The increase in online vehicle marketplaces has led to a number of scams that prey on buyers. Sometimes it is as simple as the pictures and description don’t match the car being sold. Many of these transactions are done from afar and require travel or shipping expenses before you find the discrepancy.
Other ads are fake listings in order to get information from consumers, a practice know as phishing. The deals are often too good to be true and the scammers come up with very real sounding reasons for you to wire them money in advance or provide personal information that they can then use for Identity Theft.
Personal safety is also an important consideration. Always meet in a crowded area to view a vehicle and, if paying with cash, never take full payment with you. If needed, take a smaller deposit and only make the final payment once all of the details have been ironed out.
Remember that a reputable dealer will have a physical place of business. Some sellers attempt to avoid state dealer licensing and other requirements through a practice known as curb selling. They portray themselves as private sellers but actually sell multiple vehicles a year.
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