Buy a Used Car

You already know buying a used car is cheaper than a new car, but did you know that:

• New cars lose 20% of their value once they are bought and taken from the lot

• New cars lose 30% of their value after 1 year of use

• New cars lose 50% of their value after 3 years of use

Is a 3-year-old car halfway to dying? Absolutely not. The value of the car depreciates much faster than the worth of the car. In other words, the age of the car and the cost of the car do not create a linear graph. Cars lose value disproportionately quickly.

And buying a used car doesn't have to be risky or sketchy. Here's how you can get the perfect car.

1) Decide what you want.

What is your budget? What size does it need to be? Do you care about the color? Can you drive a manual or do you need an automatic? Pick the factors that matter the most to you.

The smaller your budget, the older the cars you'll generally find. For $20,000 you can get an almost-new car. For $10,000 you can get a 5-7 year old car. For $2,000 you will probably get a 15+ year old car.

Be practical and decisive about what you want. If you don't know then the car dealerships will happily choose for you, in their own interest. Is your main goal affordability, space, or something else? If it's affordability, you might want a sedan that gets good gas mileage. If space is your goal, you might want an SUV or mini-van.

When I went car shopping, almost all the dealerships kept pushing me to select a car color. I kept repeating that I didn't care about the color, I just wanted the cheapest possible car that had the fewest possible miles on it. Stick to your guns and don't let the salespeople push you around. You know what your needs are better than they do.

2) Go shopping!

Look all around for cars. Go to dealerships near you (call ahead if you have a low budget and want to make sure they have options). Look online at Craigslist, Carfax, and local sites you find. Notice cars parked outside with "for sale" signs on them when you're out and about.

Make notes about what you see and what you like or don't like. Some things you might want to jot down as you notice cars that interest you:

• Cost. Ex: The car costs $5,000.

• Year. Ex: The car is from 2011.

• Mileage. Ex: The car has 115,000 miles on it.

• Miles per gallon. Ex: The car gets 32 mpg.

• Make and model. Ex: The car is a Ford Focus.

• Special features. Ex: Bluetooth and navigation system.

• Accidents/Title? Ex: The car has a clean title (meaning no accidents). You can check if the car has a clean title or salvage title (meaning it's been in a serious accident) online through Carfax. You just need to know the car's VIN (vehicle identification number).

• History? Ex: This car has had 2 previous owners.

• Problems? Ex: The brakes need to be replaced.

You want a low-cost car from a recent year with low mileage, that gets a high number of miles per gallon of gas, from a reputable brand, with all the best features and technology, a clean title, few previous owners (or even better, it was previously leased), and no problems. You probably (definitely) won't get all of those things, but you can and should try!

If any of these factors aren't clear, ask the seller. If you are looking at the car outside of a dealership, I would recommend running the VIN yourself to check the title for free.

3) Take it for a test drive and get it inspected.

Whether looking at dealerships or online, don't commit to a car until you've driven it. If looking in a dealership, try test driving a car even if they don't have exactly what you want. It will help you learn more about how different cars drive. If you're looking online, pick your top car, go to where it's located, and take it for a drive.

Make note of whether it's comfortable to sit in, if you like the look of the seats and dashboard, if it brakes and accelerates smoothly, if it seems to be as advertised. Are there any dents or signs of accidents?

If you are buying a car outside of a dealership, it is highly recommended that you meet the owner in a public place during the day. You should also get it checked out by a mechanic of your choice. You will be expected to pay for the inspection, whether or not you end up buying the car. It generally costs $50 - $100, but it is well worth it. If you learn that the engine or catalytic converter isn't in good shape, abandon ship!! If the brake pads or an axle needs replacement, that is a simple and relatively inexpensive fix. Learn about all the problems before they become yours.

Note: You can absolutely insist that a car at a dealership gets inspected externally. They might argue with you, but if you have suspicions or doubts, put your foot down.

4) Negotiate, sign papers, drive away!

No matter where you buy a car from, you should try to negotiate. Dealerships will usually knock at least a few hundred dollars off if you ask, and may toss in some new tires to sweeten the deal. Cars posted on eBay, Craigslist, and other such sites often put down a higher asking price and expect to negotiate. If you don't, you're throwing away money.

If you're at a dealership, ask about fees and taxes. There's usually documentation / dealer fees that are non-negotiable. They might try to sell you warranties and auto equipment on top of the car, but don't be afraid to decline. Often it's more expensive than it's worth.

Don't forget to buy car insurance before completing the purchase! At the minimum, you'll need mandatory liability insurance. I'm writing another article right now about shopping for car insurance.

You'll owe sales tax on all vehicle purchases -- paid to either the dealership or the DMV (if it's a private sale). This ranges from 0-12% depending on the state.

Once you're happy with the price, hand over the money (often cash or a check). At the same time, obtain the title from the current owner. Check that the car's VIN (the number printed on the windshield and inner front door) matches the VIN on the title, and that the seller's ID matches the information on the registration and bill of sale. This page tells you what you'll need to do to complete the bill of sale and transfer the title into your name, in a given state.

If you're at a dealership, they'll walk you through everything. Ask questions if you are confused.

If you're buying through a private sale, you'll need to the the title, bill of sale, and proof of insurance to the DMV within 10 days to obtain a license plate and registration. You can also do this through the mail.

What used car are you shopping for? Where do you plan to take it?