For most people buying a car is the second biggest purchase that they will be making in their life-time, after a home of course.
I’m in the process of selling my home, and buying a new one, it’s ridiculous how much money we spend on this important purchase after having only spent mere minutes in it. The same thing applies to cars, to a lesser degree of course but still, for most, a 3-minute test drive, maybe an inspection and we are ready to buy. I’m hoping that this series of posts can help people to make the right decision when making this important purchase.
This series of posts will be mostly aimed at the used car market, but first I still feel I need to cover the new vs used question.
Buying a new car is great, everyone loves new and you can’t beat that new car smell. You’re purchasing something that in theory shouldn’t have any issues for the foreseeable future and it will be cutting edge for your budget, in terms of technology, safety and performance. Of course that comes with a price tag and even worse, the depreciation that ensues. According to Edmunds.com, the average car will depreciate by 11% the moment you leave the lot, each year after that it will lose between 15-25% of its value. After 5 years, you will have a car that is worth about 37% of what you paid for it. In general, cars are a money pit, unless you bought something like a Ferrari 250 GTO, which was worth about two and a half thousand dollars in the 1960s and is currently worth around 40 million dollars, it’s not likely to be a good investment. But again, if you can stomach the price tag, want a worry free ride and you like to always have new shinny things, go for it!
If you are willing to make a few compromises and shop the used car market, you’re likely to save a ton of money. That being said, for it to be really worth it, you’re are going to need cash. If not, you will have to borrow at an interest rate that is probably considerably higher than the average new car dealership.
So let’s say that all things considered, you’ve opted to buy a used car, where to start?
Dealership vs. Owner
They both have their advantages and disadvantages, let’s start with dealerships:
In general, dealer cars won’t have any major issues, as they would have made the repairs before selling them, for the most part, they have a reputation to uphold that they wouldn’t want to jeopardize, but this doesn’t mean things like the brakes aren’t on their last leg. Also, if you do need financing, getting a loan here is probably cheaper than one that you’d get at a bank.
However, at a dealership, you aren’t likely to get a good deal, as they need to make a profit. Keep in mind, that their number 1 goal and reason for existence is making money. They will repair the least amount of things on it, based on cost to repair, in order to be able to sell it at the highest price possible. Also, it is possible that the vehicle’s mileage has been tampered with. Not necessarily by the dealership in question, but these cars change hands so frequently, sold between dealerships, auction houses and different intermediaries that it can done fairly easily and be very difficult to track. More on that later. My father once drove a Dodge Grand Caravan to over 300,000 kilometers, he eventually sold it to the dealership where he was buying a new car, two weeks later he came upon it at a used car lot and it had miraculously found the fountain of youth, it had 120,000 less kilometers on it. He says that the salesman knew nothing about it…
When buying from an owner, you’re more likely to get a better price. As his goal is usually to sell the car at a reasonable price as fast as possible in order to upgrade. Also, more difficult to find, but I strongly recommend buying a car which the owner bought new. Single-owner cars are generally better maintained, it’s easier to get the car’s full history and if you can find an owner that is ”older” chances are he didn’t drive it too hard!
On the down side, the seller is selling the car for a reason. Maybe it needs a repair that he thinks isn’t worth paying for, maybe he switched jobs and no longer needs the car, there are many possibilities, but it’s important to know why. Also, there are no financing options here, if you don’t have cash on-hand, you’ll need to go to the bank and that is going to cost you.
So faced with these two options, I would always opt for buying from an owner. It’s what I’ve done in the past and what I’ll surely do the next time I buy a used car. I’ve just heard too many stories about dealer cars that I wouldn’t even think about it. However, if you chose the dealership route, look for cars that our certified pre-owned and stay away from the deep discount car lots!
That’s enough for part 1, in part 2 we will cover what to do once you’ve found your gem!