What can this Used Car Buying Guide do for you? It will take the fear and risk out of buying a used car. The goal of the UCDU and this information is to ELIMINATE your FEARS, and put the FUN back into buying a vehicle. We will show you what TO do and what NOT to do when buying a used car.
Let us assist you:
Avoid getting into a vehicle that is NOT right for you.
Become informed so you can make the BEST buying decision possible.
Become an educated buyer - and reduce the risks for banks, credit unions and finance companies.
Evaluate value and security of buying from an independent dealer vs. a new car dealer or private party.
Buying right is something to be learned. How many times will making these two buying decisions in the course fo your lifetime.
Home: Appreciating Asset and you may buy 1-3 homes in your lifetime. Investing in a home is just that … an investment. You might want to buy right and the property usually appreciates while you own it.
Vehicles: Depreciating necessity that you may buy between 20-40 in your lifetime. Most people will putsches 20-40 vehicles in their lifetime. Because they are depreciating necessities, they can gobble up lots of money in a lifetime. You don’t want to pay more than you should for your vehicles because each vehicle purchase will depreciate every month that you own it.
Consider the following questions: 1) Why is the YEAR of the vehicle a critical buying factor? 2) What is the MILEAGE and CONDITION of the vehicle? 3) Is the PRICE in alignment with the condition of the miles of the vehicle? 4) What FINANCING options are available to you? 5) Where should you BUY your vehicle? What are the RISKS and REWARDS?
Buying the RIGHT vehicle means buying….
At the right TIME
With the right MILEAGE
At the right PRICE
With the right FINANCING
At the right SOURCE
Have you ever heard of the saying, “Timing is Everything?” It is especially the case with buying vehicles. Since the YEAR of the vehicle remains constant, knowing the right years to buy and sell your vehicle can be your biggest savings factor.
This graph shows TWO factors affecting the best time to buy!
The Window of Opportunity is the shaded area representing the optimum time to purchase a new-model used vehicle. When most Lease/Fleet/Rental vehicles are 1-3 years old they are sold at dealers-only auctions all across the country. When this happens in mass volume, the supply increase causing prices to drop. This is the best time to buy that vehicle. Later, as fewer of those particular types of vehicle are available on the market, the VALUE of that vehicle will stay relative LEVEL for the next 3-5 years.
Condition and mileage affects depreciation. Here are the ways that mileage affect depreciation:
The Auto Industry Standard for yearly average mileage is 15,000 miles per year. 15,000 miles x 2 = 30,000 miles, which is exactly when most Leases/Fleet/Rental cars are sold at dealer auctions. Most of these vehicles are still under Factory Warranty, thus increasing their value. Some powertrain warranties are a s high as 10 years/100,000 miles.
Question: Do Time and Miles remaining on a factory warranty increase the value of the vehicle?
Answer: YES! There is less risk to the buyer when they are purchasing a vehicle with some factory coverage left.
You can expect to pay $2,000-$4,000 more for a vehicle for ANY factory coverage remaining. This is WHY most Lease/Fleet/Rental companies dispose of their vehicles JUST BEFORE the factory warranties expire because they get more money.
*MILEAGE DISCLOSURE: Mileage disclosures are required for every vehicle up to 10 years old. The mileage must be disclosed in writing on the title document or attached documents. A vehicle cannot be sold by anyone without a working odometer.
The following chart shows three major drops in a vehicle’s value - ALL are based upon mileage.
Just like the Stock Market, the best time to buy a vehicle is just AFTER the price DROPS! Take advantage of the knowledge by:
BUYING: Just after a dramatic DROP in value, and
SELLING: JUST BEFORE the NEXT drop.
Fair Value is great affected by the vehicles condition! To understand the value, you need to understand the book value. Start with the book value, such as NADA, Kelly Blue Book, or Black Book, or a book that issued in your state.
- condition of vehicle
= TRUE FAIR VALUE
Compare PRICE, against overall CONDITION, and against the BOOK VALUE, … Then NEGOTIATE!
The condition of the vehicle can be your Biggest Negotiating Factor. You can determine the condition of a vehicle by using our Vehicle Condition Checklist.
As-Is vs Warranty
If you purchase a vehicle “As-Is” you accept it in the condition that it is in. This typically means that you are responsible for all repairs and maintenance. If a customer experiences a mechanical breakdown many times, dealers will provide a goodwill service. Because they value you as a customer, they may help you with some repairs. Vehicle will still be "as is." The FTC buyers guide it will disclose any warranty offered by the dealer. I warranty will cover certain components of the vehicle for a specific time and mileage. Service contracts are available for an additional costs and are similar to a warranty covering certain components for a specific time and mileage. Read carefully any exclusions and limitations. Know what your responsibilities are for service and maintenance.
There are seven factors to consider when financing a vehicle:
Taxes, license, registration, and document fees
Term of the loan
Price: The price is the actual cost of the vehicle that you have negotiated with the dealer. Price can vary greatly. And industry God but can give you an idea of price but may not be accurate due to many variables.
Taxes, license, registration, and document fees: These fees added to the cost of the vehicle to get the vehicle registered and licensed in your name with the state. All license and registration fees are standard and should be the same for every dealer with the exception of Dealer Document Fees which can vary from dealer to dealer. The document fee covers the cost of processing all documents and title delivery requirements.
Interest Rate: is the percentage rate that banks, credit unions or finance companies charge you to borrow the money you need to purchase the vehicle. This rate is determined by two things: a. The year of the vehicle: the new owner of the vehicle, the lower the rate. b. Your credit: the better your credit, the lower your interest rate. When the go she ate with the dealer, I understand your credit, and be sure you are getting the best rate. Most dealers have an arrangement with their lending institution to receive a small percentage of the total rate as a commission to process the loan document. This is also another place to negotiate with the dealer! Be sure you pay the rate your credit deserves.
Term of the Loan: this is the total number of months that the bank, credit union, or finance company will be willing to lend you the money, generally 60-72 months. This is the biggest factor affecting your monthly payment. The longer the term, the lower your monthly payment will be. Conversely, the shorter the terms of your loan the more you will have to pay each month. The lending institution determines the monthly payment you will qualify for once they see your debt-to-income ratio - all of your fixed monthly payments divided into your total gross income.
Credit Worthiness: what does a bank, credit union, or finance company generally look for as an average minimum credit history?
One year job experience or same line of work for more than one year.
Three credit references (minimum six months old with no late payments)
Your debt to income ratio should not exceed 40%.
Most common credit report problems that prevent fires from getting approved are; 1) No credit is established. 2) 30 day late payments - don't be late on loans! All delinquencies will stay on your credit for seven years. Just one derogatory report can greatly affect your credit score. 3) Collections - all collections must be paid before new loans will be granted. Avoid these problems like the plague.
Trade In: this is the amount of money that the dealer is willing to allow for the vehicle you are trading in. It is important to remember that the dealer is buying your vehicle to resell to someone else. You should not expect them to buy your trade in for anymore that whatever they could sell it for.
Reasons to trade a vehicle:
You will receive a tax savings on your new purchase.
You will not have to try and sell it on your own.
Tips for trading in a vehicle.
First, negotiate the price of the vehicle if you want to purchase before telling the dealer you had a trade-in.
Be sure your trade-in is clean - remember you are trying to sell your vehicle.
No what your car’s loan pay off is before going to the dealer.
Know what the "market price" is on your trade-in, and what you could sell it for.
Some dealers may offer you a trade/consignment program. This allows you the tax savings of your trade-in that goes towards your new vehicle while possibly getting more money on the sale of your vehicle when the dealer sells it.
Remember of vehicles value has a lot to do with its ability to be financed, keep that in mind on your trade it. Vehicles older than six years old have a tougher time getting financed.
GAP Insurance: GAP Insurance is important to consider. In the event that you “total” your vehicle, or it gets stolen and not recovered, your full-coverage insurance will only pay you a percentage of the full value of the vehicle - leaving you with a loan balance to pay off. This balance can range from $1-$7,000. GAP Insurance pays the loan off (up to 150% of retail book value) and may provide you $1,000 towards the purchase of another vehicle.
After Factory Service Contracts: Many 3rd party service contracts are available. Be sure to find one that covers as much of the major mechanical components as possible. You also want to do some homework and find out if they are insured and how well they pay their claims. Read the contract carefully and ask questions.
Credit, Disability, and Life Insurance: The insurance will pay off your car if you become disabled or if you die. This is important to consider if you car payment would create a financial burden to your loved ones.
REPO - Repercussions! What happens if your vehicle is repossessed?
The late payment will show on your credit report.
The collection will show on your credit report.
The judgement will show on your credit report.
The garnishment of your wages will show on your credit report.
The repossession will show on your credit report.
… and you still owe the remainder of the load. IT’S NOT WORTH IT!
Where to buy: You have two options - to buy from an individual or a dealer.
Advantages of buying from an Individual:
A desperate seller may offer a better price.
An individual may not know the market value of their car.
A friend or relative may offer you a better deal.
You may learn the history if you are buying from the original owner.
Disadvantages of buying from an individual:
No assistance with financing.
Risky - no recourse if you have problems.
The vehicle emissions and inspection have to be completed yourself.
You’ll have to wait in line at the DMV to get the vehicle registered.
No warranties or guarantees.
No trade-ins accepted.
May be stolen, rebuilt, or have odometer tampering.
No way to trace owner on open title.
Where to purchase your next car: You can get a very different value for the same car!
Advantages of buying from a dealer:
Licensed and bonded.
Vehicle emission completed
Licensing, registration, and plating done for you.
Offers many options to assist with financing.
Saves tax dollars
Disadvantage of buying from a dealer:
May still be risky. If you go the other RIGHT PLACE, and you know how to BUY RIGHT, you can tall ALL the risks out of buying from a dealer.
To Trade: How to get TOP DOLLAR from your trade-in: Negotiate the new vehicle, THEN talk about your trade-in. Do your homework - check papers and the internet for current market pricing. Watch out - some dealers will offer you the “moon” for your trade, but be sure to check how much more you are paying fro your newly purchased vehicle.
Or Not to Trade: Show you choose not to trade in your vehicle, here are some ideas that can help you market the vehicle yourself: List your vehicle on a few websites. Generally it is quite inexpensive or FREE. Clean and detail your car prior to showing it. Make a list of the “best features.” Establish a price that you will not go below and stick to it. Put your car on a dealership’s lot on consignment.