The Secret to Buying Used Cars Everyone needs to Know

 

I am not even going to try to convince you to buy a used car in this post. This post assumes you know it is wise to that and want to know the secret to buying used cars.  If you are struggling with understanding why you should buy a used car, then you need to question if you are really making good choices with your money. If you live in an apartment but bought a brand new car for more than $30,000 then you should stop reading: this blog is not for you.

Actually – you are the person this blog will really help! Most finance bloggers and personal finance junkies like me don’t even need this post.  But they will still find it interesting. What I am about to reveal is the biggest secret to buying used cars.

Looking for a Used Car

So let’s set the stage for this. What is the best way to look for a used car? How about wandering into whatever used car lot happens to be close to your house? Or maybe you mention you are looking for a car to some friends and see if anyone has one they would like to sell.

There’s always the random car on the side of the road for sale – is that the secret for buying a good used car?

used car mercedes

Not quite. I am not saying any of these approaches are always a bad idea. But there is something else you need to do. However, before I get into that I want to think about how people actually acquire their cars.

Where do most people get information about cars? I am going to go out on  a limb here and say that most people don’t read through Kelley Blue Book or meticulously follow the Consumer Reports ratings of various vehicles. Or if they do, that is not the first place they get their information.

No most people don’t read about cars. Hey, can you blame them? That sounds pretty boring.

But my point is that most of us get our information about cars from television. Car commercials are everywhere. I don’t even understand most of what is said in these commercials. Some announcer says something like “the essence of luxury becomes the capstone of value” while some shiny car drives along the road and music plays.

Then comes the really strange part. The announcer starts saying a bunch of strange numbers that have nothing to do with how much the car actually costs!

“$4,000 down and $489 per month with no interest for 8.5 months and 3.75% APR for well qualified buyers!!!!!”

What does that even mean? How much does the car really cost?

All of this mumbo jumbo is usually stated while a black screen with a bunch of numbers and small print is displayed. And immediately you are back to watching football.

This same scenario is repeated over and over month after month and year after year. Finally, like water continually dripping on a stone, an impression is made and we run out and buy a car. And this is what happens:

Ok maybe it’s not that bad but it is bad. Is the television really a good source of information for buying cars? Or for anything?

The Secret

So here is the secret to buying used cars.  Autotrader! This website has everything you would need to make the right decision on a used car.

Please comment below if you have ever used Autotrader – as I am sure you would agree that this is the secret to buying your used cars.

Ok, actually that isn’t the secret. But I do like to use Autotrader. I have purchased two cars that I found searching there. I really like the search function because you can search by the type of vehicle or you can search by the brand of vehicle. The website saves a lot of time because you don’t have to do a lot of driving to dealerships and talking to people to gather information. And the information is the key.

I can shamelessly promote Autotrader because I use the website all the time and they don’t pay me to talk about them. Yet.

Hmm, how can I work this out so that I can talk about them and get paid somehow…. But back to the topic at hand; the secret to buying a used car.

What to Do

So here is the secret – develop a value score to uncover the best deal among thousands and thousands of vehicles. We will get into what I mean by “value score” in a minute but let me tell you about my experience first.

While I was using Autotrader to look for cars, I realized that there were a lot of different factors to consider. There is price, mileage, year and type of vehicle. I don’t care too much about color and options because I’m focused on buying vehicles that will last for a long time and be cheap over the long-term.

But I was having a hard time differentiating between one car that had 100,000 miles and was a little cheaper and another car that had 80,000 miles, was a little newer, and was a little more expensive.

I needed some way to objectively measure the two cars on an equal footing. Was the 100,000 mile car overpriced even though the price was lower? Was the 80,000 mile car an absolute steal of a deal even though the price was higher?

So I decided that I should develop a way to compare the two cars in a consistent way. And that was how I came up with the value score.

Value Score the Perfect Way to Compare Vehicles

This is a perfect way to compare vehicles! I have found two great vehicles for my family using this approach and believe that I really have found a secret to uncovering good used car deals.

Sometimes the deals are related to a fundamental issue which is driving the price of the vehicle down. But I don’t need to know all the reasons for the pricing issue – the way that I use the data points out the deals!

The whole idea behind the value score is to see how many miles you will get for every dollar that you spend. Consider the following table:

used cars

The 2013 Aston Martin, which is the cover picture for this post, is a beautiful black sports car. This is the kind of car that has mass appeal and has premium features like alloy rims, a powerful engine, and leather seats. But you will pay for it. The value score estimates that for every dollar I spend on this car, I will only get 1.45 miles of use.

Think about the way the calculation works:  the remaining miles in column B represent what you are really paying for. The mileage on the car is in the past so they can be ignored. You really should be focusing on the miles that you believe you will use once you purchase the vehicle. I estimated that the Aston Martin would last a total of 200,000 miles. With only 12,300 miles used already that leaves you with 187,700 miles – the most of any car in the table.

But look at the price! You will have to part with $129,500 for that car! Or said another way, you will have to pay that much to drive 187,700 additional miles.

The next two cars illustrate the issue that originally motivated me to develop the value score. The Chevy has fewer miles and costs less. This seems like a better deal than the Honda! But notice a couple of things.

First, the Chevy will likely give you fewer miles. Look at how dramatically different the estimated remaining miles in Column B are for the Chevy and the Honda.  How do I know that the Honda will last for more miles? Because Hondas are great cars! And Chevy is garbage.

You should only purchase Honda, Nissan, or Toyota vehicles. Maybe that should be the secret to buying a used car. But I don’t know if that is really a secret anymore.

And second, the Chevy is older. But even though it is six years older, I would argue that the year of a car just doesn’t matter. The age of a car should be measured in miles only. And all we really care about is the future miles that we will get out of the car. So this difference is essentially meaningless.

Unfortunately, used car dealers focus on the age of the vehicle because the newer features are obviously absent on the older models. But who cares about the new features? Yes they are nice but they are not worth wasting money on. I had a car where I had to crank a handle to roll up the window. It was beautiful. The car was so cheap and lasted so long that I didn’t mind cranking the window. Not to mention that the electric windows often fail and cost hundreds of dollars to fix!

So back to the value score. When you look at the Honda there are about 60,000 more miles expected for that car than for the Chevy. So even though you are paying just a little bit more for the Honda, you are getting a ton more in future mileage. And that shows through clearly in the comparison of the value score.

The value score for these two cars shows that for every dollar you spend on the Chevy you will get about 18 miles. But for every dollar you spend on the Honda you will get 26 miles. That little analysis greatly simplifies the value of each vehicle. Every dollar spent on the Honda gives you 8 more miles of future use than every dollar spent on the Chevy.  No wonder foreign cars are popular.

So what are you going to do with this information? You now know the secret way to get the best deals on used cars! Choose wisely.

A Story

A previous version of this post did not include this story. I can’t believe I forgot to talk about how the value score resulted in discovering an interesting secret in the used car world!

Both of the vehicles that I have purchased using this method had something in common: the cars I bought were an off brand from the one sold by the dealer. For instance, the Nissan Altima that I own was purchased at Newark ToyotaWorld. I love Toyota! But this time I was going to buy a Nissan.

I was looking around on AutoTrader.com, which I absolutely love, and I kept coming back to this plain white Nissan Altima. The value score was like 10-20% higher than a lot of other good cars I saw.

I couldn’t figure out what was driving the value so high as there was nothing obviously wrong with the car and it wasn’t especially old in terms of years.

So this car ended up on my list of the top three vehicles to investigate.

When we ended up at Newark ToyotaWorld we were a little surprised. This was by far the largest dealership that I had ever visited. The showroom made me feel like I was in a very nicely decorated warehouse. And of course it was complete with beautiful brand new Toyotas everywhere. It was a little tempting to start looking at the brand new cars.

But I hate new cars! So I quickly told a salesperson that I had printed the details of the car that I was interested in seeing and that I was not interested in any free coffee. They try to trick you into a very pleasant conversation and free coffee and donuts. That leads to a test drive and some jokes and compliments and the next thing you know, “$4,000 down and $489 per month with no interest for 8.5 months and 3.75% APR for well qualified buyers!!!!!”

I don’t think so.

So the salesperson goes back and gets this other guy to help us. It was kind of funny. The second guy was dressed totally differently, was completely unpolished in his conversation, and didn’t really seem to know where anything was. I figured he was a new guy. He finally located the car and led us out of the beautiful showroom with free coffee and donuts and to the back of the property on a deserted lot. This is where the good stuff is.

And there, sitting at Newark ToyotaWorld, was a very clean and nice Nissan Altima. They hadn’t detailed the car yet and it still had some newspapers and other personal items in the back of it from the previous owner. The test drive was great and of course we ended up buying it. There were some engine lights on but this huge dealership had an equally big shop and they quickly fixed everything.

I realized the reason for the big discount. Someone had been given a slight discount on buying a new car and was told that they got a “trade-in” on their old vehicle. So the dealership basically got the Nissan for zero cost. They weren’t trying to actively market the car through their sales people nor did they want that “thing” in their showroom. So they put it out back and listed it online for a few thousand dollars.

And that is where the data from the value score found it!

We found our minivan this same way. I realized that one of the best ways to find a good value on a used car is having the value score locate a car that is a different brand from the dealership that is selling it.

How do you usually go about buying a used car? Have you ever had trouble deciding between two options and what do you usually do to make a decision?

Author: Patient Wealth Builder

I live in the Mid Atlantic region with my wife and children. I am a finance manager for a Fortune 100 Company with over 10 years experience and have an MBA and CPA – but my true passion is investing!

4 thoughts on “The Secret to Buying Used Cars Everyone needs to Know”

  1. Wonderful! I love your secret to buying used cars Patient Wealth!

    That’s a great way to think about the residual value of a car purchase.

    There *is* something to be said for considering repair costs too. An Aston Martin is going to have significantly more expensive repair costs that should also be considered. Really, I’ve heard that any european brand is going to have more expensive repairs.

    When the value of a car is very low, like in the case of the Honda (Yay Honda!), a $1000 repair bill could significantly change the value calculation.
    Mr. Tako @ Mr. Tako Escapes recently posted…The Sick Day AdvantageMy Profile

    1. That is a great point about repair costs. That is yet another reason to buy a Honda, Toyota, or Nissan. These vehicles tend to have fewer repairs and are generally more reliable. And in the past ten years or so there has become less of a premium on the cost of these car repairs. But when you start talking European cars – you’re talking major expenses. Some of the European cars are also more prone to repairs! Little things like the button for the window, the blinkers, dome lights, headlights, and sideview mirror adjusters – they all tend to break easily and they all tend to costs thousands of dollars to repair.

  2. That’s a good idea! It seems like it really works to narrow the search down to the sweet spot of buying a car that is maybe 3-5 years old, still has a long life ahead and a fair price given the heavy depreciation years are behind it. And of course it helps with the challenge of comparing different car types on an apples to apples basis. Thanks for sharing, Patient Wealth!
    The Green Swan recently posted…A Third World Perspective on AmericaMy Profile

    1. Yes the 3-5 year range is the sweet spot. I kept getting stuck with a list of Honda, Nissan, and Toyota vehicles that were slightly different in mileage and slightly different in price and I couldn’t decide. I wanted to know with certainty that I understood which was the better deal – even if I ended up choosing a different one because I liked the color or alloy wheels better. But I have a really hard time keeping myself from buying the best option. It is so sad to see young people get their first job and go out and buy a brand new car. And they finance it! That is the WORST possible decision.

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