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8 things I learned from buying a used car.

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On August 2015, I bought a used car. I call it the Ferrari, but others refer to it as the 2012 Nissan Altima.

Here are the things I learned from this experience, mostly centered around saving money.

1. Don’t rush, there are plenty of cars for sale out there.

I began my search before I even moved back from Taiwan (April 2015). No matter which model and year, there were always plenty of options on both dealerships sites or Craigslist. I bookmarked several cars every shopping session, but upon coming back days later, many had been sold.

Seeing how fast cars disappeared initially made me feel a sense of urgency. However, I soon discovered that newly listed ones appear just as quickly. I ended up having more trouble keeping track of which private party or dealership I was in touch with, because there were too many car choices available.

I originally bought a used 2014 Mazda6 GT in June from a dealership (which I returned the next day, dramatic blog post here). Since then, I mostly used Craigslist, which ultimately led to my purchase of the Altima.

2. Be meticulous when testing the car.

Imagine you’re a quality assurance person. Your job is to make sure that every button, feature, and function works as intended for the product. Replicate this imagination by pressing everything and looking everywhere in and out of the car.

For the Altima, I found that the driver-side automatic windows did not automatically go up. Not a big deal, since I could just press and hold the button instead. It was a surprise nonetheless, and I used this as leverage when negotiating the price.

The car should also feel smooth when test driving. I recall testing two 2012 Acura TLs. The first car had a weird jolt when shifting from gears 2 to 3, and I complained about this. The salesperson brought me into a second TL, and it didn’t have that problem. All cars are different, so make sure the car feels right. The more meticulous now, the more it will save you from repairs.

3. Take the car to a (trusted) mechanic for a quick inspection.

If you are very serious about buying the car, ask the private party if you could take the car to a mechanic of your choosing. The purpose of this is twofold:

  1. See their reaction. If they’re very reluctant, that could be a sign that the car is bad. Let this car go.
  2. Get the vehicle inspected. It only takes about 15 minutes for the mechanic to check. If you have a prior history with the mechanic, they’ll almost certainly do it for free. If not, it should be under $25.*

This can be negotiated. You can say “If they run a check and it’s bad, I don’t make the purchase and you pay for it. If they run a check and it’s good, then I’ll pay for it (and buy the car).” This builds trust.

4. Everything is negotiable, not just the car price.

After test driving the car and looking over everything, I asked the seller:

Me: “Will you let me take this car to a mechanic to inspect the vehicle?”

Him: “Only around this area.”

I was in Anaheim Hills, but my mechanic was in Fullerton. I didn’t want to go to a mechanic of his choosing, in case there was foul play involved.

Me: “If you let me take the car to a mechanic in Fullerton, and he says it’s good, then I am ready to buy the car.”

Him: “Fine.”

Sure enough, my mechanic said everything was good to go, and we negotiated some more.

The listing price was $12,500, but I reduced it to $11,950. On top of that, the private party ended up handling my DMV registration and mailed the stickers, license plate, and other docs to me. All I did was pay the guy and he handled everything else. Not having to go to the DMV is value in itself.

5. Financing and payment options.

Dealerships are always quick to offer financing rates. This allows you to not pay for the entire vehicle up front. Instead, you pay monthly fees with some interest. This means that you have to pay an extra fee every monthly payment, e.g. 1.99% for the remaining amount you owe the dealership. This is a good way for them to make money, and that extra fee really adds up over time.

Irregardless of any financing rate, I recommend purchasing all cars in its full amount upfront, or the full amount within the 0% APR timespan. You should always avoid financing a depreciating asset: don’t pay more for a good that becomes less valuable per day. Pay the full cost now; leave financing options for appreciating assets like real estate.

On the other hand, private parties don’t offer financing options.  You can ask a bank for a loan, but they’re more reluctant with private parties. Therefore, you’ll need cash on hand in the full amount for the transaction to occur — meaning pink slip (vehicle ownership) has changed hands.

Private parties prefer cashier’s checks or bank transfer. Dealerships prefer cashier’s check or cash. Dealerships also usually accept up to $3,000 on one credit card. Personal checks are not preferred, and almost always not allowed if over $10,000. This is because personal checks take days to process and can be fake, meaning high risk for the seller. Think of the movie Catch Me If You Can with check fraud.

6. Factor in sales tax and other fees in your budget.

The listing price is not final. Add in sales tax, DMV registration and new license plates fees. Even though the cost of the car was $11,950, I ended up paying $13,232 after sales tax and all other vehicle fees.

If you have more than one residence (even relative’s addresses!), look up the sales tax rates in each county. For example, my purchase of the Mazda6 was at Santa Clara cost $21,600 before taxes and other fees. Santa Clara’s sales tax is at 8.75%, but I put my residence at Orange County, which has a sales tax of 8%. The difference in 0.75% meant that the sales tax was $1,728 instead of $1,890, saving me $162!

Note: the license plates are mailed to the residential address you’ve jotted down.

7. Driver’s insurance and license plates laws.

If you don’t have driver’s insurance, you’re legally obligated to get one within three days of the vehicle’s purchase.

Note: if you’re a college grad, your alumni association may offer a discount for vehicle insurance. I joined Cal Alumni Association, which costs $30/year, but it dropped the insurance cost by about $100.

Within three months of vehicle purchase, you’ll also need to attach license plates on the back (and front for many states, including California). Many cars (even used) actually don’t have the proper screws for front plates, and you’ll need to manually drill holes or pay a mechanic to do so.

8. Think of who else may own the car and make them co-owners.

If there’s a chance you’ll give the car to someone in the future, especially a family member, make them a co-owner upon purchase of vehicle. They’ll need to be physically present to sign the paperwork.

I plan to give this car to my mom in a few years. During the transfer process, the state will collect sales tax even if I’m simply passing ownership. They’ll take sales tax (e.g. 8% in Orange County) of the car’s value at the time of transfer.

To avoid this, I made my mom co-owner, so that I don’t have to “sell” the car to her in the future.

Conclusion

My experience buying the Mazda6 from the dealership was terrible. On the other hand, the Altima from Craigslist was a good experience. 3.5 months and 3,000 miles later, I’ve only had to replace tires and get new brake pads, normal maintenance stuff.

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