Are Manufacturer Certified Cars Better Than the Average Used Car?
Because several unknown factors can present themselves when buying a used car, some buyers have turned in recent years to purchasing manufacturer certified cars to decrease the likelihood of being stuck with a problematic vehicle.
While it is always important to be cautious, the good news is that as long as you do your homework and hold your used car dealership accountable up front, you should easily be able to find a used car that is in great shape—even when it’s not a manufacturer certified vehicle.
If you are looking to get a quality used car, but don't want to take on a large monthly payment, perhaps an average used car could be the best option for you. Manufacturer certified used cars can cost 3 to 7 percent more than an average used vehicle—even though there is no guarantee that these cars will remain in better shape than a typical vehicle you might find on a used car lot.
You may conclude that this additional cost isn't worth it if you work with a used car dealership that offers the following:
Vehicle History Report
Never take out a used car loan without seeing a vehicle history report. Most used car dealerships are more than willing to provide these reports to you, but you may need to ask. Any past issues that might be red flags will show up on these reports.
Manufacturer certified cars go through a multi-point inspection process to ensure that the cars are in great shape before they are sold. However, this process is not unique to manufacturer certified vehicles. Many used car dealers follow a similar inspection process to identify potential issues before they sell a car. Any used car lot that cares about customer service and desires to establish a relationship with buyers will take this inspection seriously and resolve issues before selling a vehicle.
Any good used car dealer will offer an extended service plan or warranty to buyers in an effort to provide an extra level of protection in case something needs repaired on the used car at some point in the future. As long as you have a warranty for your used car, you will likely be in just as good of shape as you would be if you were to purchase a manufacturer certified car.
No matter what kind of used car you buy, there is no guarantee that the vehicle will remain in perfect running shape for an extended period of time. As long as the used car dealer you buy from provides you with a vehicle history report, performs a car inspection, and offers you a warranty, you'll likely remain protected from major problems.
5 Things You Need to Know Before Buying a Used Car
Buying a used car can be a nerve-racking experience if you come into it unprepared. However, even a little bit of preparation will go a long way when it comes time for you to visit a used car dealer. Just keep in mind the following advice and you'll find the perfect car for your needs:
1. A Used Car Salesman Is Not Your Enemy
Sure, a salesman will want to make a quick sell—but that doesn't mean he won't be willing to help you out. If you know that you are going to need some time to consider options, visit a used car lot on a weekday afternoon. Salesmen are more likely to spend time with you because business is slower.
Also, the more information you give to a salesman about credit problems, the more he can help you from the beginning. Many dealerships have used car financing programs to help those with less-than-stellar credit.
2. You Don't Need a Large Down Payment
If you have the cash, it is almost always best to put down as much on your used car as you can to keep your monthly payments lower. If a big down payment isn’t realistic, you still have other options. Many used car dealers can get you in a car for as little as zero down.
3. A Little Homework Can Eliminate Some Big Headaches
It's best to have some idea of the make and model of used car you want to buy before you visit a used car lot. This allows you to learn ahead of time about safety recalls, gas mileage statistics, user reviews, and more. Never buy a used car without taking a test drive and always ask for a vehicle history report before you buy.
4. You May Save Money If You Buy at the End of the Month
Many used car dealers offer bonuses to salesmen if they sell a certain number of cars in a month. Salesmen are often eager to get this bonus, so if they haven't reached their quota by the end of the month, they may be more willing to negotiate lower prices.
5. You’re Not Done Negotiating Until You Leave the Lot
Once a salesman gets you to commit to buying a used car, you'll then sit down with someone in the finance department who may offer expensive extended warranties or will tell you that the interest rate for the used car is going to be higher than expected. Keep your monthly budget in mind throughout this process. If something the loan officer is pushing isn't going to work, let him know. Remember, the dealership doesn't make money unless you go through with the purchase. You have the power when it comes to used car financing and negotiations.
Used Car Financing Options
Not all auto loan financing is created equal. If you’re in the market for a used car, you’ll quickly discover that used car financing varies from new car financing.
An Overview of Used Car Financing
If you plan to obtain financing for your used car in instead of paying cash, the first step is to secure a loan pre-approval. Most dealerships offer in-house financing, but outside loans from major financial institutions come at a much cheaper rate. You can always negotiate with the dealership’s financing department to see if they can beat your current loan offer. Otherwise, credit unions are your best bet as their rates tend to be much lower than their big bank counterpart.
Used Car Financing Tips
Before you apply for used car financing, keep the following in mind:
- The monthly payments may be higher. Most used car lenders won’t offer lengthy loan terms of six or seven years like you’ll find for new cars because the car has already depreciated in value.
- Older used cars may not qualify for financing. If the value has depreciated significantly, there’s a higher chance of default if the car becomes inoperable before the loan is paid in full.
- Expect to make a down payment. There are lenders that will waive this requirement for used car financing, but you will need to bring stellar credit to the table.
- The longer the loan term, the higher the interest. Lenders want you to pay off the loan as quickly as possible, so lengthier loan terms come at a cost.
Buying used will save you a substantial amount of money on your next car purchase, but explore your financing options beforehand to get the biggest bang for your buck.
How much car can you afford?
A down payment on a used car is the money you can give upfront for the vehicle, either in cash or in the form of a trade-in. To get a good rate in used car financing, you should try to set aside as much as you can afford for a down payment. A good rule of thumb is to make a used car down payment of at least 20%.
The monthly payment on your used car is how much you can afford every month. Ideally, used car dealers want to see that your PTI (payment-to-income) ratio is 15% or less, meaning that your combined car and insurance monthly payment is less than 15% of your gross monthly income.
Additional Costs to Consider
There are also a few other used car costs you need to add in, including sales tax, registration fees, and insurance premiums, which can increase the cost by 10% or more. Check with the used car dealership and your insurance company beforehand so you can account for these.
Before buying your car, look up interest rates for your credit score and decide on a used car loan term you're comfortable with. Knowing these, you can calculate the loan amount you're looking for to finance your used car. By knowing your down payment and monthly payment, you can get an idea of the price range you can afford for a used car.
Used vs. New Car
Deciding between buying a new or used car usually depends on factors like your budget, driving behavior, lifestyle, and the car’s price, condition and handling style.
Shoppers should pre-plan their trip to the used car dealership. Online auto research will help you determine what features you want in your next vehicle.
Here's why buying from your local used car dealer makes money-saving sense than buying new.
Lower Cost of a Used Car: Why spend $23,999 on a flashy new car, when you can find a more practical, low mileage used car for under $12K? Clearly, a lower sticker price and good used car financing terms are a high incentive to buy at a more affordable rate.
Buying under a Certified Pre-owned Program: Would-be used car buyers now have a more compelling incentive to save money by purchasing through a certified, pre-owned programs from your used car dealer so they are like new.
Away with Depreciation: New car models can lose anywhere up to 40 percent of the value of the car in the first year of ownership. Used car buyers don't have that fear of value loss, as these cars already come with their own share of built-in depreciation. This lessens the financial cost of car ownership.
Lower Insurance costs: Insuring an expensive new car can be an aftershock to an already high new car sticker price. High insurance rates for new car buyers can be a burden for some. Avoid this dilemma with more affordable insurance on your used car instead.
What You Need to Know Before Buying a Used Car Warranty
Buying a used car can be a scary proposition. Even if one was to buy it from a reputable dealer, there is no way to know if an unexpected problem may emerge or if something that -- at first glance – may be a minor detail may become a major issue down the road. An extended used car warranty has been a security blanket for many new owners, protecting from the possibility of calamity down the road. However, with salesmen eager to add the price-ballooning plans to your used car purchase, is it worth it to invest in a used car warranty?
With most cars having an annual cost for repairs and maintenance of about four percent of the vehicle's purchase value, it doesn't seem that to make much sense to invest an additional repair coverage. However, a costly repair can easily cause financial stress on any wallet. With the 2014 national average to replace a transmission being $6,400, to replace an engine being $5,500 and to replace a hybrid battery being $4,140, a costly repair could possibly match or even exceed the blue book value of the used car. With used cars having a higher risk of significant malfunction or breakdown, a used car warranty offers peace of mind and security against the unknown.
When buying a used car warranty, there are several tips that you should keep in mind:
- Never buy a used car warranty plan as part of an options plan. Negotiate it separately, be willing to bargain and remember that you can always go back to the dealership later to buy it or you can purchase a plan outside of the dealership. Typically, used car warranty plans bought outside of the dealership tends to be less expensive than dealership offered plans for the same amount of coverage. You can also call other dealerships to find out what they are charging for their used car warranty policies and how far over their costs their policies are.
- Buy bumper-to-bumper coverage. The cost difference between limited and bumper-to-bumper coverage is typically insignificant, but the difference in coverage could add hundreds of dollars in out-of-pocket expenses.
- Consider a long-term used car warranty coverage plan if you plan to hold on to your used car for an extended period.
- Read the small print of your agreement and know the limits on coverage and where you can get authorized repairs. Take the time to investigate the warranty provider and review consumer reviews about their customer service, claim review process and conflict resolution. Check to see if the manufacturer of your used car recommends or vouches for the used car warranty provider and see if other local dealers also offer the same warranty plan.
- Consider the already-existing factory warranty for your vehicle. You can always buy an extended used car warranty when the original warranty lapses.
- Buy only what you think you need. Do not be pushed into buying anything you are unsure about. You can always add to your plan later.
Purchasing a new used car can be a big moment. Insuring your new purchase with the right used car warranty can go a long way towards ensuring that this moment is not one you may regret later.