What to look for when buying a used car

Everyone loves that new car smell but buying used could save you thousands over the life of your loan. Plus, it could be a better financial move. In most cases, new cars lose a lot of their value the minute you drive them off the lot.

It pays to do your homework to ensure you have a good experience. Here are some tips to get you started.

Make a list of what you need.

If you're already shopping for a new car, you've probably spent time thinking about the features you need right now. But here's a pro tip: Consider how your needs may change down the road.

According to research from IHS Markit, Americans who buy new cars keep them about six years, and the average age of used vehicles on the road is almost 12 years. Granted, you may not keep yours that long, but if you do, how might your lifestyle evolve over the next decade? Might you move to a new location and have a longer commute that calls for better gas mileage? Might you grow your family and need room for car seats?

It's helpful to make a list of your “must-haves” before you go look at a car. Then, consult that list before you get too far into the buying process. That way, you're less likely to get swept up in the moment by a car you love that doesn't meet your needs.

Review your budget.

Any big purchase starts with a look at your budget. While it depends on your individual circumstances, financial advisors generally suggest spending less than 15% of your take-home pay on a car, whether that's paying off a loan or socking money away for your next down payment.

Remember, that 15% should include not only your monthly payment, but also sales tax, car insurance coverage, fuel, vehicle registration fees, and maintenance and repairs. If you're buying a used car, you'll want to allow more money for maintenance and repairs.

While you're reviewing your finances, it's a good idea to apply for an auto loan. If you want to learn more about why it's smart to come to the negotiating table with a lender-approved loan rather than waiting until you get to the dealership to secure financing, read our article, What you need to know about car loans.

When you're buying a used car, it's also a good idea to explore car insurance ahead of time so you have a better idea of how to narrow your search. The year, make and model will have an impact on the cost of your car insurance coverage.

What's your timeline? Do you need a new car now, or is yours in pretty good shape? If you can wait, certain times of year — and even days of the week — can make the car-buying process more advantageous for the buyer. Research suggests there are good reasons to explore the timing of your car purchase. For example, you can visit a car dealership at the end of the month, quarter or year when salespeople are motivated to reach targets. Visiting earlier in the week and later in the day can also help.

Check the mileage.

Consider how many miles you feel comfortable with on a used car. This may be a key decision point in figuring out how much car you can afford. According to the data analytics company J.D. Power, the number of miles on a car can give you a better idea of the state of the engine, transmission and suspension.

But how many miles is too many? Experts used to say a car was past its prime if it had more than 100,000 miles. But these days, cars are more reliable and can generally run up to 200,000 miles without major issues.^{See note1} That is, of course, if the car has been well-maintained.

You may consider narrowing your search to "certified pre-owned," or CPO, cars. After being inspected by factory-trained mechanics and undergoing the necessary repairs, CPO vehicles come with a manufacturer-backed warranty.

Consult a mechanic.

In determining whether a car has been well-maintained, it helps to know the total number of owners and to review any maintenance records they've kept. Since you don't know how they may have cared for the car, the risks of purchasing a used car increase with each prior owner. Has it had regular oil changes? Has the air filter been replaced as recommended by the manufacturer? Has it been in any collisions?

If you find a car that fits your needs and your budget, it's a good idea to check with a mechanic who can inspect the engine's components and the car's general condition to be sure it's still in good shape. Ask the following questions:

• Has the timing belt been replaced? Depending on the car's make, model and year, it may not have a timing belt. Instead, it may have a chain designed to last as long as the vehicle itself. However, if the car does have a timing belt, it typically has to be replaced every 60,000 to 100,000 miles. This matters because if it receives too much wear and tear and snaps, it could destroy the engine.
• What's the condition of the brake pads? Depending on the make and model of your car, brake pads should be changed every 30,000 to 70,000 miles.
• Is the transmission original? Transmissions can last anywhere between 150,000 and 200,000 miles. But if your car was in a collision and the transmission was replaced, you should know if it's in good shape.
• Are there concerns with the overall body condition? Be sure the mechanic checks for things like water damage, rust, hinges and dents, which can indicate prior neglect or mismanagement.
• Have the tires been replaced? If a car has fewer than 20,000 miles, you would expect it to still have its original tires. If they've been replaced, be sure the treadwear is even across the width of the tread. Be sure they've been regularly rotated and that the spare is in good shape.

Read more about how to find a mechanic you can trust.

When you're buying from a car dealer, request a copy of the car's vehicle history report, which gives you a glimpse into the car's past by providing information about the car's ownership, accident history, title status and mileage. If the dealer doesn't have a report, you can buy one yourself from Carfax.com^{See note1}, as long as you have the car's vehicle identification number, or VIN.

Buying from a car dealer: Get dealership-ready.

When you're serious about buying a car, there are a few things you should consider before heading to the dealership.

Decide if you want to trade in your old car or sell it yourself.

There are pros and cons to each decision.

If you go the DIY route, you can probably make more money. Car dealers generally offer a lower cost because they have to account for risks associated with the sale. Plus, they have to make a profit.

There are disadvantages to selling it yourself, though. Before you decide to go it alone, remember you'll have to do your research to start the process; don't forget to consider sales tax; get your car cleaned up, photographed and advertised; handle all the paperwork; and take time to conduct the in-person transaction. To help you decide what's best for you, read our article Should I trade my used car or sell it?

Shop around to determine a reasonable price.

It's a good idea to head to the dealership with a price in mind — and with financing in-hand. This sends a strong signal to the salesperson that you've done your research and that you're prepared.

If you come to the table with a preapproval for a car loan from your bank, you may also be better positioned to take advantage of car dealer incentives, such as rebates. Read more about how to prepare in Tips for negotiating better car deals.

Think about how much warranty you'll need.

When you buy a car, the dealer will probably try to sell you an extended warranty. Be prepared by asking yourself how much money you have on hand for emergencies. If you've saved three to six months' worth of essential living expenses, you probably don't need to buy an extended warranty from the car dealership.

If you haven't fully stocked your emergency fund, a warranty might help cover the potential repair costs you're more likely to incur with a used car. Still, you don't have to buy it from the car dealer. There's a good chance you can find a more affordable extended warranty on your own.

Before you close the deal on your used car, find out how much of the manufacturer's warranty is left and what it covers. Then you'll have all the facts you need to make an informed decision.

Hit the road.

In addition to the mechanic's opinion, you'll want to test drive when buying a used car. If you're buying from a car dealer, there's probably a pre-planned route. Be sure the route includes the types of roads you usually drive on. You want to go over a few bumps to ensure there aren't any concerning rattles or suspension issues.

This is also a great opportunity to get a sense of the car's visibility. Check your blind spots to be sure you can see all around you. Is the interior air clean? Are there any gasoline or exhaust odors coming through the vents? Mold or mildew smells could indicate that the car has been flood damaged.

It's OK to pump the brakes.

Most importantly, remember that throughout the process of buying a used car, you're in the driver's seat. Take the car for a test drive. Get a mechanic's opinion. Ask for maintenance records. Buying a car is one of the biggest purchases we make in life, and there's no need to rush it.

When you find the used car that's right for you, extend its run by committing to routine care. Read our Maintenance tips to give your car a long life.