I bought a used car from a dealership for the first time last month. I have to admit, I was a little concerned about the process. Buying a used car is a big and expensive decision. Fortunately, I got really lucky and discovered a process that made buying a used car quite simple and stress free. I couldn’t be more happy with the experience, the results, and the price we paid for the used car.
I’m writing this post to give you the strategy and thought process I used on how to buy a used car from a dealer as I didn’t see anything like it when I was researching after my wife’s car accident. Hopefully it will be helpful to you.
Why Buy a Used Car?
The first question is, what kind of car do you want? Perhaps you’ve already made the smart decision to buy a used car (good thinking). If not, buy a used car. Why? Because a new car depreciates roughly 11% after you sign on the dotted line and take your new vehicle on your first joy ride. It gets worse, after 5 years the new car you purchased is worth 37% of what you paid for it at the dealership. Unless you have money to blow, let the person who isn’t reading this post take the financial hit of a new car so you can benefit later from their costly financial mistake.
Which make and model is a personal and budgetary decision. A lot of the financial gurus, like Dave Ramsey, say you can’t afford a car unless you can pay cash for it. I wholeheartedly agree. Don’t dump money into a car you can’t afford because it’s a fancy brand or has a slick style. This vehicle only needs to get you from point A to point B safely, not show the world how much money you have (or more likely, how much debt you’re in).
Once you’ve decided on a used model you like and can afford, I recommend you check out Consumer Reports. They have a list of used cars with ratings on which cars have turned out to be the most reliable. Many public libraries subscribe to Consumer Reports so you don’t have to pay the $6.00 monthly fee.
The Dealership is Going to Make Money
The first thing you need to remember is, this is a negotiation. However, it’s a negotiation where the other party is holding all the cards… you are dealing with professional negotiators who do this stuff everyday. Your goal isn’t to try to screw the dealership, but to work out a deal that will benefit both parties.
News flash, the dealership is going to make money on your purchase. Go ahead and come to terms with this now, the dealership is going to make money off of you…
It’s okay, that’s why they are in business. I think we can all get a bit caught up in trying to get the best possible deal where the car buyer is the only beneficiary. This line of thinking makes the buying experience stressful and exhausting. Your job is to make certain you get a good car at a reasonable price and the dealership doesn’t make a killing off your purchase. You want a fair deal, and the information below will show you how to get that deal.
Does the Used Car Check Out
You’ve found the car you liked, it looks clean, smells normal and drives great. You’ve checked the Carfax or Autocheck report and it’s free of accidents. If there is an accident reported, you’ll have to be the judge on if it’s worth buying. We decided we didn’t want a car that had been in an accident. If there are lots of service records, awesome. If not, don’t worry about it, we’ll make sure we are getting a reliable car later in the process.
That brings us to the big question…
How Much Did The Dealership Pay
Now that you’ve determined which car you like, it’s time to figure out what the current market price is for your vehicle of choice. You’ve probably already done this. It’s not difficult to do, here is a list of the best sites to look for cars. www.autotrader.com, www.cars.com, www.cargurus.com & www.vast.com. These site will give you a good idea of what vehicles are currently going for.
To determine how much to offer is really simple. What I did was take the average of the trade-in price from, www.edmunds.com, www.kbb.com, and www.nadaguides.com. You’ll take these values and plug them into the offer calculator spreadsheet below.
You want to get the “trade-in to the dealer” value, so go through the process as if you already own the car and you want to buy and are getting prices as if you were to sell it to a dealer. Then go through and pick out all the options that are on the car you like. You also have the option to pick the condition. I chose Good (as this is the average condition) even though the vehicle we were looking at was in excellent condition. These sites will give you a rough idea of what the dealership paid for the car. In most cases, the dealership paid less. However, this is the best information that we have to work with.
The Strategy I Used to Determine How Much to Offer
In our case, the averaged values came out to roughly $11,750. We determined a fair profit for a car in that price range was to include $1,000 profit for the dealership. This seems to be roughly what they want to make. I don’t know if a percentage is more appropriate, in our case 9%, or if just including a $1,000 will work. It might be different if you are buying a really expensive used car or less if you are buying a less expensive car. Anyway, 9% dealership profit on the average of the 3 trade-in values worked for us.
We also included $500 for a document fee. I don’t have a clue why they charge a doc fee (other than profit), but apparently all dealerships like to charge it and say it is non-negotiable. However, if the document fee is over $500 – a popular technique is to subtract the quoted document fee and subtract it from the bottom line price. For example, if your quote shows $750 document fee, you would subtract $250 from the bottom line price ($750-$500). This allows the dealership to charge their document fee, but ensures its not onerous.
Make an out the door offer on your used car. You want to negotiate once, not on every single fee that pops up. Tell them you will pay them X out the door which includes tax, tag and title. Obviously, you need to account for the tax in your offer. In GA, the tax with ad valorem is 7.25%. And the doc fees range from 500 – 600 bucks.
After you come to a price you can both live with, get the car inspected. Tell them up front that you are going to have your mechanic take a look at the car before you buy it. If they say no, there is something wrong with the car or wrong with the dealership. Either way, that is a deal breaker. Unless you have some super mechanical knowledge or are some sort of car whisperer, take the car to get inspected before you buy it. You are buying a very expensive piece of equipment, go get some insurance in the way of an inspection. That extra $125 inspection is well worth the cost.
Below is the used car offer calculator spreadsheet I made to determine what to offer for our used car.
Its pretty simple, any green cell is where you need to edit the information to reflect the car you want to buy. I have our used car price as an example.
Here is the link to the used car how much to offer calculator.
I found that offering a fair and logical price made the car buying decision easy and simple. Buying a used car doesn’t have to be a stressful and uncomfortable experience when you have a fair and market driven offer. Have fun, be nice and chances are you’ll get the car you want at the price you’re willing to pay.
People say that buying a car at the end of a week, at the end of the month, at the end of a quarter, at the end of the year and after the weather has been really bad for a few days is the best time to buy. 🙂