I probably should have called this article “how to not lose heaps of money when buying a used car” because that is what quite often happens, but it didn’t have the same ring to it. As far as actually saving money, you might be able to haggle the salesperson down, but most likely only a little. The big savings come when you don’t end up shelling out to fix the lemon you eagerly bought.
Here’s how to get a nice ride without being taken for one:
The Budget For Buying Your Used Car
It all starts and ends with the budget. Don’t even bother looking until you know exactly how much you can afford to spend. There is no point getting your heart set on a shiny late model sedan only to find your budget is more Barina than Bentley. So first things first, do your budget and work out what you have to play with.
Should You Get a Loan For Your Used Car?
You may, after doing your budget, realise you don’t actually have very much money to spend. The question comes now as to whether it’s better to buy something thrifty or to take out a loan and buy something better. This depends on a number of factors. First (are you seeing a pattern here?) we go back to the budget. Can your budget actually withstand handle repaying a loan? It’s a catch-22 that the people who need loans are usually the people who can least afford to repay them so it’s worth thinking very seriously about whether you want to be in debt over this car. Thanks to every bank and his dog (do banks have dogs? I hope not… for the dogs’ sake) all competing for your business, there are now plenty of online calculators that will allow you to enter the amount you want to borrow, the interest rate and the proposed loan duration.
They will tell you how much you would be looking at paying both overall and on a fortnightly basis and do look at both amounts. Check out the big banks’ websites or just google “loan repayment calculator”.
Similarly, there are websites which will help you find the loan that is best for you. Take a look at infochoice.com.au and carloan.com.au for a start and egt comparing rates and terms. Remember, never sign up to anything without reading the product disclosure statement first!
Other things you’re going to need to consider are the vehicle’s maintenance costs (cheaper vehicles will often break down more often), petrol consumption, insurance and of course, safety.
Secured or Not?
You’ll find when you’re researching loans (and if you’re not researching them, you need to start) that you can get a lower interest rate on secured loans. Why is this? The bank is happy to give you a lower interest rate on this type of loan because it’s lower risk for them. By agreeing to a secured loan, you are basically saying that the bank owns your car until it’s paid off and if you default on the loan, they can repossess it. What’s more, if the car is repossessed and then sold for less than what you owe, you will have to repay the difference.
You will also discover secured loans tend to begin at around the $10,000 mark. This is because cars often lose their value very quickly once they’re under $10k and the bank knows if they let you secure a loan with a cheapie car and worse comes to worse, it’s likely to be worth nothing by the time they need to repossess it. Consequently, if you have $3,000 saved and only need to borrow $7,000, you may find you’re actually better off getting a secured loan with a lower interest rate for $10k and simply paying the $3k back immediately rather than only borrowing $7k! Sounds backwards? It is! But it’s just crazy enough to work. Make sure you get a loan with no penalties for early repayments though, or it’ll be your savings going backwards.
Research Your Used Car
I am the first to admit, I know jack diddly squat when it comes to automobiles. I know that black cars get hotter, bird poop sloughs off metallic paint and that if you stick a magnet to car and it falls off, it’s rusty (or not metal!) but that’s about it. Do your research before you buy anything!
Once you know how much you can afford to spend, look at what’s available in that price bracket. Compare fuel efficiency, maintenance costs, safety, etc. In case you haven’t noticed, I am deeply in love with the internet’s treasure-trove of free information. Start here to look at likely problems and reviews on models you’re considering. If you’re particularly game, you can even quiz folk who have the model you’re contemplating- this happened to me once at a petrol station! Just try to keep your questions brief and don’t get all stalker-ish. No lurking near the Aston Martin until the owner comes back (you can’t afford it anyway).
Once you’ve got your financials figured out and you know what you want, you can start shopping- yay! The question is now whether to buy dealer or private. Buying private can be a good way to get a bargain but watch you don’t get more than you bargained for.
Gget the car checked out by a mechanic before you agree to anything. No warranty applies with private sales; once you take the keys, that car is your problem. Do your homework first!
Secondly, always perform a background check on a used car to make sure it’s fully paid off and not reported as stolen. Remember how I talked about cars getting repossessed? Well, if you buy a car that’s still under finance and the borrower defaults, the bank can still repo the car… your car! If that happens, you can sue the seller to get your losses back but chances are if they’ve defaulted on their loan, they won’t have any money and that’s of course if you can locate them at all. Go to RevsCheck to see if the car you’re looking at belongs to the person who’s selling it to you. If it doesn’t, run a mile!
Thirdly, if you are buying privately get an agreement in writing. It doesn’t have to be anything fancy, just a simple document with both your names and addresses stating that you are purchasing the car (include a description and rego) for however much money. It can even be handwritten. Get it signed, preferably with a witness, and make sure you keep a copy. If anything goes wrong, that proves you bought that car- it’s basically your receipt, so hang on to it tight!
Buying From a Dealer
I once met a bloke who owned a car dealership (he used to be a lawyer, what a popular fellow he was- from lawyer to used car salesman, society’s most loved professions!) and he confided in me that the business made almost no money off cars at all, but that 95% of their profit came from selling finance. Much like the casino could not operate if it didn’t always win, dealerships aren’t offering you a loan out of the goodness of their hearts. Do not borrow from the dealer!
In most states, dealerships are legally obliged to ensure the car’s roadworthiness for a time after purchase. Details differ from state to state though, so contact your local consumer services department for more information.
Keep in mind that even if you are protected by a statutory warranty, non-essential features like air-conditioning and sound systems are not included. Make sure you ask about everything’s functionality and wherever possible, get specifics written in to the contract of sale. If they sell you the car on the premise that it has fog lamps and you later discover it doesn’t have fog lamps, you could have grounds for a refund or at least the cost of installing/repairing the fog lamps. Get it in writing or you won’t have any proof they told you.
To Trade-In or Not to Trade-In?
Trade-ins can be a great way to save time but they will not save you money. If you trade in your car to a dealership, you are guaranteed to get less than its market value. The only reason to do a trade-in is if you are in a terrible rush (which is not a good way to buy a vehicle) or you have a really good excuse for not being able to sell your car privately. A sick note form mum is not going to cut it when we’re talking thousands of dollars.
Rule number 1: never drive a car that isn’t registered. If you crash and are found to be at fault (say, you’re driving your new car and hit the brake instead of the clutch) you could be sued personally for the medical costs of any people who are injured as a result. If the car is registered however, CTP will cover that, even if it was your fault (unless you mow them down intentionally, but I really wouldn’t recommend that). If you go to buy a car that isn’t registered, do not take possession of that car until you register it! You can potentially be fined for allowing an unregistered car to sit on the street so make sure the vehicle stays on the seller’s property until you’ve got the rego papers in your hot little hand and then and only then, sign the sale agreement.
Rule number 2, never drive an uninsured car unless you are happy to pay upfront for any accidents you cause. Generally speaking, nobody fits this description so refer to rule number 2.
It should go without saying but a new car is not an excuse to drive like a maniac. No, not even to “test her capabilities”. Can’t afford crash repairs? Don’t crash. Best way to avoid crashing? Drive safely.