You lose as much as 20% of a new car's value to depreciation the moment that you drive it off the lot. Therefore, for many consumers, it makes good financial sense to consider a two- to three-year-old car -- usually one that has come off-lease -- with fewer than 30,000 miles on the odometer. Late-model used cars -- 2003 or later -- that are in good mechanical condition often will have the same or similar styling as new cars and will provide almost as many reliable service years -- for thousands of dollars less. Your sales tax and insurance costs also will be lower for the used car.
Used-car trap: The used-car industry is rife with unethical practices. Common used-car scams, and self-defense strategies...
Deceptive Advertising
The used-car industry is notorious for advertising that lures buyers with inflated promises.
Example: A recent ad showed about 100 cars, with a big headline saying, "Used Car Liquidation Event." The cars were supposedly being sold for $25 each, but the tiny print at the bottom of the ad said that only about 10 cars were being sold for that price. The dealer did not lie, but the ad was misleading.
Self-defense: Read the small-print disclaimers that are buried at the bottom of advertisements. Read (or listen) carefully to know exactly what's being promised.
Hidden Mechanical Problems
Few major auto dealers will deliberately hide (or fail to disclose) known mechanical or structural defects in a used car. That's not always the case when buying from an independent car lot or a private seller.
Self-defense: Look for the same signs of damage and/or other problems that the pros look for. Examples...
Paint overspray. Open the hood and look for traces of body paint in the engine compartment -- common in cars that have been wrecked and then restored.
Misaligned hood and/or trunk lid. Look for unevenness between the lid and car body.
Heavy wear on the pad of the brake pedal. Compare it with the wear on the accelerator pedal. The wear should be more or less the same. Heavier wear on the brake pedal could indicate problems with the braking system.
Leaky exhaust system. Self-test: Start the car, then stuff a balled-up rag in the exhaust pipe. The car should stutter or stall. If it keeps running smoothly, it means there are leaks in the system.
Important: Never buy a used car without taking it to an independent mechanic for a full inspection. This usually costs $50 to $75 and takes about a half hour, depending on the car.
Expensive ADD-ONS
Dealers make a lot of profit on overpriced used-car extras. These include paint protection, fabric protection, rust protection, extended warranty, etc.
Dealers don't reveal what these items cost them, and you could wind up spending hundreds or even thousands for things you don't need or want.
Self-defense: When you find a car you're interested in, go to the site map at Edmunds.com and choose "Appraise Your Car." You will find comprehensive information on the cost of individual items and will be able to judge the true cost to the dealer. You might, for instance, want a navigation system added. Dealer markup could be 30% -- but you could buy it cheaper at a retail outlet that specializes in navigation systems.
Important: Don't pay for paint or fabric protection -- today's paint and fabrics don't need it.
"Stuffing" Contracts
A common tactic among unscrupulous used-car dealers is to inflate the monthly payment above the actual amount needed for principal and interest. They do this without informing the customer. Banks, of course, aren't so easily fooled -- they will lend the higher amount only if it's justified with additional purchases. So dealers "stuff" extras into the contract to raise the total amount.
Example: You might be charged extra for "etch," in which the car's vehicle identification number (VIN) is etched with acid into a window. The etching often comes bundled with theft insurance that only pays a fraction of the car's worth in case of theft. Etching doesn't deter thieves in the least or aid in the car's recovery if it's stolen. The customer may pay hundreds of extra dollars for a product/service that's almost useless.
Self-defense: Don't allow yourself to be pressured while you're looking at the flurry of paperwork that accompanies a used-car purchase. Check every number. Bring your own calculator. Make sure that you know what you're paying for and how much you're paying. Don't sign any contracts until you're confident you're paying only for items you've agreed to purchase.
Unauthorized Credit Reports
It's illegal in most states for car dealers to run a credit report without your permission -- but some do it anyway. Even if you're asked, it's better not to agree. The information from a credit report gives the dealer an edge in negotiating price and determining loan rates because he/she will know how much you can afford to pay.
Self-defense: If you're taking out a loan to buy a used car, get it separately from a bank or credit union. It hardly ever makes sense to get a loan from a car dealer. Suppose you can get a bank loan at 5% interest. The bank makes a profit at that rate. If you finance through a dealership that uses bank financing, they have to pay the same 5% to the bank, then add extra percentage points for their own profit.
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