Used Car Buying 101
Many people seek late model used cars for the benefit of letting the previous owners take the depreciation. Some people look for a very low priced used car for a number of reasons:
- They are mechanically inclined and plan to repair the car as needed
- They have cash – either saved up or from a windfall like a tax refund
- They want a lower payment. This is not always the case. Cars older than a certain year or with mileage higher than a given amount will trigger higher interest rates and more down payment at most lenders. This makes for a situation that usually doesn’t appeal to the “low price = equals low payment” customer and they often end up buying a new car for the rebates which serve a purpose and the lower financing rates lenders offer on new cars.
Used Car Pricing
When gas prices go down significantly, cars like Hybrids that are good on gas, drop significantly for what a similar model with similar mileage would have “booked” for when gas prices were high. The opposite holds true for gas guzzlers like big trucks and SUVs. When gas prices are higher, trucks might “book” for less than they did just a few months ago when gas was much lower. So Kelley Blue Book is a guideline but not an absolute rule for determining the value of a used car.
I work at a franchise dealership for Subaru and Mitsubishi in Fresno. We get our used car inventory from cars traded in by our customers, from dealer-only brand auctions like Subaru or Mitsubishi lease returns and demos, from auto auctions and from car rental companies.
When you buy a used car from a reputable dealership like mine, you are getting a car that has been safety and smog inspected at minimum. There is a minimum standard for brake and tire wear. Often, if the car is due for a service (30,000 mile or 60,000 mile service), we will do that before we offer the car for sale.
At my dealership, cars with less than 80,000 miles get an automatic 3,000 mile or 60 day powertrain warranty. It is short, but at least an assurance that if your transmission goes out on your way home, it will be fixed!
At our dealership we always disclose the vehicle history report. At a dealership you have the option of purchasing warranties depending on the car you buy. This gives many people peace of mind. When you buy a car from a stranger you meet from an online ad or a family member, you may be getting a great deal and that person will not have to collect sales tax as we do, but there are risks you assume.
Used cars are machines subject wear and breakdowns depending on how there were treated and maintained. Buying from a dealer may be more costly as we have to pay the shop to inspect and fix things before we sell a car. Each car and each customer is different.
I am more than happy to discuss all of your options when you are considering a car, even if I’m not selling it. Just Car owners manual.
“What’s your best price, I’ve got cash” “What’s the Cash Buyer Price?”
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“Will it help with the price if I’m paying cash?” “What if I’m paying cash, will that lower the price?”
This concept of “The Cash Price” came from the days when one family owned one car dealership and it may have helped them meet payroll if someone gave them a chunk of cash every now and then. Whose business doesn’t benefit from a large cash infusion right?
This may still be true at a “Ma ‘n’ Pa” store or a “buy here, pay here” lot where they are the entity loaning the money and waiting to collect the interest. In fact, even at giant conglomerate car dealerships, they may say something to make a cash buyer feel like they’re getting a better deal just to sell one more car.
My home base – the Subaru and Mitsubishi franchise dealership in Fresno – is part of a company boasting a 2-billion-dollar market capitalization according to Morningstar. We don’t need to lose money selling a car to get your cash. Most new car franchise dealerships operate this way. You may find a used car lot out there on the miracle mile street of dreams like Blackstone Avenue closer to downtown Fresno, or maybe Belmont Avenue that will give you a better price in exchange for your cash.
Read more about it in the Auto Finance section of Car Buying 101. In short, a dealership often makes a “finder’s fee” from lenders for giving them the loan. So they do better if you don’t pay cash. There are other ways a dealership is compensated by lenders when you finance your auto purchase. In every case, it’s financially better for the dealership when you don’t pay cash. This is not the same thing as buying a car using a credit card. As you’ll read elsewhere on this website, that is also a losing proposition for the dealership. If a dealership can make a profit when you put ten of thousand of dollars on a credit card, then I’m here to tell you you paid too much for that car.