When you’re looking for a new used vehicle, there are several places to shop. Franchised new car dealers have newer used cars, may offer better warranties, and usually have a repair shop to back up the warranty. But their sales people generally work on commission and may try to get you to buy a more expensive car to increase their commission. A dealership has higher overhead and the car will usually cost more.
If you buy from an independent used car lot you should use caution. Many independent used car lots are here today and gone tomorrow. This means they aren’t available to support any warranties given. The lots may offer lower prices but they often don’t have repair shops. You are better off with more established lots that are concerned about their reputation.
If you buy from a private seller there are no guarantees about the car’s condition or need for future repairs. Private sellers aren’t required to put the “Buyer’s Guide” label on vehicles and the sale probably won’t be covered by Iowa’s implied warranties (see Motor Vehicle Warranties article) so if a problem with your vehicle arises you will be stuck with the repair.
Before shopping for a vehicle, know the maximum amount you are willing to pay. If you need a loan, know how much money you can pay up-front and how much you will be able to pay monthly. Look at different loan terms to find out what would best suit your needs. Never talk monthly payments with a car dealer. Buyers who focus only on the monthly payment often fail to negotiate the lowest possible price on a used car. Know first how much you’re willing to spend for the vehicle, and then consider monthly payments.
Before going to the lot, do research to find out the fair price of the kind of car(s) you are looking at. Good sources for used car prices are the most recent publication by Consumer Reports magazine on used cars and the NADA Official Used Car Guide published monthly by the National Automobile Dealers Association. Both publications are usually available at the library. You may also find helpful information about used cars on the Internet.
Once you decide to negotiate a price, start with a lower offer than you want to pay. The dealer will assume that your first offer is lower than what you are willing to pay. This tactic also gives you some room to bargain for the price you want or to negotiate the addition or removal of contract terms. Remember, never focus on the amount of the monthly payment. Negotiate over the full purchase price.
If your first offer is rejected, make your next offer halfway between your first offer and the maximum amount you decided earlier you wanted to pay. You can also continue to bargain for the kind of financing, warranties or other terms that concern you. If you’re unsure feel free to walk away. Stick to your guns – when you make your final offer, be clear that it’s the most you will pay and is really what you believe the car is worth. If you believe you have made a fair offer, have faith in your judgment and stick with that price. Never sign a contract or pay any money to a car seller unless you’re 100% certain you want to buy. There’s no three-day right to cancel a car purchase. The three-day cancellation law applies only to sales made away from the seller’s place of business. So, if you buy a car at a car dealership, you don’t have a right to cancel. Therefore, never sign a contract or pay money to a dealer unless you’re certain you want to buy the car.
After choosing a used car and agreeing on a price, the next step should be to enter into a written purchase agreement. The purchase agreement should accurately identify the car by its Vehicle Identification Number (VIN), the price, any service contract fees, the price of any trade-in, down payment, taxes and other charges. Always read the fine print. This includes the back page because this agreement will bind you even if you don’t read it.
If the car will be purchased with a loan, a written installment contract should be signed. Once again, it’s important to read the fine print. The written contract must contain the federal Truth-In-Lending Disclosures, including the annual percentage rate, the amount financed, the amount of the interest or finance charge paid over the life of the contract, the total of all payments, and the total sale price of the car, including the down payment and trade-in.
The first choice for financing should be a bank or financial institution. Their interest rates may be lower than financing from used car sellers. Car dealers often make more money from the loans than from the cars themselves. It’s best to arrange the financing before you ever visit a dealership. The NADA loan values can be a guide to determine the amount to finance. Poor credit may mean the interest rate is higher because of the risk that the buyer won’t make the payments. Establishing a good credit history over at least a two-year period can reduce the interest rate, which reduces the cost of the car.
A security interest (lien) will usually be taken in the car if it’s financed with a loan. This means the lender will be able to repossess the car if the payments aren’t made. This will appear on the title to the car. The title will be held by the lender until all the payments are made. The lender will also require that you have liability insurance (this is the law) and full comprehensive and collision insurance coverage on the car until it’s paid. If the car is involved in an accident, the insurance proceeds will be paid to the lender to pay the outstanding balance. Anything left over will be paid to the buyer.
Credit life insurance and credit disability insurance may also be offered by the lender. This means the insurance company will make the payments if the purchaser dies or becomes disabled and can no longer make payments. But insurance through an insurance company is usually cheaper and a much better value than insurance bought through the lender.
Consider selling your current vehicle rather than trading it in to a dealer. It may be simpler and you may get more for your current car if you sell it yourself. If you do decide to trade in the vehicle don’t tell the dealer you have a trade-in until after you negotiate your best price on the car you want to buy. This will make your purchase decision easier and will avoid problems with the dealer deceiving you about how much the trade-in is really reducing the price of the new car.
Beware of Yo-Yos
A common problem in used car sales is the yo-yo sale. This means a buyer purchases and takes possession of a car (but doesn’t receive the title) but is later told the deal fell through and the buyer will have to pay more in financing costs or buy a different vehicle. Another common misrepresentation from car dealers who are asked to undo a car sale is that your trade-in has already been sold to another buyer. If you think you’ve been the victim of either of these unfair practices contact a lawyer to see what rights you may have.