In the market for a used car? Here's what to know
It's no secret that used cars are an affordable option for buyers—especially for penny-pinching millennials. "They really are making very pragmatic choices," said Edmunds.com analyst Jeremy Acevedo.
According to Edmunds.com, the most popular used car for millennials is the Dodge Magnum, a roomy station wagon. That's followed (in order) by the Chrysler Pacifica, Subaru WRX, Chevrolet TrailBlazer, Volkswagen R32, Pontiac Aztek, Nissan GT-R, Saturn Outlook, Dodge Durango and Lexus IS-F.
They aren't the flashiest or fanciest cars, said Acevedo, which may surprise some. But he noted that millennial buyers tend to seek out cars that are specific to their individual needs and tastes. If you're in the market for a used car, here's how to make sure you get the most for your money.
Know your number
"Before you even start shopping, know what you can afford," said Marty Durbin, certified financial planner at Crawford, Carter, Thompson & Durbin in Mineral Wells, Texas. "The biggest mistake people make is going car shopping before they figure out that number."
Start by calculating your budget. If you can pay cash upfront, great. But many buyers will have to get a loan. Durbin advises that your total monthly debt payments not add up to more than 36 percent of your gross income. So once you've tallied up your current payments, see how much of that 36 percent is left. Aim not to spend more than that on a monthly car payment.
Both Acevedo and Durbin suggest that the next best thing after cash is a preapproved loan from a credit union where you can get, for example, "a 3 percent rate versus, say, a 5 percent rate at a dealership," said Durbin. "It's good to shop around and do your homework," he added. (Keep in mind that interest rates are likely to go up as the Federal Reserve raises rates, which it's expected to do in the next several months.)
To help you plan your budget and payments try using an auto loan calculator like that at Bankrate.com.
Make a list of cars
Now that you have your budget, look at what type of cars fit into that price range. Websites like Edmunds.com and Kelley Blue Book provide car reviews, prices and dealer inventory listings that can help you narrow down your search. Look in your particular area to see what people around you are paying and what's available.
Don't forget to factor in the sales tax, registration and insurance premium when you're figuring out your monthly payment, suggests Acevedo. If you're buying a so-called high-performance car (one designed and constructed specifically for speed), the insurance rates will often be higher.
Shop around and negotiate
Once you've narrowed your list down to a specific car, get it inspected by a mechanic to ensure there aren't any problems that could cost you down the road.
You can also get a used car history report from a service like Carfax or AutoCheck. That can help you be sure that the mileage on the vehicle is accurate, and find out if it has been in any accidents. Having that information can also be helpful as you negotiate the price with the seller.
Not preparing financially and doing your homework ahead of time can be costly, said Durbin said. But a little legwork can ensure that you don't end up paying more than you can afford.