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The Smart Way to Buy a Used Car

When you are in the market for a pre-owned car, there are a number of considerations to take into account. In our opinion, it is always best to buy less car than you can afford; remember, cars are depreciating assets. Also, the cost of owning your car is not just its monthly payments. Reliability and insurance should also factor into your decision, as repairs can be costly both in terms of their actual cost and the opportunity cost of having them done. For example some European models, although they are extremely reliable, require more expensive gas and have repairs that can only be done by trained technicians (and not your shade-tree mechanic). Know what you initially agree to spend on the vehicle may not be the total amount allocated.

Choosing the make and model

That said, our first recommended consideration for buying a used car is to do your homework as you research what model might be right for you. This can be done in a number of ways. Talk to friends and family about their vehicles, and find out if they have been pleased with their vehicle's reliability. For an independent perspective on the matter, go to your local library and review the Consumer Reports issue on used cars. (This can also be accessed via the web at www.consumerreports.org.)

Know your credit score

One other important item to know in advance of a purchase is your credit score -- the higher your score, the more advantageous your credit terms. We recommend using www.annualcreditreport.com to access your credit reports (for free) one time per year; pay the additional $6.95 to receive your credit score. We have discussed this in a past Information Bulletin, or your can learn more about credit scores at www.myfico.com.

Inspection

Now that the background work has been done, you have been looking for a vehicle. You've found something that you're interested in and are ready for the next steps. The first thing we recommend you do is check it out. There are two ways we know of to have a used car reviewed, and both are worth considering (as each could save a considerable amount of money down the road). First, using the car's VIN (vehicle identification number), access a carfax report. Also, take the car to your mechanic for a diagnostic inspection. If you are buying in a location that is a good distance from your mechanic, find someone to recommend a trustworthy nearby mechanic. This step in the process cannot be over-emphasized and has the potential to save you more money (and heart-ache) than any of our other ideas.

Negotiate

After a successful review by the mechanic and a clean carfax report, you are ready to complete the transaction. During negotiations, it is most important to understand the interest rate being charged. This is not the same thing as the monthly payment! This is also where your knowledge of your credit score will be especially useful. When you are provided with a monthly payment amount (this is how they hook you), ask what the interest rate is. Then, ask if they can do any better given your credit score.

Hopefully, these steps can help you find the right car with favorable terms. Other useful resources to consider as part of this process include www.carbuyingtips.com and www.leaseguide.com. The more information you have going into the deal, the less likely that you'll be pulling off the lot with a bad arrangement.

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