What's the most reasonable way to buy and pay for a used car?

In My Humble Opinion
1

My car has about 150K miles on it and is 11 years old. While I’m grateful to have it, it was one of those “family member deals” where I bought it from a family member for way less than it was worth at the time - basically, a way for them to give it to me but for us to keep a sense of responsibility and actual transactionhood about the whole thing (I was in college at the time). The problem is that it’s a car I would have never bought if I were actually shopping for a car - an unreliable, 6-cylinder American-manufactured beast that’s cost me probably 5x its blue-book value in maintenance over the past five years.

After its latest $1,000 surprise, I’m seriously thinking about making moves to get a new car. So here’s where I ask you: What’s the most reasonable way to buy and pay for a used car?

Let me explain; I really don’t want a monthly payment. I’ve never had a car payment, always favoring to spend $1,000 or $2,000 for something that I can drive into the ground before repeating the process. But I’ve found that this is an irritating way to live, because it always means surprise malfunctions and expensive repairs at a moment’s notice, and when I do the math on these I realize that that $1,000 repair every 6 months is only a little bit more than 6 months’ worth of monthly payments on a used vehicle - plus I have to scramble to come up with it at a moment’s notice! So maybe the old “drive a junker into the ground, repeat” process is causing me more aggravation than it’s worth.

On the other hand, if I’m going to live with a monthly payment, I’d want to find the best bang-for-the-buck ratio in a used car - cheap enough that I’m not taking out a five-year loan, but new enough that it justifies the headache of financing it and the monthly expense.

Part of me wants to try to save up $4,000 or so and just buy a decent used vehicle outright, but that price range limits me to vehicles that are 8+ years old and have a ton of miles on them and so on. Sure, I could get a more reliable Japanese car for that money (maybe a Civic or even an older Camry), but I’d basically be back to square one - having a 10-year-old car, and a $4,000 hole in my pocket (I might as well just save the $4k for the inevitable future repairs on the one I’m currently driving!).

I feel like I’m caught in the middle - I’d like to get a car that’s 5 years old or so and has around 50K miles on it, but I want to pay for it in cash. It seems like banks/dealers won’t finance a used car unless it’s basically a new car that’s not “legally” new. But then I’d have to probably save up $10K in cash to get that, which I really can’t do.

What’s your suggestion?

2

The other type of used car that gets financed is cheapo econoboxes that are relatively new, but clearly used. This was not the type of car I wanted to drive when I was driving that kind of car. If you ask anyone to recommend a used car, it’s likely they will recommend a Honda Accord or a Toyota Camry. I was much happier getting used Hondas that were too old for financing than something like a Kia or Hyundai or (back in the day) Ford Fiesta or Geo Metro that was still new enough to get financing.

I was lucky to have an employer-affiliated credit union that was a little more flexible on the financing. Just throwing that out there in case it may apply.

So my recommendation, and what I wound up doing, is to buy one more POS car, and while you’re running that into the ground start saving up for a slightly better Honda or Toyota that you may need to pay for in cash.

Another advantage to paying cash is it opens up the private party market more. Who would you rather buy a car from–someone whose circumstances have changed requiring them to sell a car, or someone who devotes an entire career to selling cars for more than they are worth?

3

If you go this route, make sure that you get a Carfax report before you go. There are many “curbside” dealers out there that appear on first glance to be private sellers. For myself, I like to buy 1 to two year old “fleet” cars from new car dealers. New car dealers have a habit of keeping good turn in cars while wholesaling out anything that looks less than optimal.
People who sell their own cars often (but no always) have an inflated sense of the car’s value. Furthermore, what you save in money (if you do save money) will be made up in the time it takes to see the cars.

4

I believe the cutoff for financing is usually around 4 years. The best way to do it is to get a home equity loan (if you have a home, of course) and then you get to write off some of the interest. We are “this close” to sending our little truck to that big junk yard in the sky, and we will probably put $4 or $5K down and finance another $4 or $5K, depending on what’s out there. We will go the home equity route. We’re not sure how old a vehicle we’ll go for this time. Last time, it was 4 years old and we drove it for 10 years. One of the best purchases we’ve ever made!

5

Banks will finance cars that are much older than 4 years. Or credit unions will. You can get a lot of financing offers if you look around. These are the financing rates offered by my credit union. They don’t care too much about if the car is “like new” or not, they will loan you the full value of the car, and are pretty easy to work with.

http://www.hracu.org/newsite/autoloans.htm

6

I bought my last truck at an insurance reclaim place, floydsrepairables.com

If you are handy, they are good places to look. it was 5k, it took another 1k to get going right, frame straight, a little body work, etc. 4wd, pwr everything, lo miles, it was a good truck. I put it on a credit card, then surfed 0% card offers for a few years until it was paid off, always paid way more than the minimum when I could, and never missed a payment. Very risky really, but worked great for me. It was nice not to have a car payment for over 5 years after I paid it off too.

7

Honestly, if you have $4K and want a newer car with lower miles, you are going to have to look American. I have two suggestions along these lines. If you’re lucky and can find a lightly used Geo/Chevrolet Prizm, snag it. It’s just a rebadged Corolla. Otherwise, have you considered a Saturn? In the $4k range, you’re going to be paying a premium for a used Honda or Toyota, but Saturn resale values are way down. Lower than they should be for a car of their relative quality, IMHO.

8

Call the larger credit unions around you, ask about repossessed vehicles. I got a good deal on my truck this way. (Actually, I just stumbled on it parked in front of Kevbabe’s CU)

Some folks are wary of repos. I figure it is no more of an unknown than any used car, and some of those non-repo cars were dumped by the PO for reasons related to the car itself , not the owners ability to pay for it.

9

Yes, curbside dealers are the worst of both worlds.

10

I know you don’t want to hook yourself into monthly payments but if you think long term a brand new vehicle held on to for 8+ years is a great investment.

Take that $4,000 you were going to spend on a used high-mileage car that will surely need $$$ sunk into it and use it as a down payment on a brand new $15,000 Corolla or Civic. Get a 4 year loan at 6% and you’ll be paying $260 a month for the next 4 years. For the next 4 years after that you basically go without a payment. After 8 years you still have a car that you used for it’s “good” years doing minimum maintenance on. And then if you go ahead and sell it you can even get a couple grand back for it.
Again, think long term and you’ll find that buying a new quality vehicle and using it for it’s good years is a much better investment than buying a junker every 2 years that your going to sink money into and drive into the ground.

Example: I bought my 97’ Accord off the lot with zero miles for $16,000. Paid it off in 4 years. Drove it for another 5. Sold it for $3000 with 160K miles on it.
Basically drove an Accord for 9 years for $140 a month with minimum maintenance.