I. Narrowing Your Choices

Buying: Buy Used or Buy New?

Begin with a Budget

Researching Used Cars on the Internet

II. Five Keys to Getting a Great Deal on a Used Car

Know the Value of the Vehicle

Use Several Pricing Resources and Know Your Trade-In Value

Separate the Transaction

Understand Your Financing Options

Haggle Hard

III. Other Considerations

Reliability

Depreciation

Interest Rates and Credit Score

Warranties, Repairs, and Inspections

Insurance

Safety

IV. Selling Your Used Car

Sell it Yourself: More Time but More Money

Step One: Set a Competitive Price

Step Two: Advertise Effectively

Step Three: Getting Your Vehicle Ready to Sell

Step Four: Showing Your Vehicle

Pre-Purchase Inspection

Showing Your Vehicle

Necessary Paperwork

Trade it In: Less Hassle, Less Cash

Again, Separate the TransactionI. Narrowing Your Choices

Buy Used or New?

Used vehicles are often the best values you'll find in the automotive market. This is especially true for later-model vehicles. Used vehicles have already taken a big hit in depreciation, and you will find that ownership costs, such as collision insurance, taxes, and vehicle registration are lower as well. You will often find that you can afford a better-equipped vehicle when you buy it used.

However, buying a used vehicle is an exercise in finding the right balance between price, value, and reliability, and there will be some important things for you to consider as you shop for a used vehicle. A great resource for you to consider while you are shopping for a used vehicle is Consumer Reports. Here are some things to consider along the way.

Begin With a Budget

This is the first and most important step in the car buying process. You must know how much you can spend before you can determine what you can afford. It's surprising, but most people only have only a vague idea of what they can afford when it comes to buying a used car. Some people think in terms of the basic cash price, while others think only of what the monthly payment will be.

Both approaches alone are flawed. There's more to buying a vehicle than the initial cost, even if you pay cash. There are insurance, fuel costs and maintenance. Almost any new vehicle -- whether it's fresh from the showroom or new to you -- will mean higher insurance rates. Maintenance on a used car, even one just three years old, may be required sooner than you think. And going from that small sedan in your driveway to a flashy new SUV will mean shelling out more per month at the gas station.

You should start by determining your overall family budget rather than how much you want to spend monthly on a car payment. A good resource here is BankRate.com, which has an interactive family budgeting tool. If you have never done it before, this is a good opportunity to sit down a build a family budget.

Once you have all of this worked out, you should have a ballpark figure of the budgeted amount you can use for car payments. A good rule of thumb is roughly 15 to 20 percent of your net income can be used for a car payment. Once you determine that figure, stay with it.

Researching Used Cars on the Internet

It's always possible to get burned when shopping for a used car so the term “buyer beware” is appropriate here. But have no fear. Some simple tips can go a long way toward helping you have a terrific used car buying experience.

Services that allow you to check the history of the vehicle, such as CarFax.com and AutoCheck.com are terrific resources. If you know the VIN, or Vehicle Identification Number, of the vehicle these services can give you a complete review of the public record, including announced frame damage at a dealer auction. If a seller refuses to give you the VIN of the vehicle, stay away.

Among the best listing sites for used vehicles is SellItNowMotors.com, which has thousands of private party classified listings. Here are some basic questions that you will want to ask the seller of the vehicle:

• Why are you selling the car? (You may or may not get a real answer, but you won't get anything if you don't ask.)
• Are you the original owner?
• What is wrong with the car? (Never ask what condition the car is in as everybody always says "excellent.")
• Is the price negotiable? (Almost everyone will say yes, especially to someone he perceives as a serious buyer.)
• What is the bottom-line price?
• How is the body condition? Has the car been in any accidents? Is there any rust?
• How new are the tires? Do you still have the receipts and warranty?
• How long has the car been on the market? (The longer it has been for sale, the more likely the price is negotiable.)
• Has the car had any recent repairs? Do you still have the service records?
• Do you own the car outright, or is there still money owed on it? (This is a key question. If there is money owed on the car, it may be difficult to get the lien removed.)
• Are you in a hurry to sell the car? (If he has to sell the car fast, he may accept less money.)
• Have you had a mechanic look at your car since you put it on the market? Is it a problem if I have my mechanic look it over? (Ask if the seller will take the car to your mechanic, and if he will pay for the inspection if you buy the car.)
• How good is the paint?
• What is the Kelley Blue Book retail and wholesale for the car? (Even if you know, ask.)
• When was the last tune-up? If the seller says it has been 'awhile,' (i.e., either he doesn't know or it's never been done) ask: Will you pay for a tune-up? If not, will you pay half the cost of a tune-up?

This list was compiled from "The Insider's Guide to Buying a New or Used Car" by Burke Leon and Stephanie Leon.

II. Five Keys to Getting a Great Deal

Haggling is just one part of getting a great deal on a used car. In today’s age of the Internet, you have to be informed and do your homework. Below is a brief guide on some things that will prepare you for the journey.

1. Know the Value of the Vehicle

In today’s age of the Internet, there is no excuse for not knowing the value of the target vehicle that you are buying. Go to Kelly Blue Book, NADA Guides, or Consumer Reports to get the latest pricing information. Key to understanding pricing is knowing the year, make, model, condition, and equipment of the vehicle in question.

Another key here is knowing the zip code of where the car is being sold. Regional price variations do exist, and you should be aware of them, particularly when you are transacting or locate your vehicle over the Internet. You may be at an advantage in buying a coveted vehicle out of market if you live in a major metropolitan area. Usually, such high demand vehicles fetch a premium in such areas.

2. Use Several Pricing Resources and Know Your Trade In Value

If you are buying a used car from a dealer, understand the game that is played. There are different pricing resources that are used, and all have different “book” values for the vehicle in question. For example, at the time of this writing, there was a $1,5000 spread between the suggested retail price for a 2005 Honda EX Sedan on Kelly Blue Book and NADA Guides.

Car dealers also have access to something called Black Book and the Manheim Market Report, both of which tabulate car sales prices at the local automotive auction. They will generally try to buy cars at or below this auction price, and sell cars at or above the retail book price. Understanding this distinction is critical when you are trading in a used car at a dealership.

Most cars are “back of book” cars, meaning that you should be able to buy them from a dealer or private party at less than the retail book price. However, some cars, such as certain imports like Honda and Toyota, and certain high demand vehicles, may also be sold at or above full retail book. Some vehicles come equipped with additional features, such as an aftermarket sound system or suspension. These added features may increase the price above retail book.

3. Separate the Transaction

Separating the buying, selling, and financing of your used vehicle into three separate transactions is perhaps the most important piece of advice we can give you. Often times, dealers will use a sales technique they call the “Four Square,” where they will push their profit from one square to the next. For example, you may negotiate hard on the purchase price and get the price down. In this scenario, dealers will “push” their profit into another square, either the trade-in or financing, so the net effect to the transaction will be the same. To dealers, the objective is to make money, and they can do that on the buy, sell, or finance side of the transaction.

Remember, each element of buying a used car needs to stand on its own merits. You can buy the used vehicle from one seller, sell it somewhere else, and get financing at yet another place. Of course, this is less convenient, but it could save you thousands of dollars in the end.

4. Understand Your Financing Options

Unless you are paying cash, you should do the same research and diligence on financing that you do on used vehicle prices. Understand your individual credit profile, your ability to pay, and research prevailing interest rates in your area.

If you are buying from a dealership, understand that they are entitled to mark up loans and make money on your financing. It is perfectly acceptable to ask how many “points” or other fees they are making on the loan. If they are marking up the interest rate they are charging you, you can negotiate the rate.

Remember that the duration of the loan affects the monthly payment and total purchase price. A shorter loan means higher monthly payments, but less money paid overall. Many dealers will work with buyers who might be considered credit risks, but such a loan may have a higher interest rate.

Get pre-approved. You can get pre-approved by clicking here. Going into your purchase transaction with financing in-hand will strengthen your negotiating position and allow you to get a better deal.

Know what’s in your credit report. You can see your complete credit report and score by clicking here.

5. Haggle Hard

Unless you are buying from a fixed-price retail store, everybody buying and selling used cars, private party or retail, expect some element of negotiation to take place. Most car dealers give their sales and management staff a certain amount of negotiating headroom, and most private party sellers have some expectation for negotiation built into their price.

So, don’t feel bad about doing it, and don’t be shy. You can use all your knowledge of the market, from pricing guides to Internet listing sites like Sell It Now Motors, to illustrate your point with the seller.

Begin by offering less than what you're willing to pay and move up from there. You should point out any flaws in the vehicle and have some estimate of repair costs needed if appropriate to justify your lower offer.

State your final offer clearly, say nothing more, and see what happens. If the seller won't budge, walk away. Remember, you shouldn't pay more than what your homework has told you the vehicle is worth. If you head for the door, you'll often have a deal you can live with before you reach it.

III. Other Considerations

Reliability

One thing that makes used cars more attractive today than every before is increased reliability. Today, cars have a longer life span than ever before as engineering and vehicle maintenance improves. The Consumer Reports subscriber surveys from 1980 through 2000 reinforce the point of increased reliability. The surveys found that over 20 years, reported problems declined to a fraction of what they were in 1980. Rust and exhaust-system problems, once common, are now no longer a major concern. As a result, buying a late-model used vehicle is not as much of a risk as it used to be. When properly maintained, today's vehicles should easily go well past 100,000 miles, and many could reach 200,000 miles without a major breakdown.

Depreciation

A major disadvantage to buying a new car is the rapid depreciation it undergoes in the first few years. New models typically lose about 45 percent of their value in the first three years, compared with 25 percent over the next three. So, by buying a car that is a few years old, somebody else is absorbing the cost of the vehicle’s depreciation. Of course, this varies depending on the make, model, and year of the vehicle. A good reference here is Kelly Blue Book or NADA Guides. You can see, for example, that while the 2004 BMW 3 Series only lost about 25% of its value the first few years, the 2004 Cadillac Seville lost about 60% of its value during that same time period.

Interest Rates and Credit Score

There is no getting around the fact that loans for new cars typically have lower interest rates than loans for used cars. For example, in 2006, the average rate for a 36-month new car loan was around 6.8%, while the corresponding rate for a used car was around 7.8%. However, don’t be discouraged. A good resource to check on up-to-date loan rates is BankRate.com.

When buying a new car, the dealer may add finance charges to your loan, which may offset the money factor benefit of buying a new car. Here, credit score is key. Generally, credit scores below 650 are considered sub-prime and an automotive loan may cost you more money (that is, higher interest rate). You should check on your credit score before you apply for financing. You can get your complete credit report and score by clicking here.

Warranties, Repairs, and Inspections

Although used cars are more reliable than ever, maintenance and repair costs should remain important considerations in your purchase decision. Generally speaking, in the first few years of a vehicle’s life, it has fewer problems and it remains covered by the manufacturers’ warranty. A used car, however, usually is purchased with limited or no life remaining on the factory warranty.

What does this mean to the used car buyer? Simply put, this means that your overall cost of ownership for a used car will usually be higher than if you purchased that vehicle new. You will incur costs associated with usual wear and tear, such as tires and brake pads, but you may also have a failure of one of the major operating systems in the vehicle, such as the engine, transmission, or electrical system.

However, even considering these costs, you may still be better off buying a used vehicle. You should investigate and seriously consider buying an extended warranty plan. A great resource for extended warranties is WarrantyDirect.com.

To protect yourself from buying a lemon, you should have the used vehicle inspected by a certified mechanic. The mechanic will check such vital stats as engine compression, brake and rotor measurements, and tire tred wear. This will give you additional peace of mind when buying a used car.

Insurance

Insurance rates are usually based on some combination of vehicle replacement costs, vehicle history, drivers’ credit, and location. In general, you should pay less for insurance on a used car than on a comparable new car. Before you buy that used car, you should get a quotation on your annual premium and factor that into your overall cost of vehicle ownership, along with your car payment, extended warranty plan, expected service, and of course, gas. See our helpful Insurance Buying Guide or visit HometownQuotes.com for competitive rates from agents near you.

Safety

Buying a used vehicle may mean that it does not have the latest safety features, such as Electronic Stability Control or curtain air bags. However, most later model used vehicles should come with some safety features, such as anti-lock brakes and side air bags. A good resource for understanding the safety features of used vehicles is Consumer Reports. Generally speaking, if safety is the most important factor to you, and you are focused on the latest safety features, than you will want to buy a new vehicle.

Bottom line on buying a used vehicle – if you can accept a car that is not in mint condition but still has good reliability, go for it. You will save money in overall purchase price, depreciation, and in insurance. Be prepared, however, to have a higher cost of ownership and increased interest expenses.

IV. Selling Your Used Car

Sell it Yourself: More Time but More Money

Selling your current vehicle on your own will get you a higher price than trading it in. You can always expect to get more than the wholesale price, and unless the vehicle is in big demand, buyers should expect to pay less than the retail price. But selling your car yourself takes more work than just driving to the dealership for a trade-in. You’ll have to advertise, take calls, and show the car.

Step One: Set a Competitive Price

You should have a good idea of what the retail and local asking prices are for your vehicle. If you checked to see what a local dealer would offer on a straight-up sale, you should have plenty of information to price your car reasonably. Remember, it’s always smart to price your vehicle just a little bit higher than what you are willing to take for it. That way, the buyer can negotiate for a slightly lower price and feel good about it. Don’t be greedy, though. You could scare off potential buyers who don’t think they have a chance to negotiate.

Step Two: Advertise Effectively

There are many ways to advertise your car. Some are more effective than others, and cost can vary from free to quite expensive. Don’t feel limited by the suggestions you see here. Use your imagination and go with what you think will work. But remember, the vast majority of people today want to go to the Internet to do research. Anybody that can afford to spend several thousand dollars for a vehicle probably has access to the computer and is probably using it to shop for cars.

• Internet Listings Sites, such as SellItNowMotors.com
• Daily newspapers
• Ads in weekly shoppers
• Word of mouth
• Vehicle signage

Step Three: Getting Your Vehicle Ready to Sell

Making your vehicle look as good as possible can pay big dividends by improving both its value and sales appeal.

Depending on the vehicle's condition, you can do a lot or all of the work yourself. Or you can take it to a professional detailer, where prices can start around $100 but can go up rapidly depending on the region, type of vehicle, and the amount of work to be done.

As with other do-it-yourself projects, the more elbow grease you invest, the less you'll need to pay someone else to do it. Here are some tips on how to get the best results. (Most of the specialty products mentioned could be found at auto-parts stores or in dealerships that handle your car's make.)

Exterior Cleaning and Polishing

Give your vehicle a thorough cleaning with car-wash detergent and water. Alloy wheels should be scrubbed thoroughly to remove road film and grime. Use a stiff-bristled brush and a good all-purpose detergent or wheel cleaner. If you use the latter, look for one that says it is safe for all wheels. Strong cleaners can eat away the protective coating on some factory wheels. Once everything is dry, apply a tire dressing to give your rubber a new-car look.

Then inspect the paint surface and assess any damage you see. Note scratches, stone chips, and dents in the sheet metal. If the paint is in good condition, a coat of wax may be all it needs. If it's the original factory finish, it likely has a clear coat outer layer. If so, make sure the wax you use is marked "safe for clear coats." Avoid abrasive products, which are meant for the removal of paint defects or to put a shine on a dull finish. On the other hand, if your paint finish is a little dull, look for a product that both polishes and protects. This could help put a shine back in the paint.

You can fix small scratches and chips yourself with touch-up paint, available for a few dollars from your dealership. Make sure you get an exact color match or your repair job will look worse than the original defect. Use the application brush or a small, pointed artist's brush and fill in the scratch by going over it in tiny dabs. Let the paint dry for at least a day or two before polishing the car.

Fine surface scratches in the paint can be professionally buffed out at a body shop or professional car-wash center. This will greatly improve the car's overall appearance, but will cost between $100 and $200. You can hand polish the car yourself using an appropriate polish and cotton cloths. If you know how to use an electric rotary buffer, you can borrow, rent, or buy one. If you don't what you're doing, though, don't attempt it because you can easily burn through the paint or leave permanent swirl marks.

Dents and Dings

Having a body shop fix unsightly dents and dings can be costly. If there is no paint damage, you may be able to use a service called paintless dent repair, sometimes franchised under names such as Dent Doctor or DentPro. They use special tools to massage out small dents from the inside. Your local mechanic, body shop, or car dealer can help you find a dent fixer, or try using the Yellow Pages. Typical costs range from about $50 to $150 per dent.

Some do-it-yourself dent-removal kits have come on the market as well. They're advertised on TV infomercials and cost about $20 to $30 (plus shipping and handling). Essentially, they work by hot-gluing a suction cup onto the dent and then pulling the dent out with a special tool. Two kits that Consumer Reports tested were Ding King and DentOut. Our testers found that they worked about equally well, but the results were not perfect. Generally, the more experience you have, the better the results. You have to be careful with the hot glue and should avoid pulling the metal out too far. Small dents less than 1 inch in diameter were the toughest to fix. The kits worked best on dents about 4 inches across.

Window and Glass Defects

It's very common for a windshield to pick up "star" or "bull's eye" damage from a flying stone. These dings can be filled by an auto-glass repair service so that they are less noticeable and don't develop into larger cracks. Figure on spending about $50 to $60 to treat a small glass ding. For larger cracks, you'll have to replace the entire windshield. Check your auto-insurance policy first. If you have glass coverage, the replacement is free, except for a possible deductible.

Interior

Clean the inside of the vehicle completely, looking at the results with the eye of a potential buyer. Remove all of your personal clutter from the glove box and other storage spaces, and empty any ashtrays. Check under the seats for lost toys, trash, and wayward french fries. Then go to work on the windows, dash, upholstery, and carpets.

You can buy special cleaners for upholstery, carpet, vinyl, and leather. For hard plastic surfaces, use any general purpose cleaner. Use a good glass cleaner to remove smudges and film from the inside of all windows, paying special attention to the windshield and rear window. Very dirty-carpeted floor mats can be taken to a carpet-cleaning service and cleaned for about $15 to $20 a pair. Or just replace worn ones.

Ridding cars of odors can be a challenge. First get all the interior fabrics clean with pet-spot cleaner or another odor-fighting product. Don't forget to wipe down the overhead fabric, or headliner. Be sure to clean inside the trunk and spare-tire well. To remove stale odors from the ventilation ducts, try spraying odor eliminator into the system's air intake, which is usually located at the base of the windshield. Then run the air conditioner full blast for at least 10 minutes.

Engine Compartment

Cleaning the outside of the engine and other under-hood components can be a chore, but a clean engine bay gives the impression that the mechanicals have been well maintained.

If battery terminals are corroded or caked with white powder, use an old toothbrush dipped in a mixture of water and baking soda to clean off the residue. Then coat the terminals with battery terminal grease. (Always wear eye protection and gloves when working around car batteries.)

You can certainly clean engine parts with old rags and plain soap and water, though you may have better luck with an aerosol engine degreaser. Be careful not to get electrical connections wet. Loosen dirt and rust from iron and steel parts with a soft-bristle brass wire brush and soft abrasive cleaner.

Perform Necessary Repairs

It just makes good sense to fix or replace broken or missing items. A missing wheel cover or a broken mirror are signals to buyers that your car has not been well maintained and that other repairs will probably be needed.

Major repairs are another matter. Most buyers probably won't want to make a major one right after buying a vehicle.

Suppose, for instance, your air conditioner doesn't work, and you have an estimate that it will cost $600 to repair. The air conditioner isn't necessary for the proper operation of the vehicle, and if you're selling the car yourself some buyers might not care as long as the price is adjusted accordingly. But most potential buyers will likely lose interest when they find out about it.

The big question is whether you can recoup the cost of the repair in your selling price. Most of the time you can't--so be prepared to take a beating if you have major repair problems. You'll have the same dilemma if you decide to go the trade-in route with your car.

Step Four: Showing Your Vehicle

Once you’ve placed your ads, make sure you keep your car’s specifications, mileage, and other particulars near your phone. Interested callers will want to come to see the vehicle, so have your schedule ready so you can set a day and time. That said, don’t be surprised if some callers never show up. No-shows are one of the frustrating aspects of selling your own car.

When you do show the car, answer all questions honestly. Be prepared to provide service receipts and to accompany the buyer on a test drive and to an independent mechanic.

Pre-Purchase Inspection

Just about any savvy buyer will want to have your car inspected by a mechanic before the sale takes place. If the buyer is a friend or relative, there should be little risk in allowing them to take the car for an inspection. If the potential buyer is a total stranger, however, you’ll probably want to drive the car to the shop yourself. It shouldn’t take more than an hour.

Necessary Paperwork

The paperwork requirements for selling a car vary from state to state. In some, transferring ownership of a vehicle to another person is as simple as entering the odometer reading, sale price, and your signature on the back of the certificate of title. In others, you must fill out official title-transfer forms. Contact your state’s DMV to see what you should do.

If there’s an outstanding loan on your car, you and the buyer will have to go to your lender and make sure the lender gets its money before you get what’s left. And a bill of sale is often required by the buyer for sales-tax purposes. You can buy a form at any office supply store.

My Junker

Now that your trusty, or not-so-trusty, car has passed the 200,000-mile mark, you've decided it's time to hang up the keys and buy yourself a shiny new ride. But that leads to the big question: What to do with the clunker? Should you take the easy route and trade it in?

That depends on a few things, including the vehicle's make and model, condition, and your financial situation. But there may be better options than simply trading it in, especially if you're determined to wring every penny you can out of the deal.

Before deciding how to unload your old car, you have to find out how much the car is worth. You can go to the resources mentioned before, including Kelly Blue Book and NADA Guides to get prices. You can also check out classified ads or get an opinion from your neighborhood dealer or mechanic.

One good option is donating the vehicle to charity. You can then deduct the value of the vehicle on your tax return next April, but make sure that the charity is a bona-fide 501 (C)(3) so you can get the write-off.

Charities are getting choosier about the cars they'll accept; some won't take vehicles that are missing tires or those older than about the mid-1990s. Also, tax laws may be getting stricter. The Bush Administration and the U.S. House of Representatives have proposed new IRS rules requiring donors to get a qualified appraisal or some other proof of value. So you may want to check with your tax adviser before donating a vehicle.

Once you make the decision to donate, call the charity, and it will pick up your car. Just be sure to get your paperwork in order. If the car's fair market value is more than $5,000, you'll need a professional appraisal. If it's less, use the highest private-sale value from the online price services. Keep a copy of the price report, maintenance and repair records, car photos, and the charity's receipt, which should note the car's year and make, vehicle identification number, and mileage.

If the vehicle is truly a hopeless heap, and even charities refuse to take it, the moment has come to say goodbye. Phone junkyards in your area and see what they'll pay. You never know -- you could end up with a few hundred dollars if you negotiate. Just don't expect junkyards to pay much. And remember: You may be the one paying if the junkyard has to tow away your old friend.

Trade it In: Less Hassle, Less Cash

Many buyers prefer to trade in their current vehicle because it's easy. All you have to do is drive to a dealership, sign a few papers, and drive away in a different vehicle. You can apply the trade-in amount to your down payment, reducing the amount you need to finance.

There can be tax advantages, too. Most states require that sales tax be paid only on the difference between the price of your trade-in and the vehicle you are buying, not the full price of the car you bought. However, this tax benefit does not apply if you sell your old vehicle yourself. Check with the Department of Motor Vehicles in your state for details.

The downside of trading your vehicle in is that you might leave behind hundreds, if not thousands, of dollars for the dealer. As mentioned before, the best you can hope for when trading in is to get the car's wholesale value, which is significantly less than what you would expect to get if you sold it yourself. In addition, even if you've checked all the pricing sources and think you know what your vehicle is worth, you'll likely have to haggle with the salesperson to get the best deal.

Another problem you may encounter: If a dealer already has six of the similar make and model on the lot, he isn't likely to pay top dollar for yours. And if your trade-in isn't one the dealer wants on his lot, it will probably be sent to auction and will be discounted accordingly.

Just remember, no matter how tired you may be of your current vehicle, a dealership isn't doing you a favor by taking it off your hands. If the dealership buys your car, it's because there's an inviting profit at the end of the transaction.

In almost all cases, you will receive more money by listing it private party. You should consider listing your vehicle on top listings sites where thousands of buyers can view it, such as SellItNowMotors.com.

Again, Separate the Transaction

As we have already noted, you will get the best deal if you separate the “buying” transaction from the “selling” transaction. Dealers will always try to maximize the value of their overall deal, and they will push profit from one part of the deal to the other.

So, we strongly suggest that if you are going to trade in your vehicle, nail down the price of the car you want to purchase first, then discuss your trade-in allowance. Since dealers can make money reselling your trade-in, there is some incentive for the dealer to be competitive with a trade-in offer.

Keep your eye on the bottom line. What's important is the net amount you have to pay. Be sure to read and understand any sales contract before you sign it. If you have a problem with any terms or conditions, ask questions. After you sign, you'll have little recourse.