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If you’re shopping for a car, you may already know that buying used is a smart move that greatly expands your choices. The key is knowing where to look for them.
Buying a used car will not only save you money but also allow you to shop higher-end brands, says Ivan Drury, Edmunds.com’s senior manager of insights. For example, maybe you wanted a new Toyota TM, -1.26% Camry. Instead, he says, you can save about $5,000 and get a 3-year-old Lexus.
Because of the bankruptcy of Hertz HTZ, -2.02% rental car agency, along with the many cars coming off lease, there are a lot of used vehicles to choose from, says Jeff Huang, who attends auctions as the remarketing sales supervisor at Westlake Financial Services. “A good used car is a real value proposition — and there are definitely deals to be had,” Huang says.
See: What you should know about buying a used rental car
Shoppers looking for great bargains will find them in cars older than 7 years, says Mark Holthoff, used car editor at Klipnik, a website for used car enthusiasts. “That’s because the depreciation curve has mostly been flattened,” he says. For example, a 2014 Mercedes-Benz E-Class sedan, costing $70,000 new, now sells for about $20,000.
Shop in the right place
New cars are sold only by franchised dealers, but used cars can be purchased from a variety of sellers:
- Used car departments at new-car dealerships.
- Used car superstores such as CarMax.
- Online used car sellers such as Carvana, Shift and Vroom. VRM, -2.56%
- Car rental sales lots.
- Independent used car lots.
- Private parties.
- Public auctions.
You’ll typically find the newest and more expensive models at new-car dealers’ used-car lots, the only place to turn if you want a certified car with a warranty and factory financing. Prices are likely to be higher than other lots’ but negotiable.
National used-car chains such as CarMax KMX, -2.78% , online retailers and rental car agencies also offer newer cars, often with factory warranty remaining. You can also get a loan and buy extended warranties. Prices are typically no-haggle.
See: Two car companies with the best certified pre-owned programs
Independent lots, private parties and public auctions typically deal in older or cheaper cars. The upside is that you may find a 20-year-old one-owner cream puff, cheap. It does happen. But most cars have had several previous owners, and a checkered past is common. Plus, you’ll have to arrange your own financing.
Adjust your expectations
There is a built-in risk-versus-reward element to used car shopping: The more you’re willing to spend, the less chance the car will need repairs and overdue maintenance. Here’s an overview of the three price levels of used cars:
High-end used cars: If your budget is over, say, $20,000, you might consider getting a certified pre-owned (CPO) car from a dealer. Shopping for a CPO car is easier because it’s pre-inspected and comes with an included warranty. While you’ll have to pay a premium, you’ll also be able to buy a car with more modern technology and safety features. Of course, you can always buy a non-CPO car and purchase an extended warranty.
Midrange used cars: A sweet spot for used car buying is a 3-year-old vehicle coming off a lease. Many of these cars will sell for 40% of their original price and still retain a new-car feel, according to Drury. Another source of near-new bargain-priced vehicles is car rental lots. According to an iSeeCars analysis, Hertz vehicles are selling for an average of $1,389 below market value.
Older used cars: Many people are afraid that cars from 7 to 15 years old will require costly repairs. But Holthoff points out that new cars can effectively cost the owner $1,000 a month in depreciation.
“You might have to spend money on a repair, but depreciation is a constant,” he says.
To offset repairs, set aside $100 a month so sudden mechanic bills won’t deplete your savings.
It’s best to buy older cars from private-party sellers because you can get a better idea of the mechanical condition, Holthoff advises. A used-car dealer will show you the vehicle history report, but a private party might have the service records and can answer many other questions.
Be sure to read next: How to test drive a used car
Look for unexpected value
The used car market is vast and, if you can spot an outlier, you can save big money. Here are a few examples of how to find that diamond in the rough:
- Cars that haven’t been recently redesigned will sell for less. Check car sites such as Edmunds.com to find out when the last time major changes were made to a model.
- While there is a stigma to buying a used rental car, the vehicles are well-maintained and priced lower than buying from dealers, Drury says.
- If a car dealer’s vehicle history report shows you are looking at a former rental car, leave and buy a similar one directly from the rental agency’s sales lot. You’re likely to find it cheaper.
- Be willing to travel to an area where the car you want is less popular. For example, all-wheel-drive vehicles sell for less in the southern U.S., where winter driving isn’t a factor.
- Be willing to travel to a more competitive market. A Honda HMC, -1.38% dealer with a city to itself has less pressure to dicker on a CPO vehicle than a dealer in a city with three or four rivals.
- Used luxury cars often offer the biggest savings, according to Holthoff. The money you save on the purchase can be used if any repairs are needed.
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Philip Reed is a writer at NerdWallet. Email: articles@nerdwallet.com. Twitter: @AutoReed.
