Rules for Buying a Used Car

Buying a used car provides many benefits compared to buying a new car. You will save money on the purchase price and also save money on car insurance. The money you save on the used car can be put to good use elsewhere such as funding a much-needed vacation. Buying a used car does have some risks. Understand some basic rules for buying a used car and you can avoid potential problems and get all the benefits.

Planning

Decide on the maximum amount you will spend for a used car and if you have a preference for manufacturer or model. Research any known problems with the model you are considering. Determine what you will be using the car for. For example, if you are going to be doing a lot of driving, miles per gallon is important. Before shopping, make sure you have arranged a financing source.

Where to Shop

Do not limit yourself to looking for a used car at a new car dealership. Check the paper for sale by owner section because one advantage of buying direct is that you can find out about the history of the vehicle. Contact companies that only sell used cars.

Before You Buy

When you find a car you like, check the approximate value of the car at websites like Kelly Blue Book. Inspect the car for any obvious problems. Walk around the car and inspect the body for any damage. Look underneath the car for any corrosion on the frame. Examine the paint job to make sure the color looks consistent. Look at the tires for any excessive wear. Examine the treads to see if the tires will need replacing soon. Check the heating and air conditioner to make sure they are functioning properly. Look at the engine with a flashlight to check for any leaks or other engine problems. Listen to the radio. If the car has a CD, insert one in the CD unit to make sure it plays. Check the upholstery to make sure it is not damaged. Take the car for a test drive and check the brakes.

Before buying, get the Vehicle Identification Number -- VIN -- on the car and check with one of the services that report on accidents and other past problems.

Negotiation

Don't be swayed by a salesperson who tries to persuade you to buy a used car the first time you see it. If you are willing to risk losing the car, wait another day before making a final offer because this will put you in a stronger negotiating position. When the salesperson gives you a price, respond by telling him that the price is too high. The salesperson will probably offer you a lower price because his strategy is often to leave room for negotiation.

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Car Repossession Process

In today's troubled economy, many people are finding it difficult to make ends meet. This is resulting in more foreclosures and car repossessions than normally happen, as people simply cannot afford to pay for even these necessities. Car repossession is becoming commonplace and it is likely to see cars being towed away to go to the auction block if the owner cannot redeem them.

Late Payment

When a person misses a payment on his car, this may be the first step in the car repossession process. Many companies have the right to repossess even when you are only one payment behind and that one payment is only a day late. However, most companies will give you a chance to pay the payment and a late fee since they really do not want to repossess your car. However, if it becomes clear to the company that you can no longer afford to make the payment on your car, the company will begin the repossession process.

Late Notice and Phone Call

The company sends you a late notice. Then a representative may call you and ask you when you will make the payment. Based on the conversation, the company may then contact a repossession company and advise the staff to pick up your car. The repossession company will take your car from your home---even if you park your car in your driveway---or from your place of work or even from the supermarket parking lot while you are shopping. The repossession company is not allowed to remove your car from inside a protected place such as inside your garage, but they may remove it from private property as long as the car is not behind a locked door. They may take the car if the car is locked.

Repossession Process

Once your car has been repossessed, you will receive a notice from your finance company letting you know they intend to sell your car at auction and giving you an opportunity to get your car back by paying all late payments up to date along with all other fees incurred, including the repossession company's charges, storage and any other processing fees to have your car repossessed. The finance company will give you a date by which you must make your payment in order to get your car back. After that date, the finance company will sell your car at auction. The finance company applies the price received to your outstanding balance and bills you for any amount remaining. The finance company will report your car repossessed on your credit record.

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Is Paying Off a Car Good?

Though the decision to pay off a car may seem obvious, there are a number of factors a consumer should consider before making this decision. As with any large expenditure, a consumer should take the time to gather information and carefully consider all the available options. By doing this, the consumer will be able to make the right decision for her personal situation.

Loan Terms

Many car loans have prepayment penalties or require the payment of the full interest amount even if paying early. Before paying off a car loan, the consumer should determine whether or not the loan has these restrictions. In the case of a prepayment penalty, the consumer should compare the amount of interest savings of paying off early versus the amount of the penalty when making his decision. In the case of a loan requiring the full payment of interest, it generally makes little financial sense to pay the loan off early.

Emergency Fund

Many financial experts recommend that a consumer have an emergency fund to cover between three and six months of expenses. An emergency fund can be useful paying living expenses in case of a layoff or illness, replacing a broken furnace or other unexpected costs. Without an emergency fund, many consumers would have to use credit cards or other sources of high interest loans to finance these costs. If paying off a car loan early will cause a consumer to not meet this requirement, the consumer may want to consider saving the money and not paying off the loan.

Other Uses

Another consideration before paying off a car loan is what other uses the consumer might have for the money. If the consumer has a car loan with a 7 percent interest rate, but has significant credit card debt at a higher rate, it would be a better use of the money to pay off the credit card. If a consumer has a very low rate car loan, the consumer may make a higher rate of return by investing the money instead of paying off the car loan.

Reducing Debt

Some people simply do not like to be in debt. While few people actually enjoy being in debt, it is not a significant concern to most people. While paying off the car loan at the expenses of gaining a higher rate of return by saving and investing the money may not make sense mathematically, each consumer has to decide what is best for her specific situation. As long as the consumer is not putting herself into a desperate financial situation by paying off the car loan, there is nothing wrong with doing it.

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Options for Leasing & Buying a Car

One main difference exists between leasing and buying a car; the leasing bank owns the car during a lease, while financing results in full ownership. Leasing is similar to renting; you'll return the vehicle after using it. Both contracts offer flexible terms. To determine which is the better option, consider whether you would benefit from owning the car or leasing it based on your driving needs.

Term

Term options for a lease or auto finance differ. You may lease a vehicle anywhere from 24 to 60 months, although 36 or 39 months is the most common leasing term. Leasing for a longer term is not beneficial, as the lease payment increases and may prove similar to a comparable finance. However, you won't own your vehicle at the end of the leasing term. If you are financing, you can choose a term of 36 to 84 months. You can pay off your vehicle loan early and take advantage of your vehicle's equity at any time by trading it toward another purchase or selling it privately.

Monthly Payment

Leasing monthly payments are lower than a comparable finance, as payments are based on a car's expected depreciation. Depreciation is determined by the term and mileage of the lease you choose. Most lessees pay for about 50 percent of the vehicle's purchase value over the term of a lease. While the monthly payment for financing may prove higher than a lease, you can at least expect to own the vehicle outright once the loan is paid in full. When leasing, you'll return your vehicle at the end of the term without and won't receive any money back if the car has equity.

Vehicle Use

If you purchase your vehicle, you may do with it as you please. Finance contracts require full-coverage insurance over the term of the loan, whereas lease contracts require the same and more. When leasing, you must choose a mileage allowance. If you go over your contracted mileage amount, you'll pay up to 20 cents per mile over your allowance. Leasing banks also charge wear-and-tear fees. These fees make up for any loss of bank-determined value if your vehicle is not in good condition upon return, which may include tire replacement, excess wear in the seats or deep exterior scratches or body damage.

Ownership Cost

Leasing offers an ownership option. You do not have to return the vehicle at the end of the contract. If you want to purchase the vehicle, you'll pay the leasing bank for the car's buyout amount, which can finance elsewhere. You can also trade the vehicle or sell it for the leasing bank's purchase amount at any time, so you are not entirely stuck in your contract. However, a lease purchase often costs more than a comparable finance or cash purchase because of lack of negotiations and rebates.

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How to Purchase an Affordable Car

Buying a car for reliable transportation doesn't imply buying a car that's outside your budget. Spending more on a car than you can afford can impact your monthly finances and limit what you're able to spend. Know what you can afford before shopping and purchase an affordable car.

Instructions

1

Determine how much you want to spend. Have a price point in mind before talking with dealers and auto lenders. Review your income and present expenses and decide what you can realistically afford. For example, if you can spend $400 a month on a car payment, you can likely afford a car priced around $20,000.

2

Pull out financial documentation. A bank ultimately decides how much you can spend on a vehicle. Banks reach this conclusion after reviewing bank statements, W-2s or tax returns. Gather these documents and give them to your lender when applying for a loan.

3

Get pre-approved for a loan before shopping. Submit your employment and income information to a bank or credit union to get pre-approved for an auto loan. Based on the provided information and your other debt payments, your auto lender will pre-approve you for a specific auto loan amount.

4

Narrow down cars within your reach. Once you're pre-approved, create a list of possible cars within your financial reach to test drive.

5

Lower your car payment with a down payment. Knock down the amount financed with a bank by supplying a down payment -- whatever you can afford. For example, if buying a $20,000 car, providing a down payment of $5,000 reduces the auto loan to $15,000, and this reduction can create a more affordable car payment.

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Tips on Purchasing a Used Car From a Private Seller

Buying a used car can be a stressful experience. Figuring out what kind of car you need, trying to ignore the car you want but know you can't afford, and searching through endless for-sale ads can take up a lot of time. Buying from a private seller can sometimes save you money, but can also increase your stress level as you wonder about the identity of the person you are dealing with.

Knowledge Is Power

Never look at a car that is being sold by a private party without knowing what you are looking at beforehand. The Internet is overflowing with automotive information, and can supply you with the specs for the car you are considering. Before going to look at the 2003 Toyota Echo that your neighbor is selling, find out everything you can about the company, the model and the year. Every car gains a reputation over time as many different drivers use it. What you learn may make you want to grab it quickly, or may make you want to cancel the viewing. If you have the VIN (vehicle identification number), you can even research the exact car that's being sold by going to carfax.com. It will cost you a fee to get the information, but it's money well spent to avoid buying a lemon.

Hidden Problems

The biggest problem with buying a used car from a private party as opposed to a new one from a dealer is that you won't be in possession of a warranty if something should go wrong. Honest car owners will tell you about any problems the car has, but not all car owners are honest, and not all problems are even known to the owner. You can't get around this problem completely, but you can increase your odds of success by taking the car to a competent mechanic and paying him to give it a good going-over. A mechanic can test the compression of the engine, look at the level of wear on brakes, U-joints and transmission, and examine the chassis and frame to determine if the car has ever been in an accident.

Testing It Out

Never buy a car without taking it for a test drive. Don't be shy about making it a very extensive test drive. Given that you will probably be handing over thousands of dollars, you have the right to know what you're buying. Ideally, you could borrow the car and use it for a weekend, although many sellers will not be too keen on this idea. Drive the car on the highway and in the city, test it in parking situations, rapid turns and high speeds. Do everything you can think of to tease out any problems that it might have before you buy it.

Haggling

If you do all your research and you decide that you want to buy the car, you then are confronted with the question of price. In most situations, the seller wants more and you want to pay less. The challenge is to reach a middle ground that is acceptable to both of you. When haggling, keep in mind the fact that there are hundreds of millions of cars in the world. Unless you are a rare car collector, there is nothing special about this one. If the seller won't come down to a price you feel is fair, walk away and find another car.

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Georgia's Usury Laws on Used Cars

Usury interest rate limits are governed by state statutes. In Georgia, the Department of Banking & Finance is responsible for enforcing the state's usury laws governing interest rates that lenders conducting business within the state can charge consumers. The Georgia General Assembly enacted usury laws for credit card lenders, industrial and commercial loan lenders, retail installment loan lenders and motor vehicle loan lenders.

Georgia's Motor Vehicle Usury Law

Under Georgia Code Section 10-1-33(d), the state's usury laws govern vehicle loans of $5,000 or less. The usury laws do not apply to vehicle loans exceeding $5,000. If a buyer purchases a car exceeding $5,000 and obtains a car loan, he must negotiate with the seller as to the applicable interest rates. The state's usury laws do not include sales fees and insurance, and the annual percentage rate limits do not include those charges.

Motor Vehicle Sales Finance Act

The Georgia Motor Vehicle Sales Finance Act was amended in 1995 to limit the late fees charged for business and commercial vehicles to 5 percent of the installment due. Georgia law limits new car loans to 10 percent annual interest, and a vehicle loan for a new car cannot include interest terms for more than $100 of interest annually. For "Class 2" cars that are used but less than two years old, the state limits the interest rate at 13 percent. For cars between two and four years old, the cap is at 15 percent. For "Class 4" cars that are older than four years, the state limits the interest rate to 17 percent. Furthermore, lenders cannot charge late fees that exceed 5 percent of the loan per month or $50, whichever is less.

Consumer Complaints

Georgia is only one of three states that does not give its Attorney General the primary responsibility of investigating consumer fraud complaints. Instead, consumers must file complaints with the Georgia Governor's Office of Consumer Affairs. In addition to the state's usury laws, the Governor's Office of Consumer Affairs is responsible for investigating consumer complaints of odometer fraud.

Odometer Fraud

Under Georgia law, odometer fraud is a misdemeanor and can lead to penalties of up to $1,000 and one-year in jail. Knowing tampering with or misrepresenting the true reading of a vehicle's odometer is also illegal under federal law. The federal government considers the crime a felony, and it can charge those guilty of odometer fraud with up to $50,000 in fines and three years in federal prison. Victims of odometer fraud can file civil suits in either federal or state court for treble damages plus court costs and attorney's fees.

Considerations

Since state laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your state.

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