Buying a used car: five-step checklist

Let’s be honest: buying a used car can be exciting, but also takes some serious energy and patience.

There are about 20 million registered motor vehicles in Australia, with many used car options, and plenty to consider before choosing the right car for you.

Thankfully, the approach to this important purchase can be relatively straightforward and there are vast amounts of information around to help you make informed choices. While there are plenty of used cars on the market, supply pressure has been driving some prices up due to COVID-19. It is worthwhile doing your research to understand a fair price for the vehicle you want.

Here, we have pulled together a checklist of 5 steps to help you on your way to purchasing a used car:

1. Research the vehicle

Do you know exactly what you want in your next vehicle? You’ve presumably got a budget, but do you know what you need in terms of fuel economy, storage space, safety features, options, availability of spare parts and even resale value? It’s worth getting a handle on your preferences before you start your search.

Some used car prices are 37% above pre-pandemic high in February 2020 following the economic reverberations of COVID-19. This is due to a combined effect of numerous factors, such as reduced availability of new cars; limited used car supply; increased demand with a decrease in public transport use; more disposable income for some Australians; changing travel patterns; and government stimulus.

So cost is more important than ever, but keep in mind that purchase price is only one part of your outlay. You will need to consider insurance and registration costs, plus ongoing expenses like fuel, maintenance (including costs of servicing and parts), and finance costs of the purchase (more on that below).

Safety is another crucial factor that should be high on your priorities. Generally speaking, newer vehicles have better safety features. Resources like How Safe Is Your Car can give you a good indication of a make’s safety standards, while Is My Airbag Safe can let you know if the vehicle is fitted with a faulty airbag or requires a recall.

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2. Look at buyers’ guides

The Australian market is well-serviced with online automotive classifieds providers, and this is likely a good starting point for your search. While Carsales is the leading player in the competitive online market, there are several competitors vying for your business. You will be able to view used cars privately, as well as vehicles from dealerships. You can also view cars that are available at auction houses, such as Grays or Pickles Car Auctions.

There is also plenty of information freely available online to help you gauge a realistic price for the vehicle you are interested in. Redbook is a useful reference where you can search for the specific make and model you are considering purchasing. Reputable automotive media publishers, such as CarsGuide, will routinely put out buyer’s guides written by industry experts – right down to dedicated buyer’s guides covering specific models and years.

3. Consider your options of where to buy from

There are several places where you could potentially make your used car purchase, such as dealers, auctions and private sellers. There are pros and cons to all options, including pricing and convenience perks. For example, dealer prices may be higher, but you might also be able to trade in your current car. Keep in mind with this option that you will likely receive a lower price when selling your car than you could in a private sale. The National Roads and Motorists’ Association (NRMA) describes different benefits with buying a used car through a dealership, such as finance options being available, plus reducing risk because you’ll be guaranteed the title of the vehicle and a statutory warranty in many instances.

It is a good idea to get as much detail about the car’s history as you can and give it a test drive. If you are not buying from a private seller, check if the dealer or auction house has guaranteed there is no money currently owing on the car and find out if the dealership offers any warranties as standard.

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4. Inspect the vehicle – what should I check before buying a used car?

Don’t want to get stuck with a lemon? You have legal rights so that you’re not taken advantage of, but there are also some top pointers to keep you ahead of the curve.

Make sure you ask plenty of questions during an inspection. Examples include:

• How many owners have there been?
• Why is the owner selling it?
• Has the vehicle been involved in any accidents?
• Is there a service history logbook and if so, is it signed by a reputable mechanic?

The most common indicator of overall condition is the distance in kilometres clocked up on the odometer (passenger vehicles in Australia averaged 11,100km annually in a recent year). There are plenty of other factors to consider that may affect condition. For example, stop–start inner city driving is more stressful on an engine than cruising on a freeway.

There are a few physical signs that could be areas for concern. Rust may indicate more widespread corrosion, while painted over welds could be hiding previous damage.

It could be a wise decision to enlist an independent inspector to provide a written condition report. Your state or territory’s motoring authority will offer inspections or, if it is a private seller, you could ask if they could accompany you to your mechanic for a check.  It might sound inconvenient and incur a small cost, but a reliable inspection now could save you a lot of trouble later.

Always check the registration status of any prospective purchase. All state governments provide online portals to verify whether a vehicle was written off, is stolen, and so forth. You can also run a Personal Property Securities Register (PPSR) check online to check if any money is owing on the vehicle, and if you’re buying from a dealer or auction house, ensure they do the same or run your own check to be sure.

And always take the car for a test drive – if a seller refuses, this is a major red flag. By driving it in a range of settings (such as on a highway at higher speeds, as well as through slower suburban streets), you can get a better feel for the overall condition of the vehicle. Find out too about any vehicle modifications. These could impact the resale value of the vehicle, and change the price you’ll need to pay for car insurance.

5. Choose finance that fits

Once you’ve decided on your next set of wheels, it’s time to finalise the finance. Common options include purchasing it outright, along with organising a car or personal loan to help you cover the costs.

Purchase it outright

Buying outright might make sense if you have the funds. It could also strengthen your bargaining position if you can arrange for immediate payment.

However, be wary that you want a detailed receipt if you are paying cash. An electronic transfer or payment made by card leaves a stronger paper trail in the event of a dispute.

Obtain a car or personal loan

A personal loan is when a financial institution lends you the funds with interest. A car loan is a type of personal loan taken out specifically to purchase a vehicle. Many factors will determine whether you’ll be approved for a loan. The terms and conditions that apply, along with the interest rate, can vary. It may be worthwhile to check your credit score, as this may impact the interest rate you’ll pay, depending on your lender. With a secured loan, the lender can repossess an asset that’s used as security or collateral (usually the vehicle), if you cannot repay the loan.

There are also some alternative options for financing your vehicle, including through a car dealer, a peer-to-peer lender or by using a novated lease and ‘salary sacrificing’ a car.

About Sebastian Paulin

Sebastian joined Plenti in 2018 and today is Head of Direct Lending. He has over a decade’s experience working with leading banks and financial institutions in Australia in strategy and digital roles. Sebastian has a Bachelor of Commerce, Marketing and Bachelor of Laws, Law, with First Class Honours from Macquarie University. You can find him on LinkedIn.

Main image source: Twinsterphoto/Shutterstock.com

This information does not constitute financial advice and you should consider whether it is appropriate to your circumstances before you act in reliance on it.  Plenti RE Limited ABN 57 166 646 635 holds Australian Credit Licence 449176. Credit is subject to lender approval, terms, conditions, fees and charges apply.