Buying a used car: five-step checklist

As car manufacturers continue to compete in the new car market, the variety of used car options will generally increase. This could lead to plenty of consideration when it comes to choosing the right used car for you.

Thankfully, the approach to this important purchase can be relatively straightforward and there are vast amounts of information available online to help you make informed choices. It can also be worthwhile doing your own research to understand what a fair price for the vehicle you want could be.

We have put together a five-step checklist to help you on your way to buying a used vehicle:

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’ll need in terms of fuel economy, storage space, safety features, options, availability of parts and even resale value? It’s worth getting a handle on your preferences before you start your search.

Drive, a vehicle review website, predicts that Australia is heading into a buyer’s market with used car prices setting to dip due to ongoing oversupply of new vehicles. This may mean you could end up with a good deal this year, but keep in mind that the purchase price is only one part of your car related expenses. You will need to consider car insurance and registration costs, plus ongoing expenses like fuel, maintenance (including costs of servicing and parts), and potential finance costs related to the purchase.

Safety is another crucial factor that may be high on your priorities. Generally speaking, newer vehicles will have better safety features. Resources like How Safe Is Your Car, ANCAP Safety Ratings and the Used Car Safety Ratings can give you a good indication of a vehicle’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, and this is likely to be a good starting point for your search. While Carsales is one of the leading players in the competitive online market, there are several other competitors vying for your business, such as CarsGuide, Motorama and Drive. You will be able to view used cars being sold 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 and Drive, will routinely put out buyer’s guides written by industry experts—right down to dedicated 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 at a dealership, auction or through a private seller.

Car dealer

A car dealership can provide you with a range of different used cars to choose from, as well as finance options. Dealer prices may be higher though, but you might be able to trade in your current car to reduce the price. Keep in mind with this option that you will likely receive a lower price for your car than what you could have received through a private sale. Other benefits to using a car dealer is that they will usually provide a warranty and guarantee the title of the vehicle, which proves your ownership and guarantees that the vehicle is not stolen and has no outstanding debts.

Auction

Used cars bought at auction may be cheaper than those from a dealership, especially when bought close to the reserve price, but you’ll have to take into account that you may be bidding against other people and this could potentially lead to you paying more. You will also usually be required to put down a deposit of around 10% of the vehicle’s value or $500-$1,000 in order to secure the car after a successful bid.

Car auctions may have similar ranges of vehicles to car dealerships, but you are usually unable to test drive any of the cars. You may, however, carry out an independent vehicle inspection the day prior to the auction. Auctions may provide a guarantee of title, but not a form of warranty.

Private seller

The cheapest option may be going through a private seller, but you will typically have less legal protections. A private seller won’t issue a warranty or title guarantee, so any faults found won’t be covered by Fair Trading. This often makes it worthwhile to cross reference the car’s registration certificate with the owner’s driver’s licence. An advantage of going through a private seller is that you will usually be able to meet the owner, so you can discuss the vehicle’s history and if there are any issues in more detail.

It’s a good idea to get as much detail about the car’s history as you can and ideally take it for a test drive.

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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 in mind.

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

• How many owners of the vehicle 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. There are plenty of other factors to consider that may affect the car’s condition. For example, stop–start inner city driving is more stressful on an engine than cruising on a motorway.

There are also a few physical signs that could be areas for concern. Some common things to look out for are:

• Body and paint work: You can inspect the car’s body for things like misaligned or mismatched panels, crash repairs, mismatched paint work, dents, creases, ripples, and evidence of rust and hail damage. The paint work may also be oversprayed in an attempt to hide repairs. It can also be worth checking each of the doors, including the boot, to ensure that they are in working order.

• Tyres: Check that the tyres and rims (including the spare) are in good condition, looking out for damage, uneven wear and tyre tread depth. It’s also worth checking that the vehicle’s tyre jack and tool kit is in place and in working condition.

• Exhaust: If the exhaust is emitting black, blue or white smoke, this may indicate an engine problem. Excessive noise or a knocking sound may indicate exhaust system problems.

• Interior: Check the interior, such as the seats, carpet and other surfaces, for damage, stains, cracks or wear and tear that may not be consistent with the age of the car. Make sure the seat belts extend and retract smoothly and that the locking mechanism and belts are in good working condition. Test that the accessories are working, like the air-conditioning, fans, power windows and mirrors, audio systems and if the car has them: satellite navigation, parking sensors and reversing camera.

• Lights: Check that all lights are operational, including the head and taillights, indicators, parking, reverse and number plate lights. You should also check that no warning lights are illuminated while the engine is running. They can be found on the vehicle’s dashboard.

• Vehicle Identification Number (VIN): It may be worth checking the vehicle’s VIN—which can usually be found on a small silver plate that’s fixed to one of the rear corners of the engine compartment or at the base of the windscreen. It should match the number provided on the registration paperwork.

• Engine: Ensure that the engine is running smoothly and quietly both while idle and when driving.

• Fluid levels and leaks: You can check the fluid levels in the radiator and power steering, but make sure that the engine is cold when taking the metal cap off the radiator. The coolant inside the radiator should be clean and brightly coloured, generally red or green. If you are concerned about the engine oil, you can check it via the dipstick to ensure it’s fully supplied and the correct colour (honey coloured rather than black). As far as fluid leaks are concerned, you can look around the engine compartment and underneath the car for signs of leakage which might indicate poor maintenance and the potential need for repairs.

It could be a wise decision to enlist an independent professional 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 fee, but a reliable inspection now could save you a lot of trouble down the track.

Always check the registration status of any prospective purchase. All state and territory governments provide online portals to verify whether a vehicle was written off, is stolen, unregistered 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. A PPSR check costs $2 at time of writing.

You should always take the car you are considering purchasing 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 and through slower suburban streets), you can get a better feel for the overall condition of the vehicle. You should also ask if the vehicle has had any 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 with your own savings or organising a car or personal loan to help you cover the costs.

Buying a used car outright

Buying a used car outright might make sense if you have the available funds to spare. It could also strengthen your bargaining position if you can arrange for immediate payment. If you don’t need the vehicle right away, you may be able to build up your savings in a dedicated savings account or term deposit. If you’re paying for the car with cash, however, you’ll want a detailed receipt. 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 a form of finance in which a bank, financial institution or private lender provides a loaned amount of money and charges interest on it until the debt is repaid. 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 or not, such as your income, expenses and credit score. The terms and conditions that apply—which can be found in the Product Disclosure Statement (PDS) and Target Market Determination (TMD)—along with the interest rate, can vary from lender to lender. It may be worthwhile checking your credit score, as this may impact the interest rate you’re offered by a lender, as borrowers with higher credit scores are usually offered more competitive rates. You can check your credit score for free with Canstar or via the Canstar App.

The type of loan you take out, such as a secured or unsecured loan, and how the interest is charged, either at a fixed or variable rate, can also affect how much you pay overall. A secured car loan is one where an asset is secured against the loan as a form of collateral, meaning if you miss payments or are unable to pay back the loan, the lender can sell the asset to recoup the debt. This type of loan is generally offered on new car loans, but may also be available for eligible used cars. An unsecured car loan does not require a security, but in turn, will typically come with a higher interest rate.

Alternative finance options

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

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