Buying a used car is supposed to save you money, but sometimes prices can vary wildly and it can be hard to know if you’re getting a good deal or not. From depreciation rates to mileage, the factors that contribute to the price of a used car can be confusing. We’ll help you break it down through a comprehensive look at the world of used car pricing.
Understanding Used Car Pricing
Factors That Determine Used Car Prices
There is not just one thing that determines a used car’s value, but many individual factors:
- Make and model: Some brands hold their value better because consumers trust them more. Likewise, popular models tend to have higher resale values.
- Age: Newer cars have less wear and tear and more up-to-date features so are usually more expensive than older ones.
- Mileage: A car with low mileage will typically be cheaper than a higher mileage car because fewer miles usually equals less wear and tear.
- Condition: A car that has been well-maintained and is in good mechanical condition will be valued higher than cars that haven’t been.
- Fuel economy: Cars that are more economical to run will fetch higher prices.
- History: Cars with a history of regular maintenance are more likely to have a higher value. Similarly, a history of accidents and damage can lower the price.
- Location: Certain cars may be more valuable in more rural areas than urban areas and vice versa depending on the model and weather conditions of that location.
- Market: A strong economy can equate to higher used car prices.
How Depreciation Affects Used Car Value
All cars depreciate at a different rate, but this depreciation rate can have a critical impact on a used car's price. New cars depreciate most significantly in the first year and after this point the depreciation rate slows down.
It’s also worth noting that high-end, luxury models typically depreciate quicker than economy cars. This is because the more value a car has, the further it has to fall before it reaches its base utility value. However, depreciation rates can vary and there is not a one-size-fits-all formula.
Researching a Fair Market Price
Best Pricing Tools: Kelley Blue Book and NADA Guides
There are many sources you can consult to help you determine whether a used car has a fair price:
- Kelley Blue Book (KBB): KBB provides estimated values for trade-in, private party and dealership prices. It allows you to adjust these estimates based on factors like the car’s condition, location and mileage. KBB determines these values based on data from private sales, dealerships and auctions.
- NADA Guides: The National Automobile Dealers Association (NADA) provides trade-in, retail and loan values. It specializes in offering prices for dealership sales and is often used by professionals working in the car industry.
Comparing Dealer vs. Private Seller Pricing
When checking websites that offer estimated pricing for used cars, it's important that you take notice of whether you are looking at dealer or private seller pricing, and apply it to your situation.
Buying a car from a dealer is usually higher because the price tag also incorporates overhead costs and operational expenses. They usually also mark up the cost to make a profit. That said, this may also include warranties, vehicle inspections and certifications, which add value to the car.
Meanwhile, if you buy from a private seller, you’re usually more likely to be able to negotiate on price because they are more likely to want to sell quickly. You may also save money on any documentation or dealership fees.
Evaluating Risk Factors in Used Car Pricing
How Accident History and Repairs Impact Value
A major accident is, unfortunately, going to substantially decrease a car’s value, especially if there has been frame damage, airbag deployment and or extensive bodywork. This is even if repairs have been made. Even minor accidents can impact a car’s value. This is because potential buyers will be wary of how the repairs were made and the true extent of the damage as it may impact safety. There is also a risk that a car may need more regular repairs and maintenance in the future once it has suffered from a major accident in case there are hidden ongoing issues.
If a car has been repaired with used parts or nonoriginal manufacturer parts, this can also diminish a car's value as buyers may be hesitant about the quality of the repairs. That said, repairs made using original parts will retain their value better.
Moreover, if a car has been part of a severe accident, it may have a salvage or rebuilt title. Unfortunately, even after a car has been repaired, this title remains and makes it very difficult to insure. A salvage title car typically loses 40-50% of its value as it shows that a car was in a major accident where the repair costs exceeded its market value. A rebuilt title meanwhile will have lost 20-30% of its value compared to similar cars with a clean title. Rebuilt title cars have been repaired and inspected so that they are driveable, but still maintain a reduction in value.
Why Maintenance Records Matter
Up-to-date maintenance records are essential when buying a used car as they indicate careful ownership suggesting that the car will have less issues and is more likely to be reliable. A lack of or skipped maintenance could suggest neglect which could lead to early component failure. It can also confirm a car’s potential for longevity and reduced risk of breakdowns, ultimately making it more valuable.
Well-maintained records can also alert you to a car’s accident history and signs of potential problems, so you can understand whether buying it is really worth it. This can also prompt you to check whether repairs were carried out sufficiently.
Ultimately, well-kept maintenance records help a buyer assess a car’s condition. It also demonstrates whether a manufacturer’s maintenance schedule has been adhered to at the recommended intervals, which ultimately increases a car’s resale value.
Identifying Hidden Costs & Potential Red Flags
Checking a car’s maintenance records will help you identify any hidden issues that may end up costing you. It is also recommended to check a car’s Vehicle History Report (VHR), as this will give you a comprehensive breakdown of a car’s history including title status, repairs, mileage and ownership history. This will help you spot any potential red flags so you can decide whether investing in a car is worth it.
Negotiating the Best Deal
You must research the car before you enter into any negotiation. Check estimation websites and market prices in your area to know whether you’re getting a good deal. It’s also important to inspect the car carefully for any issues that might affect its price. You should also inspect its maintenance records and VHR, and then test drive the car to be sure it feels comfortable.
Tips for Buying from Dealerships
In addition to the above, it’s best to start with a lower offer as it gives you more room to negotiate, but it’s important to not start so low that it might insult the salesperson. It’s also important to reveal your budget as the dealer will try to arrange numbers so that it is met.
If you have spotted any issues with the car while doing your research, you can point these out as leverage to justify a lower price. You can also mention offers from other dealerships or show similar listings at a lower price.
In addition to negotiating the car’s price, you can also negotiate and question dealer fees, especially if these seem excessive. Most importantly, it’s important not to rush into a decision. It’s always a good idea to sleep on it and come back the next day.
How to Negotiate with Private Sellers
Negotiating with a private seller is not much different to negotiating with a dealer. In addition to how you would negotiate at the dealership, you should also be careful to finalize the paperwork carefully if you go through with the sale.
Dealers are used to completing sales paperwork, whereas private sellers may not be. It is recommended to draw up a bill of sale that includes the car’s model, make, vehicle identification number, mileage, sales price and date of sale. This document will protect both the buyer and seller. It is also recommended to use a secure payment method as opposed to cash as this can be risky.
Securing a Pre-Purchase Inspection
No matter whether you are buying from a dealership or a private seller, it is highly recommended to secure a pre-purchase inspection before buying a used car. This will provide you with a non-biased opinion from an independent mechanic who can check for hidden issues and advise you whether the sale is worth it. While you will have to pay for this up front, it could save you hundreds or thousands of dollars in the long run.