July 2007

Technically, this is not a “used car” topic, but I will still present it as a part of the series because it’s one of the common questions faced by people who are looking for a car - used or new. Even if they are in the market for used cars, they will spend a few hours toying with the idea of getting a car on a lease - because of the lure of low monthly payments.

In extremely simple terms, when you lease a car, you are simply paying for the depreciation, instead of paying to own the car. Obviously, it follows that, over a given period of time - say 36 months - it takes lower monthly payments to account for just the depreciation instead of accounting for the total cost of the car.

However, the “lower monthly payments” pitch that goes with all the lease advertisements is a bit deceptive … especially, if you anticipate yourself to be a long term car user [which is *generally* the case in the US].

To really understand the cost of leasing cars, one should look beyond just the monthly payments and calculate the total out of pocket cost over the entire term of the lease ~ and also extend some numbers to a longer time frame.

Towards that kind of understanding, let’s run a quick example (with some simplifying assumptions). A typical lease offer is quoted below (edited to retain only the relevant information):

2007 Accord 4-cylinder Sedan LX Automatic Transmission for $199.00 per month for 36 months with a $1,999.00 capitalized cost reduction available … $2,793.00 total due at lease signing (includes first month’s payment, security deposit, upfront acquisition fee and capitalized cost reduction; total net capitalized cost and base monthly payment does not include tax, license, title, registration, documentation fees, options, insurance and the like)

MSRP $21,520.00 less the capitalized cost reduction resulting in actual net capitalized cost $18,072.93. Taxes, license, title fees, options and insurance extra. Total monthly payments $7,164.00. Option to purchase at lease end $12,481.60.

In this example, the total out of pocket cost over the length of the lease is calculated as follows

• Total monthly payments = $7,164.00 (this is simply $199 multiplied by 36 months)

• Amount due at lease signing= $2,793.00 (down payment)

• Less refundable security deposit (approx) = $200.00 (included in the down payment)

• Less first month’s payment = $199.00 (included in the down payment)

• Total cost at the end of lease = $9,558

Now, you can compare this number with the anticipated depreciation (over the first 36 months) for this particular make/model:

[source: Edmunds.com]

From this image, you can see that the depreciation over the term of the lease (36 months) is = $3,716 + $2,178 + $1,917 = $7,881.

Apparently, with the lease payments, you are paying way more than just the depreciation. The extra cost over depreciation can be considered as the cost of the availing this leasing facility [analogous to the cost of interest in case of an auto loan].

If you are looking for a car for only 3 years, and have sufficient cash, you will be better off by paying for the car upfront and then selling it yourself after 3 years. That way you will (ideally) only lose the amount that goes with the depreciation (which is much less than the leasing costs).

Now, consider a much longer time span - say 12 years. In this period, you will have to avail four leases with each costing you approximately $9,558 (assuming that the make/model/price stays the same - this is a bad assumption, but it’s still on a conservative side) - this will lead to a total cost of $38,232 over 12 years just for the depreciation - and at the end of that many years, you still won’t be owning a car.

Instead, if you had purchased the same car by putting the same down payment (MSRP $21520, $2793 down, 6% APR for 60 months), you would have paid a total of $24,515 to own the car. And, that car would last you about 12 years (if you maintain it properly) without the need for a replacement - at that time it will also carry some residual value, even if it’s just a little more than peanuts. Obviously, leasing is not economical in the long term. And if you are like most Americans who will probably drive cars for more than half their lives, then you will need to look beyond leasing options (unless of course, you can afford to keep leasing).

Plus, you also need to consider that most lease offers come with additional headaches like mileage restrictions, penalty for getting out of lease earlier than the original lease span, disposition fees (these are fees to cover the cost that the leasing agency will incur in selling the vehicle after you return it), etc. Another (bigger) headache can be caused by the trouble you will face if you damage a leased vehicle. The leasing agency will want all the damaged parts to be replaced by OEM (original equipment manufacturer) parts and most insurance companies will provide compensation only for after-market parts - and you might have to shell the difference (OEM parts are, at times, more than twice as expensive as after-market parts).

In spite of all this, there are situations where you stand to gain from good lease offers.

In the above example, there is a clause that says:

Option to purchase at lease end $12,481.60

If you add this to the cost of lease ($9558), you end up with the total cost of the car as $22039.60. This is much less than what you would have paid for it if you had financed it over the 60 month loan ($24,515). Therefore, in cases where you are anticipating to save enough cash over the next couple of years to purchase the car at the end of the lease period, you might save some money by opting for the lease option.

So, give it some thought before you make up your mind in favor of (or against) a lease offer in future. Always compare the total cost of the leasing to the total cost of financing.

By the way, a reader “car girl” asked a question on the first post in this series about car buying tips:

Can you talk about leasing? I’m wondering about a 3 yr lease for my grad student son. Pluses and minuses?

Apart from the money aspects that I talked about, you should also consider the fact that leased cars require the users to follow the factory prescribed scheduled maintenance (to keep things in good shape). If that is not done properly, then you are looking at some penalties when the lease ends (plus there are penalties for excess mileage). Now, I mix and mingle with many fellow graduate students every day and I know how they use and maintain their cars. Based on that, personally, I won’t be very upbeat about letting them drive a leased car. So my advice to car girl is to go ahead with the leasing idea only if she thinks her son can take regular good care of the car.

Resources: The Federal Reserve Board has some excellent information for consumers interested in knowing more about leasing vehicles. The information appears as a part of a “comprehensive consumer guide” titled “Keys to Vehicle Leasing“. Below, I am highlighting two parts of this guide which every shopper, interested in leasing, must read:

• Shopping Tools - Lease Ads: all lease offers will use jargon like “capitalized cost reduction” and will throw a bunch of numbers at you. This page will give you details on how to understand such terms and costs mentioned in lease ads that are usually seen in print and digital media.

• Guide for Educators: there are some easy-to-understand presentations on leasing fundamentals on this page. Go ahead and download those for your reference in future.

Note: for the examples in the post, the differences in the costs (lease vs. buy) of tax, title, licenses, maintenance, insurance, and other small fees have been ignored in favor of simplification.

In one of the articles linked below, Jim @ Blueprint for Financial Prosperity talks about synthetic diamonds in rings. Synthetic diamonds are make-believe stones created in a laboratory - made to look (and feel) like real diamonds. They cost a fraction of what real diamonds cost and personally, I think they present a better option than spending a ton of money on real diamonds you cannot really afford (if you can afford them, sure, go ahead and buy the real things).

In the post, Jim asks this loaded (but seemingly obvious) question:

Does your love mean any more or less because the diamond was created by a guy in a lab coat or eons of pressure?

To us (me and my wife), the answer is: NO - love can’t be defined by stones.

Easier said than done? Not exactly, we are a “no diamond” couple.

In fact, my wife has made it clear in the past that she would have married me even if I had given her something like this, instead of a ring :

I am sure she still thinks that way.

Of course, there are cultural and social issues involved in these sacred stone-exchanging ceremonies, but it would be nice if people emphasize more on trust and understanding, than on the quality of stones and metals.

Now, here are links to some interesting articles published over the week.

• Maximizing The Effectiveness Of Your Sleep - So You Have More Time For Life’s Activities by Trent @ The Simple Dollar.

• Why You Spend and Save The Way You Do: The Science Behind Money Behaviors by SVB @ The Digerati Life.

• Synthetic Diamond Engagement Rings by Jim @ Blueprint for Financial Prosperity.

• Choosing a 529 Plan by Lazy @ Lazy Man and Money.

• Five Ways To Lose Money From Investing by Super Saver @ My Wealth Builder.

• ING Direct’s Electric Orange Send Paper Checks Feature by Flexo @ Consumerism Commentary.

• Roth 401(k) by Sun @ The Sun’s Financial Diary.

• Gambling for Fun and Profit by Ben @ Money Smart Life.

• A Comprehensive List of Retirement Planning Tools and Calculators by JLP @ All Financial Matters.

• The Very Best 529 Plans? by Nickel @ Five Cent Nickel.

• Is It Better To Buy a Stock Before or After It Splits? by Jeremy @ Generation X Finance.

• Debt troubles are not just for low wage earners by MBH @ Mighty Bargain Hunter.

• Why We Always Recommend Buying Low Cost Index Funds by David @ Money Ning.

• Our Night with Saladmaster by FMF @ Free Money Finance.

Image source: illinoismeteorites.com

Recently, Brian Clark at Copyblogger posted a simple, yet profound list of 10 steps to becoming a better writer. In the same spirit, I would like to propose 10 simple steps to becoming wealthy.

1. Save money.

2. Save more money.

3. Save even more money.

4. Save even more than that.

5. Save when you don’t want to.

6. Save when you do.

7. Save for a purpose.

8. Save even if you don’t have one yet.

9. Save every day.

10. Keep saving.

Bonus tip: You can save only when you spend less than you earn.

Simple to understand? Absolutely.

Easy to implement? Definitely not.

Worth trying? Absolutely.

Implementation is difficult, but it becomes easier with practice. So, keep trying and keep saving. Rain or shine, don’t let anything discourage you - just keep saving.

Here, I will invoke the principle of profound transcendental redundancy - good things will happen when you keep repeating the right things.

In response to part 3 of this guide (How to Inspect a Used Vehicle), a reader asked this question:

Is taking the car to a mechanic necessary when you’re buying a “Certified Used Vehicle?”

Let’s start this post by answering that question with a resounding YES. You must get a certified used (”pre-owned” is the preferred term) car inspected by an independent mechanic (after you have inspected it yourself). There is no reason to treat a certified pre-owned car any different than a normal used car.

An obvious question follows: Why is it necessary to have a *certified* car inspected; it comes with a factory warranty, doesn’t it?

We will try to answer that question as we go along.

First things first; what exactly are “certified pre-owned” vehicles?

These are used cars that satisfy all the conditions in a given manufacturer’s quality checklist. The checklist consists of various inspections (exterior, interior, engine, transmission, etc.) that need to be performed to deem a car *fit enough* to be sold as a certified vehicle [check out Honda's 150-point inspection list or Toyota's 160-point inspection list].

The vehicles that successfully pass such checklists are backed by the corresponding manufacturer’s warranty and then sold as “certified pre-owned”. So, the key words for any certified pre-owned car are: inspection and warranty. Sometimes, certified cars are also eligible for great financing rates (like new cars) so that’s an additional advantage.

Note that we are talking in terms of manufacturer-certified used vehicles here ~ which are only sold in branded dealerships that are associated with a particular manufacturer. For example, a Honda-certified car can only be sold in a Honda dealership. If you see *certified* cars being sold by a non-manufacturer-associated (non-branded) dealer, then those cars are essentially *bogus* in the sense that the certification is not manufacturer-backed (and hence the warranty won’t be backed by the manufacturer). Keep this in mind if you are looking for certified used vehicles.

Understanding the warranty that comes with certified pre-owned cars

There are two different types of limited warranty coverages offered on most certified pre-owned vehicles:

1. Non-powertrain equipment warranty (sometimes called as comprehensive warranty or bumper-to-bumper). This warranty is usually short-term: 3 months to 1 year with mileage restrictions from 3000 miles to about 12000 miles. Manufacturers cover different things under this warranty so make sure you check out the details. For example, Honda covers the following under it’s 12 month/12000 miles “non-powertrain warranty” :

- Steering
- Suspension
- Electrical
- Air Conditioning
- Heating and Cooling
- Fuel System
- Switches
- Audio Repairs (Honda audio systems only)
- Sensors

Toyota offers a 3 month/3000 miles “comprehensive warranty” and GM offers a 3 month/3000 miles “bumper-to-bumper” warranty on certified used vehicles. This warranty covers “any repair or replacement of components which fail under normal use due to a defect in materials or workmanship“. As far as I know, Ford does not offer such a separate coverage for Ford-certified vehicles. The only time that a used Ford will have a comprehensive warranty coverage is when it is within the original factory warranty period (3 year/36,000 miles).

2. Powertrain warranty coverage. This warranty usually covers the engine, drive system and transmission and generally, it’s a long-term warranty: 5 years to 10 years with a mileage restrictions from 60,000 miles to 100,000 miles. The most important thing to remember about this warranty is that the coverage starts from the car’s original date of sale, NOT from the time you buy the used vehicle.

It is important to understand the difference between the two types of warranties. Make sure you compare apples to apples when you compare warranty coverages. Don’t compare a 3 month comprehensive warranty to a 6 year powertrain warranty and then conclude that the 3 month deal is not as good as the 6 year warranty.

A good certification program should offer both warranties.

Look out for terms like “balance of original warranty” - this means the warranty coverage started from the date the car was first sold.

Check the resources at the bottom of this article for an extensive list of warranty details provided by different manufacturers on certified used cars.

So with all these goodies - warranty coverages and thorough inspections, why is there a question whether certified used cars make sense or not?

Well, here comes the juicy part. The question arises because of the following issues.

• Issues with inspection: it should be noted that inspections are done at the dealership level only, even if they are *supposedly* done according to manufacturer specifications. These cars are not like certain used electronic goods that are sent back to the factory to be “factory-refurbished”. Because of this dealer-level, there is a human element involved which makes the outcome of the certification process uncertain. It all depends on the honesty of the particular mechanic (or the vested interest of the dealership) who inspects your car.

Plus, it is not necessary that mechanics think alike and hence it is quite possible that one mechanic thinks that a car is good enough to be certified while the other doesn’t think it’s good enough. So, there is a very high chance that a given car, that has been an accident (which has not been reported in the CARFAX report), with some body work done on it, is given the go-ahead by a mechanic who thinks that it is worthy enough to be sold as certified. That’s why you must have certified cars inspected by an independent mechanic. In fact, independent inspection becomes even more crucial if you are not getting a comprehensive warranty coverage with the car.

Also, don’t get sold out on “160 point” (or whatever other number of points) inspection. Many of those points are trivial and it doesn’t require any amount of skill (or equipment) to have them checked.

• Issues with warranty: as explained above, coverages for certified used cars can be deceptive. For example, you could buy a certified 2003 Toyota with 84,000 miles on it. It will be advertised with a “7 year/100,000 miles” powertrain warranty. However, the warranty coverage started when the car was first sold as new. So, you should realize that although it has three more years of warranty, you have only 16,000 miles to go before the warranty expires (probably another year at max). So, if you are paying a very high premium for buying such a car, you are not getting a good deal in spite of the warranty. Also, keep in mind that most warranties (even the comprehensive ones) DO NOT cover normal wear and tear items (brake pads and shoes, belts, etc.) - so buying a certified car doesn’t mean you won’t have to worry about replacing all those items (think expensive maintenance) within a year of buying the car.

• Cost of certification: all that warranty and those inspections come at a premium, sometimes as high as $2000 (probably even more; it all depends on how much profit the dealer wants to make - there are no limitations on how high the dealer can set the price). At times, you can justify the extra premium with the cost of inspection, the replacement cost of certain wear and tear items, the cost of general servicing, etc., but generally the premium goes much beyond what can be normally attributed to the cost of reconditioning. Consumers should do their own research (just as described in these articles) and check out the fair price of a certified used vehicle before hitting a dealer’s lot (and of course you can haggle when you are there).

Sometimes, buying a certified car just doesn’t make any sense due to the cost factor. For example, here is how a 2006 Honda Civic (LX, 4 door, 15000 miles) evaluates according to Edmunds.com (check the price listed for the certified version at the very bottom of the image) - says $17,332!

Now, a 2007 brand new Civic with the same configuration comes to $17,577, a difference of just $245. There is no reason why you should buy a certified used vehicle in this case - just go for the new one. A non-certified Civic can be negotiated to almost near the private party value of $15,502, but the *certified* version won’t go much lower than $17,332.

Also, there is no reason why the certification premium should be so high for a one-year old vehicle ~ you can be pretty sure that the dealer didn’t have to do anything significant in reconditioning such a car (the original tires will be good enough and everything else should be in pretty much “as-new” condition). Plus, the original factory warranty of the car still has a long way to go before it expires and you certainly don’t need any additional warranty that comes after certification.

Another time when buying certified used vehicles don’t make much sense is when the vehicles are near the limits of their warranties. There is no wisdom in paying an extra couple of thousand dollars as premium for a certified car that’s run about 84,000 miles and whose powertrain warranty will expire within an year (after the next 16,000 miles). You could argue that you are getting a “comprehensive” warranty with the purchase, but if that’s just 3 month/3000 miles, then you are still paying way more than what that peace of mind is worth it.

So consider all these cost factors before you jump for a certified pre-owned car.

• Horror stories: Check this discussion on New York Times and see what readers had to say about their experiences with certified used vehicles. The photograph alongside is from another article in New York Times and shows a damaged Chevrolet Monte Carlo. Would you believe that parts of the damaged car in the photograph were used in a “GM certified vehicle”?

Here is an excerpt from the writeup that goes along with the image (here is a link to the article, but it requires subscription to NY Times):

After a mechanic put the car on a lift and saw the welds, Ms. Day learned that it included pieces from the front of one Monte Carlo and the rear of another, both seriously damaged in crashes.

This just goes to say that no matter how stringent the manufacturer’s certification requirements are, lemons can always be sold as certified vehicles.

Bottom line: “certified pre-owned” does not mean “no worry” and not all certified cars are worth the extra premium. Do your own research as you would have done with any other used car (follow these rough guidelines that I mentioned in part 2, part 3, and part 4 of this series) and then decide whether it’s worth the additional cost. Pay attention to the warranty when you are looking at old certified used cars and pay attention to the cost when you are looking at almost-new certified cars.

And, always remember - it is absolutely essential that you have a certified pre-owned vehicle thoroughly inspected by an experienced mechanic.

Resources:

• Manufacturers and Certified Cars: NY Times (read all the comments here)

• List of Manufacturers and the Features of their Certified-Preowned Warranty Programs: Cars.com

• What are Certified Used Programs: Cars.com

I mentioned earlier that we spent $12,200 cash on our new used car.

Spending that kind of hard-earned money (all in one day and on a single, constantly depreciating object) has caused some subtle (mostly quirky) changes in our lifestyle. Here are a few quick observations on that.

1. I realized that I love our money more than our car. Now, don’t get me wrong; I love the car - it’s wonderful (although, it’s the characteristic bland Toyota) and one of the smoothest vehicle I have ever been in. However, the loss of the cash brought more agony to me than the gain of the car. It gave me a weird *hollow* feeling. I know that’s not the right way to look at it - money is saved for a purpose, and it’s alright to spend some of it for the right reasons at the right time. Anyways, it’s probably going to take a few more days to come to terms with a $12,200 drop in our net worth (I don’t consider the car in my net worth calculations).
2. Panic. I still keep trying to reassure myself that we did the right thing by putting cash down for this. At times, this has led to mildly panicky situations resulting in diminished math skills.
3. Crazy stuff. Every morning I peep out of the window to make sure that the car is still there. My wife will have more to say on this, but I am not going to allow her to write about it. Also, I am contemplating on buying one of those steering wheel locks (or “club“) as a theft deterrent. I am not sure how effective those things are, but I still feel the urge to get one.
4. Parking changes. We have been extra-careful about where we park our car. We avoid parking near cars that are not parked *neatly* or cars that major dents in them. Also, I thoroughly examine our car from all sides to make sure there aren’t any dings/scratches before driving off from the parking lot. We weren’t so picky with the old Nissan.
5. Change in driving habits. This is true for both me and my wife. Our sense of *safe* driving has been elevated to a new dimension with this purchase. It’s probably the unconscious pressure of sitting in such an expensive box-with-four-wheels. Over the last week, we have been driving like people play chess - we can almost figure out how the driver behind us will react based on the traffic situation around us. So far, we have correctly anticipated the actions of at least three jackrabbits and (fortunately) steered away from them in time.
6. People’s reaction to our cash purchase. We generally avoid disclosing any details of our financial transactions to even close friends and relatives. However, we try not to lie if some of them ask us specific questions. So, the story about our cash payment got out among some of our friends. Somehow, the answer “We paid cash” does not go down well with most people. We have been greeted with replies ranging from “Ha, funny. What was the loan APR?” to the all-encompassing “What… !?” (as in WTF!) to just a disbelieving silence. I just don’t understand what’s so dramatic about paying cash - we saved the money and then we used it - that’s it, it’s not at all a big deal. Anyways, in retrospection, I don’t think it was a good idea to be that honest about how we purchased the car. In future, for all acquaintances (work colleagues, etc.), other than close friends, we have decided on a “We got a good loan rate” story - if that’s what people want to hear, then that’s what we are going to tell them.

So that’s how things have been.

Hopefully, all the excitement (and the quirkiness) will wear off in a few more days and we will be back to our normal lifestyle. Also, hopefully, the good things/habits we have learned/developed over this entire car-buying business will stay with us for a long time to come.

By the way, I am still working on the final few parts of the used car buying tips series; will try and publish them in the next couple of days.

Dave Ramsey is going to be happy with me for writing this post.

Normally, I don’t subscribe to Ramsey’s psychology and I don’t recommend cutting up credit cards (at least not valid, unexpired ones that can still be used). But, I was just re-reading one of my long-time favorite books “Physics for Entertainment” and suddenly thought of using credit cards for one of the *entertaining* experiments suggested in the book [credit card plastic is rigid and virtually indestructible and hence a good candidate].

Before I proceed, let me make a few comments about the book - I am not sure how many of you have even heard about it. The book, first published in mid-90s, comes in a two part series, and was originally written in Russian by Yakov Perelman. Both parts of the book are extremely rare to find in the present times. The only place that still has it (that too only Part 2) is Alibris.com - with a price tag of $130. Interestingly, about 15 years ago, my dad bought the book (both parts included - *used* condition) for some measure of currency that is equivalent to about 25 cents (US $) in today’s world.

Anyways, back to the credit card boomerang thing.

First, it will be helpful if you read up this information on boomerang basics. After you read that, it will be obvious that we are looking to create some L-shaped flying objects from the credit cards. Technically, we are tying to make a “returning boomerang”.

This is easier when explained with images, so here are before-and-after images of boomerangs made out of a Sears Gold Mastercard (that card was still valid when I cut it up - didn’t have any expired credit cards):

To avoid being unfair to credit cards, I also cut up a check card (no more ATM fees ):

Now, to fly those boomerangs, follow these instructions:

It takes a bit of a practice before you will get it right (here, some people may realize that they can’t even flick properly). Also, you could try testing boomerangs of various shapes - try twisting them a little bit (helps for a longer flight), try rounding off the corners, etc. - additional incentives to cut up more cards.

A good L-shaped credit card boomerang should fly up to 10~15 feet and will *almost* come back to you.

Additional tips:

• It’s OK to have two arms of unequal lengths - in fact, that way it might work even better.

• They are fun to play with, but be careful - a good boomerang will come back to you and you don’t want it to get in your eyes. Credit card plastic is very hard (that’s why it works well in the first place), and it can really hurt if it gets in your eyes (or someone else’s eyes). So watch you kids if they are cutting up your credit cards for fun.

• In addition to teaching your kids how to cut credit cards, you can also try explaining some science to them. That will make your card cutting activity a bit productive.

So go ahead… check out if Mastercard flies better than Visa, or Amex.

Continuing with our series on buying used cars, today let us discuss some basic tips on how to deal with car dealers. If you missed the earlier parts, here is what we have covered so far :

• Part 1: Classic Confusions

• Part 2: Understanding Vehicle History

• Part 3: How to Inspect a Used Car

Now, let us move on to the crucial phase in used car buying - how to deal with dealers. There is a lot to write, so I will present the information in the form of a list of tips, instead of a narrative. [In the following, I am using the terms 'salesman' and 'dealer' or 'dealership' in the same sense - they all desperately want to sell a car to you].

Tip 1 - Be very specific about your requirements: For the first few dealers we started our conversation with some lame statement like this: “We are looking for a used car - a Honda Civic or a Toyota Corolla within the price range of $9,000 to $12,000“. Although, some people might say that it’s pretty specific, it still has a lot of unproductive potential.

Here is why:

We were *prepared* with a few prices for specific cars. For example, we carried documents about the True Market Value (representing what others are paying for a similar vehicle around a given zip code), MSRP (usually the dealer sticker price), and invoice price (what the dealer pays for the car) as obtained from Edmunds.com. However, we carried these documents only for Honda Civic and Toyota Corolla models for the years 2003 and 2004 - which, by default, fell within our price range. However, when we mentioned the price range of $9,000 to $12,000, without being any more specific, the salesmen started throwing a lot of options (various model years and mileages) at us. That created a lot of confusion because we didn’t know how to evaluate the worth of each car based on it’s age and year on the spot. Basically, the generic *preparation* (deciding just the budget and the make/model) was pretty much useless and turned out to be a big waste of time.

That’s why you need to be very specific with your car requirements before you start talking to car salesmen. With “specific”, I mean specific to the exact car you want to see, not just the model, model year, and mileage. Find out what the dealer is offering through some online listings (Autotrader.com or the dealer’s own website), choose which of those vehicles fit your criteria. Then (after you verify a clean CARFAX history for those vehicles), call up the dealer and ask if those particular vehicles are still on the lot. At this point, don’t complicate matters by mentioning any price expectations. Just keep it simple, go to the dealer’s lot ONLY if the vehicles you want to check out are still available for sale. A few minutes on the internet and the phone will save you a lot of time and confusion when you physically visit the dealership.

Tip 2 - For each car you choose, decide your ideal price and margin before you head out: After you have confirmed that the car is still available for sale, go online and look up it’s True Market Value on Edmunds.com. Don’t just stop at the standard values ~ go ahead and appraise your car with respect to it’s with color, mileage, condition, etc.

Follow these steps to do it.

• Suppose this is the car you found through Autotrader.com:

• Next, go to Edmunds.com –> Click on “Used Cars” in the top menu –> Then click on “Research Prices and Specs” –> Then you will be asked to select the make/year/model - in that order. Once you do that, you will get a screen that will show these prices:

• Don’t stop here. The True Market Value (or TMV as Edmunds.com calls it) as seen in the above image is just the *typical* value based on normal-use assumptions. You need to click on the “Customized Appraisal” button to get the value for the specific vehicle that you are looking at. Once you click on the “Customized Appraisal” button, you will be asked to enter information like color, mileage, optional features (automatic transmission, power options, etc). After you do that, you will get a pricing report that looks like this:

• Now, check the dealer retail price in the above image and compare it with dealer’s listed price. In this particular case (surprisingly), the actual price offered by the dealer is slightly lower than what Edmunds.com predicts. However, you can see that the private party price is much lower than what the dealer’s list price. Your ideal price for any used vehicle should be near the private party value (may be even slightly lower). For this example, the ideal price is probably around $9,800. Keep a reasonable margin above this in such a way that it still makes this car worth it. In this case, say a margin of $500. So you should start your negotiation from $9800 onwards, and try to target about $10,000 as the final price. However, in the worst case, if the dealer doesn’t agree with your price, and gives you a final quote of $10,250 ~ that would still be in your margin and will turn out to be a good deal for you.

Walk out if the dealer is not ready to negotiate at all, you will find others who will gladly do it.

Tip 3 - Always wait for the salesman to make an offer first: Even if you are very confident about the prices, don’t blurt out your expectations before the salesman makes an offer. At times, you might lose a golden bargain by doing something like this. We, as consumers, do not know anything about the price wars between two salesmen in a given dealership or between two dealerships, etc. It is quite possible that the salesman who is attending you is trying to low-ball his competitor and hence may be ready to offer you an ultimate bargain ~ a chance you will blow away by opening your mouth first.

Again, consider the example in Tip #4; here don’t tell the salesman that you are ready to buy the car if he sells it for less than $10,300. Once you say that you are ready to pay $10,300 for that car, the salesman will start his pitch with something like $10,900. That puts him on top of the situation. Instead, you should force the salesman to offer his best quote first and then you should lead the negotiation by low-balling him quite a bit to start with. This will invariably end up in a better deal for you.

Tip 4 - Don’t even mention the words “monthly payments”: If you do that the salesman is going to catch you on this and raise the stakes by a few dollars every month. The pitch will be something like this: “Why are you buying this old Honda Civic when you can buy this new one for just $50 more per month .. in fact, if you put $50 more, you could upgrade you a bigger and safer Accord“. Believe me, they are really good at this game - so the best thing to do is avoid playing this game altogether. In fact your monthly payment should have been fixed in your mind when you chose your budget and type of car in the first step (see tip #1) and you should let anyone convince you otherwise.

Tip 5 - *Appear* knowledgeable and well-informed: This is a tricky one and I am going to have a hard time trying to explain this to you. If you show your ignorance, you WILL be taken for a ride ~ that’s guaranteed.

For example, we played this dirty trick on one of the dealers when we were tired (and angry) at how things were proceeding on our first day of used car hunting. The salesman was trying to sell us a 2003 Honda Civic (2 door) with 75K miles on it, but was reluctant to mention the price (even after we insisted a lot). Later, I casually lied to him that we test drove a 2002 model with 78K miles at a nearby dealership and it carried a price tag of $12,500. On hearing this, he excused himself for a moment and presently appeared with a $12,989 quote! (actual price should have been around $ 10,000). He was probably just waiting for judge our level of ignorance with the prices, and the moment he realized that someone else took us for a ride, he was ready rip us off.

Towards this tip, if you don’t know the prices well enough, it’s better to keep your mouth shut and let it be the salesman’s burden to judge your level of ignorance. Don’t make it easy for the salesman by saying something stupid.

Also, it helps to carry a file with some print-outs in it - something that shows that you are a *serious* customer and not some window-shopper who is just trying to entertain himself on a lazy day by wasting everybody’s time.

Tip 6 - Be skeptical, ask questions: Sometimes, it takes a few right questions to figure out if your salesman is hiding something from you. Here is an example.

This incident took place at a Honda dealership (our first stop - when we were still learning the tricks of the trade), where we went to test drive an Accord (2002, 69K miles). We drove the car and it felt nice (at first), and we had this feeling like the deal would work. However, things change after the following conversation, which happened right after the test drive:

Me: The car seems to work fine. I just have one more question - since you are a Honda dealership, why is this Honda Accord not being sold as *certified used*?

Salesman: Oh, it’s good enough to be certified, but Honda doesn’t allow certification of cars with more than 60K miles on them or more than 5 years old. Plus, you know this car is a 2002 model, so it was on the road in 2001 and that’s more than 5 years.

I later found out that Honda allows certification of cars with less than 80K miles which are less than 6 “model years” old. Apparently, that Accord was eligible for being sold as *certified* and yet it wasn’t. So this dude was lying to us.

When I brought this to the his notice, he gave me some crap about warranty transferability and such - all of which was invalid with respect to that particular car - and never really addressed the my question: “why is this car not being sold as a certified car“. Although, we never got an answer, the incident made us suspicious enough to drive us away from the deal.

The point in case, is that all salesmen are not epitomes of honesty. A car salesman’s job is to sell cars, and he will do all that is necessary to help his job. Sometimes, honesty doesn’t work in their best interest. Mostly, they may not lie blatantly to your face (although a few did that to us), but at times, they tend to withhold crucial information, which I consider to be dishonest. For example, if something is wrong with the car, they are not going to be open about it - unless you specifically ask them about that particular problem. So, be skeptical about the information (or the lack of it) that you get from a salesman.

Tip 7 - Be polite, but be firm: Dealers are people like you and me who are working hard to make a living. So, some politeness is in order. However, that does not mean you should be afraid of saying “NO” to nonsense. A friend of mine suggested that I practice the polite delivery of these statements before I speak to a salesman:

-”Please don’t waste our time by making multiple trips to your manager for negotiations. Let us settle it between ourselves first and then you can take the final number back to him“. [incredibly effective]

-”Please don’t waste our time by showing us cars that we didn’t ask for, we are not interested in looking for anything else than what is there in our list“.

-”I don’t think this is going to work for either of us. Thank you for your time, give us a call if you decide to offer us a better deal“. [use this when you get bored negotiating and just want to get out of that place]

These statements are mighty time savers for inexperienced used car shoppers.

Tip 8 - Do not hand over your driver’s license and phone number without any reason: At least 4 car salesmen, in different dealerships, asked for my driver’s license and phone number without even showing me a single car. If you face such a salesman, just ask him this: WHY? I bet he wouldn’t have a good answer. The only valid reason why they may need your driver’s license is if you asked for a test-drive. Other than that, they may want it to note down your address so that they can sell it to someone junk-mail sender for a fee. So it’s a good idea to keep your driver’s license to yourselves until you want to test drive a car. Same with the phone number; don’t give your phone number if you don’t want them to contact you later.

Tip 9 - Always ask for the “drive-out price”: This will make life much easier for you, because this is the exact amount (price after taxes, title, fees, etc.) that you will be writing the check for (or getting financed for).

At times, it’s better to negotiate with the drive-out price instead of the actual sale price. This is because people usually have a tendency to negotiate towards some lower *round* figure. For example, if the dealer list price is $11,785, it is very likely that it can be negotiated down to $11,500 (you will save $285). However, if the drive-out price in this case comes out to say $12,980, it is very likely that it can be negotiated down to $12,500 (you will save $480).

Tip 10 - Just say no to additional options: Honestly, with a used car, there is nothing that a dealer can offer that you cannot buy later. Extended warranties are generally offered by third-party warranty companies (and the dealer probably gets a commission by offering them to you), and different warranties have different coverages - just say no to them when they are offered by the dealer. Later do you own research to see if you really need such a warranty and if you do, take your own sweet time in getting something that suits your needs and wallet. If you follow the instructions in part #3 of this series (how to inspect a used car) properly, there won’t be any pressing need to buy an extended warranty coverage before you leave the dealer’s lot.

Tip 11 - Squeeze the most out of our salesman after you finalize the deal: If everything goes smoothly and you finalize your deal, the salesman will be as happy (to have sold a car) as you are (to have bought one). Strike when the iron is hot. Ask for free interior detailing, full tank of gas, free spare keys (for certain cars, this electronic transponder key stuff is really expensive), scratch and door-dings removal, new floor mats, etc. These are pretty minor things, but they can easily add up to more than a couple of hundred dollars or more. Your “happy” salesman will be more agreeable to these things immediately after you have finalized your deal.

Tip 12 - Delay mentioning your trade-in: I am picking this tip from an interesting article on the subject by my friend Jeremy @ Generation X Finance. Please take out some time to read his entire article.

If you are planning on trading in your old car to help with the purchase of this new vehicle make sure you don’t let the cat out of the bag until the end. The salesperson will certainly ask if you will be trading in but you don’t have to tell them yes or no, maybe you are considering it. Either way, if they know you will be trading in they will use this to their advantage in the negotiation which will undoubtedly become more confusing and potentially cost you some money in the process.

Also, according to the “Confessions of a Car Salesman“:

Buyers are so eager to get out of their old car and into a new one, they overlook the true value of the trade-in. The dealership is well aware of this weakness and exploits it.

So don’t be too eager to mention your trade early on or they will be on to you.

Tip 13 - Don’t be stupid: Ah ha … here comes the cliche. Know a scam when you see one. For example, many people must be knowing that specific dealerships sell only specific vehicles as “certified pre-owned” - Honda dealerships can sell Honda certified pre-owned vehicles, Toyota dealerships can sell Toyota certified vehicles, and so on. I haven’t heard (even if there are), of any dealerships that are not associated with a manufacturer, selling a certified pre-owned car from that manufacturer. For example, you will never find a Ford dealership selling a certified pre-owned Honda Civic. If someone is doing that, then something is obviously wrong with the deal (most likely the car won’t have Honda’s factory warranty on it). In the same breath, if a dealership is not associated with any manufacturer, then it cannot sell *certified* pre-owned vehicles. Stay away from such places.

Also, if cars from a dealership have been listed in your local classifieds and are being sold for a bargain as *private* party deals, then there is something wrong going on (the dealership probably doesn’t want to be associated with those cars). Again, stay away from such offers.

Tip 14 - If you want to avoid haggling, go visit CarMax: It is one self-declared, no-haggle, car *dealership*. Moreover, the salesmen are paid a flat commission per every car sold, so there is really no incentive for the sales staff to inflate prices (and hence the profits) on a given car. Just search for the car you want, and then drop by to their car lot to pick it up - it’s that simple. On the flip side, the prices are relatively high in spite of the flat commission. In some cases, the cars here are more expensive than the dealer list prices on certified pre-owned vehicles backed with manufacturer warranty. CarMax offers a warranty for every used car they sell, but it is a lame 30 day limited warranty [compare that to certified pre-owned cars that could be covered with up to a year of bumper-to-bumper; plus, a 100,000 mile powertrain warranty]

Bonus Tip 15 - For new cars, try the “Internet Sales” department first: Now-a-days this option is becoming really popular. It bypasses all the psychological pressure tactics that salesmen play when they physically meet you and it is definitely good for your wallet. Here is how you can make this more effective.

• First, choose the new car make/model/year you want to buy.
• Then go on Edmunds.com and check out the invoice price and the True Market Value of the car (usually, this will include any available incentives like cash back, etc). It’s always a good idea to check the manufacturer’s website to see if there are additional discounts.
• Apply for an auto loan through your credit union or a local bank (or wherever you are getting the best rates). For many new cars, there are financing options available through the dealer at ridiculously low rates (0%~2% APR), but they are usually available to people with FICO score around 750 (or above) and/or have a previous auto loan history.
• Once your loan is approved, send an email to the internet sales departments of all the relevant dealers near you (almost all dealerships have internet departments).
• In the first iteration, ask for their “best quotes” on the car you are looking for. Remember to also ask them to estimate the final “drive-out” price - this is important because dealers sometimes have some stupid documentation fees (or something similar) and you want to take that into account before comparing different quotes. Don’t give out your price yet.
• Once they come back with their quotes, compare it with Edmund’s True Market Value, start your negotiation from the invoice price (minus incentives), and aim towards a final price that falls between the invoice price and the True Market Value.
• The way I see it, True Market Value represents a “ripoff point“. Anything above that price is a ripoff. Anything below is reasonable. Basically, if you get your car within the price set by True Market Value, then it means that you paid less than what other people around you are paying on an average. Sometimes, if there are incentives available, it is quite possible that you can buy your car for less than the invoice price, so make sure you ask/know about all the incentives before you start negotiating.
• Once you are happy with the final drive-out price. Then send the dealer an email saying that you have an approved financing option at X.YY% APR (you don’t need to mention your real APR here - if you have been approved at 5.5%, feel free to tell the dealer that you got 5%). Ask what’s the best they can offer you. It is quite likely that the dealer may try to beat your bank’s offer. This is not guaranteed, but it’s worth a shot. By the way, it is better if you not mention financing anywhere before this final point in your negotiation.
• After this is done, all that remains is some final paperwork and picking up your car from the dealership.

This online-only method is fairly easy when you are looking for new cars. However, for used cars, it becomes a bit complicated -you cannot really negotiate a price through emails if you don’t know the condition of the car.

OK, so that’s all that comes to my mind for now. It was enough bashing for the salesmen in there. Although, some of them are pretty obnoxious at times, it looks like it’s not always their fault. Again, here is an excerpt from the “Confessions of a Car Salesman”

What the customer didn’t realize was that the poor car salesman or woman was not really the enemy. The real enemy was the manager sitting in the sales tower cracking the whip. Suppose for a moment a customer told us they were “only looking,” and we said, “fine, take your time,” and went back into the sales tower. Now we find ourselves looking up into the steely eyes of the sales manager.

“That’s your customer out there,” the manager would say.

“But they said they’re only looking,” I would answer.

“Only looking? You’re going to take that for an answer?” Foam was beginning to form at the corners of the sales manager’s mouth. “What the hell kind of salesman are you? Of course they’re looking! They’re all only looking until they buy. You want them to go across the street and buy a car over there? Because they have real salesmen over there. Now go back out there and sell those people a car. And don’t let them leave until they buy or until you turn them over to your closer.”

So that’s why the car salespeople stick like glue to customers. Their fear of their managers is greater than their fear of offending the customers.

So, finally, even with all their faults and undesirable characteristics, it is important to remember that car salesmen are just human beings like us - very much susceptible to the lure of extra money. Instead of snapping back at them in anger (for whatever reason), try to gracefully decline their offers (express your disappointments if you want) and walk away in hopes of finding a better salesman in the next dealership.

Feel free to share any other obvious or subtle tips that you think might help.

Here are some interesting articles posted over the week.

Before I mention the articles, let me share a few forethoughts on a couple of them ~ to get your thoughtful juices running before you click on those links.

• One of the articles below (by Lazy) is a rant about a violent Toyota advertisement that preceded the latest Harry Potter movie. Would violent advertisements adversely affect your judgment about a product’s quality or reliability? would you stop using a brand because the company’s advertising department left a bad taste in your mouth? … Personally, I wouldn’t care much. What’s reliable is reliable. Good advertisements don’t amuse me and bad ones don’t influence me. My thoughts probably may have something to do with the fact that I didn’t watch TV for about 9 years in the past (more on this in future).

• The second thought I want to share is about the article on debt by Jim. Earlier, a reader (Ted Valentine) made an analogy between credit cards and guns. I think a similar analogy can be applied directly to debt. Debt is like a gun. You can use it for your safety, or you can aim it for your head and kill yourself. Debt is a tool and it comes with it’s own “directions for use”. There are always consequences for not following proper directions for use for any tool.

Now, the links.

Achievement Comes From Goal Clarity by Jeremy @ Generation X Finance.

First, what is goal clarity? In essence it can be defined as your ability to set and reach specific goals. The important part of this definition is the word specific. A very broad or general goal won’t help drive you to success.

How Money Can Change A Life by Ben @ Money Smart Life.

“Dealing drugs makes you lazy”, he told me. He wasn’t used to having to show up every morning and put in a full days work. I told him I didn’t like going to work all day either. I let him know there were legal ways to make money other than going to a job

How To Live Without Television - It Can Be Done! by Stephanie @ Poorer Than You.

We humans do not like to give up luxuries that we’ve become accustomed to. When a personal finance blogger suggests that someone in financial peril cut the cable or satellite, the person in trouble often balks at the idea. Who can live without cable in this day and age?

How Are You Building Your Net Worth? by SVB @ The Digerati Life.

To what do we owe our net worth? What do I see as responsible for building our assets or adding to our liabilities? Is there any one thing that I can thank…or perhaps even blame for the progress we’ve had so far in our wealth accumulation endeavors?

Why I May Never Buy a Toyota by Lazy @ Lazy Man and Money.

It was a black and white cartoon where these “Deviants” murdered “Sheeples” in brutal ways. There were a couple of beheadings. At one point a Deviant skinned a Sheeple and wore his skin like a costume and did a little victory dance. At the end it turned out it was a commercial for a Toyota Scion.

10 Mortgage Lessons From 12 Phone Calls by Henry @ Binary Dollar.

You don’t need to give out all your information (address, social security) to get rates and closing costs. You can get ballpark numbers as long as you provide the purchase price, the down payment amount, and the type of mortgage.

Investment Idea: Exchange Traded Notes by Sun @ The Sun’s Financial Diary.

ETNs are debt securities, not equities. Thus, like notes and bonds, a ETN has a maturity date.

Debt Isn’t A Bad Thing by Jim @ Blueprint for Financial Prosperity.

Ultimately, debt is important because allows you to do the things you want to and should be doing. It allows you to leverage some of your future in order to enjoy something now.

How far would you go to keep perfect eBay feedback? by MBH @ Mighty Bargain Hunter.

However, that buyer can also leave me negative feedback. Even though he’s the one at fault. Even though I would have followed through with the transaction had he paid. These things don’t matter. A negative is a negative, regardless of how it’s earned or not earned.

Phone Books are Dead Weight by Dawn @ Frugal for Life. Dawn suggests some novel uses of phone books:

- Use pages as insulation for holes in the wall or around windows
- Place them in your car for emergencies
- Bundle a bunch together and make a footstool or for step exercises

Historical Net Worth Numbers by Nickel @ Five Cent Nickel.

The main reason for this is that I initially included just the annual change data, and didn’t add the cumulative change column until. But once that was in place, the effects of compounding really jumped out.

50 Tips for New Personal Finance Bloggers @ Clever Dude.

I repeat, focus on your content.

Downgrading Your Cleaning Supplies – Save Money & the Environment by FMF @ Free Money Finance.

All-Purpose Stain Remover – add 1/4 cup borax to 2 cups cold water in a bucket and soak stained clothing. Green Clean says this works well on blood, chocolate, coffee, mildew, mud, and urine. A paste of lemon juice and baking soda is great at lightening stains, especially on white fabrics and sweat stains.

The motivation for this series of posts comes from our recent car buying adventures. You can brush up some background material on this subject in Part 1: Classic Confusions and Part 2: Understanding Vehicle History Reports.

At this time, I have a fair idea of how this series will proceed, so let me lay this out for you:

• Part 1: Classic Confusions

• Part 2: Vehicle History Reports

• Part 3: How to Inspect a Used Vehicle - [this post].

• Part 4: How to Deal with Car Dealers

• Part 5: Certified Used Vehicle or Not?

• Part 6: Lease or Buy?

• Part 7: Practical Tips and Summary

It’s not arranged in a chronological fashion, but I will work on that later when I summarize all the topics at once.

In this part of the series, let’s discuss some simple things you can do to inspect a vehicle without much efforts. This is not meant to replace an expert examination by an experienced mechanic, but it will save you a few bucks (between $40 ~ $100) before you take a lemon to a mechanic.

Also, this cursory inspection should come AFTER you have ascertained that the vehicle is clean with respect to the CARFAX report. If the vehicle appears to be “bad” on the CARFAX report (stolen record, accident record, etc.), then you should reject it outright; there is no point in spending your time and money in having such a vehicle inspected.

So let’s start without further ado.

Tools required:

1. A skeptical friend.
2. A penny, with Lincoln’s head clearly visible.
3. A small magnet (stuff like this that costs less than 50 cents).
4. An audio CD if you are looking for a car with a CD player.
5. A small notebook to note down things that are broken (or need attention).

Let’s divide the inspections into three categories:

1. Before the test drive.
2. During the test drive.
3. After the test drive.

1. Before the test drive

• Color: Look for consistency in color. All panels of the car must be of same color and shade. It helps to observe this in the sun and in the shade. With the glossy paints that most cars use these days, color difference is a bit difficult to observe when things are shining and hurting your eyes.
• Symmetry: This is one of the simplest checks to find things that are not right. Look for the headlight lenses, tail light lenses, mirrors, door hinges, and gaps between panels - and compare the driver’s side features with the passenger’s side features. Generally, after an accident, aftermarket parts are used to replace damaged original equipment manufacturer parts (OEM parts) [this is because most insurance companies do not cover the cost of OEM parts - which are much more expensive than the corresponding aftermarket versions]. So, if a car has taken a hit on the passenger-side headlights, it is quite possible that the replacement headlight lens (which won’t be OEM in most cases) looks different than the original headlight lens on the driver side.
• Texture: The car should have a uniform smooth texture all over. Sometimes, for minor damages, instead of changing panels, some shops simply reshape the dented area (with methods like using dry ice, suction cups, and such). If there hasn’t been any permanent deformation of the panel metal, the dents vanish almost completely with such basic techniques (this also means that the damage was not extensive in the first place, so it’s not too much of a worry). However, in most accidents, there is some permanent deformation and simple methods will not hide the dent completely - you will see some ups and downs in the affected area. Sometimes, such texture changes are hard to see when you are standing right in front of the affected area - it’s easier to spot them if you look at the car from different angles. Here is an example of such a damage (this stuff looks different than small door dings which could be forgiven at times):

  

• VIN: Every vehicle is identified by a unique VIN (Vehicle Identification Number) [this is true for vehicles manufactured after 1981 - VIN's existed prior to 1981, but were not standard]. The VIN traces a car’s history since it hits the road for the first time. The VIN on all panels MUST match with the VIN on your CARFAX report. A different VIN means the panel comes from another car - which means the car you are looking at was in a crash at some point of time. A few typical locations of VIN are shown below. The locations may differ for different makes and models (read this for details).

• Look under the hood: Check for missing parts like caps of fluid containers (for example, containers for brake fluid, windshield washer fluid, etc.). Look out for broken parts and cracked rubber hoses - feel free to bend and squint a bit if required. The image below is an example of a broken fan cover. It was only visible from the angle in which the photograph was taken; when I looked at it from the front side, it was hidden under some other part. The presence of broken/missing parts is an indication of a car that has not been looked after properly - sometimes, also an indication that it has been in a crash. By the way, if stuff appears “clean” (especially when you are at a dealership), it does not mean it’s not broken. Usually, dealers will do some detailing under the hood before putting out a car for sale.

  

• Check the glass: Check front and rear windshields and windows for cracks. With the windshields, pay special attention to the corners. I know at least one person who has bought a car from a dealer with a windshield cracked near the lower corner on the passenger side.
• Check the tires: Tires require special mention - because it’s expensive to replace them all, and because worn out tires pose a major safety problem [safety measures such as ABS (antilock braking system) are essentially useless without good tires]. According to Goodyear Tires, here is how you can determine whether the tires are still OK (it’s a pretty popular - almost cliched - method):
  

  One easy way is the penny test. Simply insert a penny into your tire’s tread groove with Lincoln’s head upside down and facing you. If you can see all of Lincoln’s head, it’s time to replace your tires.

  In our case, you should see very little of Lincoln’s head if you want to avoid a major expense within a 5~10 thousand miles of buying a used car. Plus, uneven tire wear (like inner side of a tire is more worn out than the outer side) is not a good sign.

• Use a magnet: I mentioned the magnet earlier; go ahead and use it to see if there has been some major body work done on the car. If you look at the instructions on repairing a dent here, you will notice that in point #4, it talks about using a “filler” - these fillers are resin materials (generally in combination with some hardener) and are essentially *non-magnetic*. If you have a small plastic coated magnet, just run it across the length of the car slowly, and see if it sticks consistently to the metal body of the car. If there has been some major body work - it will be (most of the times) marked by the presence of some kind of a filler and the magnet won’t stick well to that area. If the layer of filler is very thin, there will be some attraction between the magnet and the underlying metal, but it won’t be very strong and you will notice the change. Tip: use ONLY plastic coated magnets, or else you are going to scratch the car and the salesman will make you pay for it. By the way, magnets won’t stick to the front bumper, back bumper, and the mirror housings, so don’t worry about those areas.
• Observe the interiors: Pay attention to the condition of the carpet/upholstery. Usually, just looking at a carpet is not very enlightening, but if you compare your car’s carpet with another car of same make and model, you will very quickly notice the difference. Lift up the mats and look under them (most people miss this one). Also, if you are looking to buy a older model (say something like 1997) and if the carpet appears “brand new”, then it means something traumatic happened to the previous one - car floor carpets are expensive (upwards of $125) plus the installation, so people don’t do it for fun.
• Check the lights: Before you take the car out for a drive, check if all the lights (headlights, brake/stop lights, turn signals, reverse lights, marker lights, and emergency flashers) are working. Lamps are generally not very expensive (most bulbs probably cost less than $10), and you could replace them yourselves without worrying too much, so don’t freak out if one of the bulbs is not working.
• Check all the buttons and electronics: Start the car and check if the AC works (check the heater too while you are at it); if your car has power windows/sunroof etc., use all those buttons and see if they work. I mentioned an audio CD earlier - use it and see if the CD player works.
• Start the car and let it idle for a while: Start the AC , and wait for a few ON/OFF cycles of the compressor. Minor fluctuations in the engine RPM are expected (because the AC draws power from the engine), but if things are not in good shape, the RPM may drop like crazy and the car might give a nasty instantaneous shudder before things go back to normal. This happened frequently with our Nissan, so watch out for this particular problem in used cars. This happens only when during idling, so if you are in a hurry you are definitely going to miss it.

2. During the test drive

• Slow drive: Drive it at about 20~25 mph and check if you feel any vibrations at the steering wheel. Shut off the AC/fan, radio/CD player and see if you notice any other sound (creaking, rattling, etc); check the brakes for screeching noises when everything else is off - I am stressing on turning off the AC/fan while you do this because, sometimes, the steady humming from the AC sort of masks all other noises. By the way, if the brakes don’t feel *solid* - your test drive should end here.
• Drive on the freeway: My old Nissan had a peculiar steering wheel vibration at about 60 mph ~ probably the engine mounts were going bad or something. So see if you car does something like that at high speeds. Check the cruise control if your car has it. Again, turn off the AC and listen for unexpected noises. When the road is clear, check if your car veers towards the left or the right (you will have to leave the steering wheel for this, so a *clear road* is a must) ~ it might need some wheel alignment/balancing work if it does veer.
• Check shifting into reverse gear: Again, our Nissan had this problem - it used to vibrate a lot when shifted into reverse gear (whereas things went smoothly when shifting to the drive gear). Vibrations are probably indicative of problems with transmission mounts (or some other serious issue with the transmission). So make sure you check on it sometime when you take it out for a drive.

3. After the test drive

• Open the hood: As soon as you are done with driving it, open the hood and look for some obvious signs of trouble - smoke, splattered oil/fluid, burning smells, etc. Be careful, don’t touch anything - most of the things under the hood will be *extremely* hot after a drive.
• Test drive another car of the same make and model (around the same model year): This is an important step that people often miss. You can never know if a car is running well or not if you don’t have another one of the same type to compare with. You can probably figure out if it’s “good” or “bad”, but you won’t be able to figure out whether it’s “better” or “worse” without at least one comparison car. Of course, this option is not available when you are buying a car from a private party; but when you are at a dealer location, make sure you do this.

Now let’s visit some potential *FAQs* that you might have after you are through with the above points.

What happened to the skeptical friend I mentioned earlier?

Well, he/she should be examining the car along with you; in all probability, your friend will find more problems with the car than you ever could. It helps, to let your friend drive the car for a while - people have varying degrees of sensitivity to problem areas like noise, vibration, smell, etc. Plus, if you are looking at a “loaded” car (leather, sunroof, 6-CD changer, etc.,), it is very likely that you will be overwhelmed by all the *goodies*, resulting in bursts of clouded judgment.

If you examine all these things, what’s the need for a checkup from an *experienced* mechanic?

Even with all these things, you still haven’t looked at even half the issues that used cars should be checked for. Certain things like: checking for the quality of engine/transmission oils, signs of frame damage, signs of manually welded parts, etc., are better performed by someone with a trained eye who knows what to look for. Plus, your car needs to go on a hoist to enable examination of parts/issues that are not easily visible otherwise (for example, it is difficult, although not impossible, to check the CV boots without hoisting the car up).

So what’s the purpose of all these tips?

• If a car does not pass your preliminary inspection, then there is no need to take it to a mechanic for a detailed checkup - it would be a waste of your time and money. I mean, if there are easy ways to detect certain major problems, why spend $100 for an *experienced* mechanic to find those?
• It helps to be well-informed so that people (the car salesman, or the mechanic who inspects your car) don’t take you for a ride.

Any additional tips?

You will never find any problems if you don’t look for problems. Look at a used car with that attitude, or risk being blinded by things that work.

I am interested in reading more details on this subject, any recommended resources?

Check out these websites:

• Samarins.com

• Road and Travel Magazine

If you have more tips to share, please feel free to leave your comments.