GET GOOD DEALS ON USED CARS
By Laura Howard
Wednesday, June 10, 2009.
Editor's note: This article is targeted at readers residing in Britain. Please always seek expert opinions when making financial decisions.
Given the state of the economy, it's no surprise that the number of new cars sold in March fell by more than 30% compared with the previous year, according to the Society of Motor Manufacturers and Traders.
It's not just the initial price tag that is off-putting. "When you buy a brand-new car, you're hit with a VAT charge of 15% straightaway which is not charged on second-hand vehicles," says Richard Mason, managing director of car comparison site motoring.co.uk.
This has led to a boost in the popularity of second-hand cars. But while buying an old car will generally be cheaper than buying a brand new one, there are several things you need to think of before you part with your hard-earned cash.
Do your homework
When it comes to buying a used car, preparation is everything, says Mike Pickard, head of underwriting at esure car insurance. "Spending an hour or two researching the options available before you leave the house could make a real difference to your wallet, particularly in such a strong buyers' market."
If you're starting from scratch and don't know what kind of car you want, check out motoring.co.uk, which lists around 300,000 of the 700,000 used cars for sale in the country at any one time. The bonus with this site is that you can search by the type of vehicle - hatchback, convertible or estate, for example - and then narrow your search down to price, emissions, location, mileage and even colour, to sift out suitable possibilities.
If you already know what you're looking for, autotrader.co.uk will allow you to search for it by model, make, price and postcode, while whatcar.co.uk and the AA.com are great for general car-buying tips. Remember to compare running costs, including petrol and road tax, as well as how much value the car is likely to lose and over what timeframe.
Where to buy
Once you know what type of car you're after, you need to decide whether to buy it from a well-known outlet or from a private individual.
Buying a car from an established dealership may be more expensive than striking a deal with 'Dave from down the road', but that's because it carries less risk. " If you buy a vehicle from a private individual, it's basically a case of caveat emptor," explains George Marshall-Thornhill, senior motoring researcher at Which?.
"You won't have any legal rights, aside from taking the seller to court - if you can find them. If someone is bent on selling a dodgy car they're going to make themselves as scarce as possible afterwards."
Under the Sale of Goods Act, a dealership must sell cars that are fit for purpose, but how robustly this is interpreted will really come down to the quality of the dealership, says Marshall-Thornhill.
"Often, if a problem occurs within the first month, the dealership will rectify it. But if you use the car all the time, when exactly the fault happened and who caused it can be difficult to argue," he says. "Your treatment as a consumer will ultimately depend on the garage."
You can buy peace of mind, however.
"Most used cars will be offered with a one-year warranty, which is separate from the manufacturer's warranty and operated by a third party," Marshall-Thornhill says. But make sure you read the small print carefully: "Firstly, the warranties can be quite expensive, and secondly they tend not to cover extras, such as air conditioning," he adds.
Wherever you buy your used car, if the purchase is made with a credit card the liability passes entirely to the credit card company under the Consumer Credit Act, provided the cost is under £30,000. But even if you just put a deposit on the card, so long as it's £100 or more, you're still protected for the full amount.
These days you can buy a used car online just from its picture and have it delivered to your drive via websites like autoquake.com. It's actually not as risky as it sounds, says Matt Sanger, used car editor at What Car? magazine.
"The Distant Selling Regulation law states that the purchaser has a 14-day cooling-off period that starts from the date of delivery," he explains. "This means that you can effectively test drive the car for two weeks and decide at any point to get a refund - you don't even need to have a reason."
No form of consumer protection, however, should come second to your own checks on the car - and the seller. For example, according to the AA, one in three second-hand cars harbour a 'hidden history'. This could mean they have been involved in a major accident, which has caused the insurance company to declare the vehicle a 'write-off', or have even been stolen and undergone a change of number plate.
If you're buying from a private vendor or a small dealership, another pitfall is 'clocking', warns Mason. This is quite simply when the miles on the clock are tampered with so as to show a lower number of miles driven.
An equally sinister problem, which applies to one in 14 used cars for sale, is that there is still a finance agreement secured against the vehicle from the previous owner who has gone bankrupt or 'just disappeared', says Ian Crowder, insurance expert at the AA. "The bailiffs are legally entitled to come and reclaim the vehicle. If you've paid for it and think you own it, this won't be a lot of fun."
The good news is that there are checks you can carry out to minimise the chances of your second-hand car blowing up, or even just shedding its disguise, later down the line. "An AA data check will reveal a vehicle's previous owners, mileage, the Vehicle Identification Number and if there are any finance agreements secured against it," says Crowder.
Data checks are available at theAA.com and cost £20 for one search or £25 for up to five searches.
To ascertain the physical condition of the car, you can get the AA or the RAC to carry out a vehicle inspection. An inspector will come to look at the car, usually within three working days of a request, and carry out a full assessment of its road-worthiness. A basic car inspection for a non-AA member is around £150.
"It may be frustrating if you don't buy the car in the end, but it would be more frustrating if you found out about a problem too late," says Crowder at the AA.
In the current climate, it's also important to consider the manufacturer's financial stability, adds Pickard at esure. "The collapse of a motor manufacturer can have a knock-on effect on a car's resale value, not to mention the availability of vehicle parts."
If you have been persuaded to consider a more expensive car than the one you went in for, check out the relative insurance premiums before putting up any non-refundable deposit.
According to esure, 24% of buyers do not get an insurance quote before buying - however, not only could the premiums be out of your price range, but depending on your age, gender and the type of car, you may not be able to find cover at all.
The most common way to finance the purchase of a car in recent years has been to take out a personal loan or a so-called 'hire purchase deal' through the dealership itself. But both of these options have become less accessible since the credit crunch.
"Personal loans are still being marketed, but they may be more difficult to qualify for, as lenders are now more vigilant about borrowers' credit history," says Ricky Bruce, a researcher at Moneyfacts.
If you do qualify for a personal loan, it's likely to be a better deal for you than getting the finance from the car dealership. To start with, interest rates could be lower. Plus, dealership finance, which tends to be more expensive, is also less flexible. " As the loan is secured on the car, you can't sell the car without repaying the loan - whereas a personal loan is a totally separate transaction," says Mason at motoring.co.uk.
You may not qualify for dealership finance either - especially 0% finance options, which require applicants to meet high acceptance criteria, such as a clean credit history and minimal existing debt.
"Dealership finance is also often limited to vehicles the dealer has difficulty selling, or to cars it refuses to offer a discount on," explains Mason. " If this is the case, it's important not to compromise on the car you buy just because of the finance available.'
Unless you have an old car to part-exchange and savings that cover the cost of a new car, your best bet for finance could be your own bank, adds Mason. "Providing you have a well-managed current account and have been a long-term customer, you may be more likely to get a loan."
A brand-new car will depreciate in value up to a staggering 60% over a three-year period, according to Sanger at What Car?. This means if the car becomes yours in the first or second year, it still has a long way to fall.
"Getting the best possible price for a used car at the point of sale is your only chance to mitigate this loss as much as possible," he says. So if a 'negotiation showdown' on the forecourts doesn't sound like your cup of tea, bring along a partner, friend or parent who will relish the challenge.
Checklist for buying a used car:
*Research the price brackets for the car you want online
*Check out running costs like road tax and petrol consumption
*Have the required deposit ready on the day - usually between £100 and £200
*Commission an AA inspection on the car's history and road-worthiness
*Take a test drive with a friend for a second opinion
*Consider the value of a year's warranty
*Include cost of insurance premiums
*Prepare your finances in advance
*Negotiate on price as hard as possible
With thanks to Interactive Investors.
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