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How to Buy a Used Car Online

Through April 20, 2021, Experian, TransUnion and Equifax will offer all U.S. consumers free weekly credit reports through AnnualCreditReport.com to help you protect your financial health during the sudden and unprecedented hardship caused by COVID-19.

Would you buy a used car via an app or website? The question might once have seemed outlandish, but these days, shopping for a used car online can be convenient, safe and smart. As long as you keep a few basic guidelines in mind, you can use digital tools to secure financing, conduct your research, and do everything short of putting the key in the ignition. Here's an overview of how to go about it, with some tips for making sure the process goes smoothly.

Get Your Finances in Order and Check Your Credit

Before you start kicking virtual tires to find the perfect set of features, you'll need to determine what you want to spend on your new-to-you set of wheels. And unless you have sufficient cash to buy a vehicle outright, you'll also need to decide how much you can and should borrow to finance the purchase.

If financing is in the cards, it's always a great idea to begin the process with a check of your credit report and credit score. You can get your credit reports from all three credit bureaus for free through AnnualCreditReport.com. Experian also offers your credit report and score for free. Having this information at hand will give you some idea of the way lenders will view you and your application for a car loan. Study your credit report carefully, and act quickly to address anything that might be hurting your credit scores, such as high credit card balances or inaccuracies on your credit report, as they could hinder your ability to get a loan, or lead to higher interest rates than you'd qualify for otherwise.

If your credit report is error-free but your credit score is lower than you'd like, you can take steps that can lead to score improvement in six to 12 months. Doing so could bring lower interest rates and fees on a car loan, and save you hundreds, or even thousands of dollars over the life of a car loan. A higher credit score could also qualify you for a car loan with a low or even 0% down payment.

How Much Car Can You Afford?

To determine how much car you can afford, you should consider several factors:

  • The amount of money you have to put down on the vehicle. Obviously, the greater your down payment, the less you need to borrow to purchase the car. Typically, 10% is enough, but a larger down payment (such as 20% of the purchase price) will reduce your loan amount and might lead the lender to charge you a lower interest rate. Borrowing less, and paying less interest over the life of a loan, can mean significant savings.
  • How much of your monthly income you'll need to cover the loan payments. Experts advise spending no more than 10% of your monthly pre-tax income on car payments. Auto lenders typically do not scrutinize your income and existing debt obligations as closely as mortgage lenders do, so you may qualify for a loan with payments that exceed that amount. If you do, think carefully before accepting it, because if you get overextended and cannot keep up with your car payments, or are forced to miss other debt payments to cover your car loan, you could do serious damage to your credit, and even face repossession of the vehicle.
  • How the payments fit into your household budget. Even if you stick to the "10% rule" and keep your car payments below one-tenth of your pre-tax income, it's still possible for a car payment (or any other new bill) to make your monthly expenses unmanageable. Creating a household budget that includes a savings plan and prudent management of your debts is critical. If a lender offers you a car loan with payments that'll break your budget, having a budget at the ready will help you resist the temptation and set your sights on a car with a lower price tag.

Get Preapproved for a Loan

Once you know how much you want to spend on your new vehicle, it's a good idea to get preapproved for a car loan that would cover the purchase price. This involves going through most of the steps in the loan application process, including submitting to a credit check and possibly providing proof of employment and/or income. Doing so has several benefits.

First, it lets you shop among multiple lenders for the best interest rate and loan terms you can get. Applying for loan preapproval causes a hard inquiry that can slightly lower your credit score, but there's no penalty for making multiple applications. As long as you seek preapproval for car loans in the same amount and submit applications within a short time period (aim for two weeks or less), credit scoring systems such as the FICO® Score and VantageScore® will treat all related inquiries as a single event. When looking for a car loan, start with financial institutions with which you have accounts or other relationships, but you can also find potential lenders online and through car dealerships—even online ones.

Preapproval for the amount you want to spend can help prevent a sales associate from upselling you to a car that costs more than you want to spend, and then finding "affordable" financing for you. A common tactic among auto finance managers is to suggest loans with longer repayment terms such as 72 or 84 months, as opposed to the more common 48- or 60-month loans. A longer repayment term usually means lower monthly payments, but can cost you a lot of money in the long run.

Loan preapproval demonstrates to the seller that you are ready and able to close the deal on a purchase. If you're in a situation where the seller gets multiple offers on a vehicle, preapproval could make you stand out from competing buyers.

Shop Around for Used-Car Deals

Once you're clear on your financing options, it's finally time to start checking out vehicles. Shopping online lacks some of the sensory thrill you get sitting in the driver's seat of every vehicle under consideration, but you can see a lot more vehicles and cover a lot more ground digitally than you would visiting every potential seller. It's likely you'll have to take delivery of the vehicle in person, but with that in mind, your geographic search can extend further than most non-virtual car-shopping trips would.

The farthest-ranging car-shopping tools are established, nationwide sales outlets, with digital showrooms available through the web or via dedicated apps available for Apple and Android devices, such as AutoTrader, CarGurus, CarMax, Carvana and Edmunds. Each allows you to search for vehicles based on a variety of features and filters, including distance from your location, price, manufacturer, model, year range, mileage and a variety of vehicle attributes. For instance, you could limit a search to trucks made after 2015 and priced under $20,000 or SUVs with all-wheel-drive (AWD) and less than 50,000 miles. If nothing meets your search criteria, you may be able to set up alerts to get notified when a vehicle that fits your needs becomes available.

These national services may reflect used car inventory at dealerships in your area, but you may want to check local dealers' own websites as well, since some may post their newest acquisitions there before they publish to the national services.

Know What You're Buying

Whether you're shopping online or in-person, it can be difficult to fully assess a vehicle's condition through casual visual inspection. Even an expert mechanic may not be able to spot some kinds of frame damage or hidden mold spawned when a vehicle was flooded. A vehicle history report such as those offered by AutoCheck and similar services can uncover those issues as well as past accidents and repairs.

In addition, whenever you're considering a used car purchase, it's a good idea to have an independent mechanic inspect the vehicle to flag any mechanical matters that may need attention. Some online outlets allow you to return a purchase for any reason within a set time period (a week or so), so you can use that time for an inspection, but If you're searching over a wide geographic area or just don't have a relationship with a mechanic, there are also several services available that will inspect a used car anywhere for a fee. AiM Mobile Inspections, Carchex, and LemonSquad all offer remote inspections for fees starting at less than $170; some offer premium services that also include a vehicle-history report and extended warranty coverage on vehicles that pass their inspection.

If an inspection reveals any issues, get a price estimate on what they would cost to fix and, depending on their cost and urgency, consider negotiating the price accordingly. If the problems are too severe, walk away from the sale.

Finalize the Deal

Once you've identified a model and price with an online dealer, you'll need to figure out a way to get your hands on the vehicle. Some services deliver it to your door, and others require you to come pick it up yourself at a dealership.

The dealer will need to supply details about the vehicle (vehicle identification number, mileage certification, etc.) to your auto finance company before a loan can be finalized, and you'll need to show proof of an auto insurance policy that meets your state's minimum coverage requirements before you can take possession of the vehicle. These steps can be completed remotely, but it may be easier to handle them in-person with the seller.

For some peace of mind, you can choose to take a drive in a vehicle yourself before you agree to a final sale. This is even an option with some vehicle delivery services.

Also, make sure you understand the seller's policy on vehicle returns and get it in writing. Carvana and CarMax both offer seven-day returns on vehicles purchased through them. If you're buying in Hawaii, Massachusetts, Minnesota, New Jersey, New York or Rhode Island, state "lemon laws" entitle you to get your money back under certain circumstances if you return a used vehicle within 60 days (Minnesota and Rhode Island) or 90 days.

Shopping for a used car online is a great way to check out a lot of vehicles in a short amount of time, without having to inspect lots of vehicles you don't want. As with any used car purchase, buying online requires some due diligence and may also demand some patience. If you get your financing options organized ahead of time, and know what you're looking for, you may be able to get a great deal without breaking your budget.