New cars lose a significant portion of their value the minute you drive them off the lot, and they cost more money. Anyone who opts to buy a new car can expect to pay an average of 10% above the sticker price, based on a recent iSeeCars analysis. That’s why many people choose to purchase a used car as a way to save money.

Buying a used car can bring challenges because you don’t receive a warranty on the vehicle. So it’s important to know what you should look for when shopping for a used car.

Factors to consider when shopping for a used car

Anytime you buy a used car, you want to choose your vehicle carefully. If you buy a used car without due diligence, you could end up spending more money than planned on maintenance costs. Extensive costs could eat up most of what you saved by buying the car used.

Before looking for a used vehicle, you should determine your budget and whether you have the funds to make a down payment. From there, you can start thinking about how you’ll finance the purchase and what factors you need to consider when looking at a used vehicle. Altogether, you should consider the following:

• Financials

• Where to buy a vehicle

• Vehicle history

• Exterior of the vehicle

• Check under the hood of the vehicle

• Interior of the vehicle

• Test drive

• Mechanic inspection

Check Out: Car Insurance Quotes for Used Cars

Financials

It’s essential to have your finances in place when shopping for a used vehicle. Set a price range for how much you’re willing to spend, and decide whether you’re looking to buy or lease a car.

Financing a vehicle

You have two main options when financing a car — you can borrow the money directly from a bank or apply for financing through a dealership.^[1] Both strategies have their advantages.

With direct financing, you know your credit terms, like your interest rate and loan terms, before shopping for a vehicle. Since you’re pre-approved to purchase the car, it’ll be easier for you to comparison shop among several different car dealers.

If you finance a car through the dealership, you’ll receive multiple financing options through the dealer’s lending network. You may even qualify for special incentive programs if you have a good credit score.

Applying for a loan or leasing a vehicle

When you apply for an auto loan, your lender will present you with a proposed annual percentage rate — the interest rate and fees for financing the loan. If you’re unhappy with your proposed APR, you can shop around and see what other lenders offer you.

Once you’ve found loan terms you’re happy with, you’ll close on the loan. Before closing, make sure you understand and agree to the written disclosures your lender provides you with. You can request that your lender send them to you in advance so you have time to review them.

If you prefer to lease a vehicle, you’ll make monthly payments for a predetermined period of time. Once the time is up, you’ll either buy out your lease or start over with a new car.

Similar to when you finance a vehicle, your lender may ask for a down payment and check your credit score when you apply for a lease. You’ll receive your leasing options, and if you agree to them, you’ll finalize the leasing agreement.

Getting auto insurance when buying a used car

You’ll need to purchase auto insurance after buying a used car — your state’s minimum liability coverage at the very least. If you take out a car loan, your lender may require you to purchase full coverage.

Fortunately, used cars typically cost less to insure than new cars, with an average insurance cost of $135 per month. But your age, credit score, and driving history all affect how much you pay for car insurance.

See More: 10 Best and Worst Car Insurance Comparison Sites

Where to buy a vehicle

Many people buy used vehicles at car dealerships. Car dealers often feature late-model vehicles that are either still under the original warranty or are certified pre-owned with an extended warranty.^[2]

An auto superstore like CarMax allows you to choose from more inventory. Services like Vroom and Carvana offer a completely online process and deliver the vehicle to you.

Private owners also sell used cars. This may be a less expensive option since an individual may charge less than a dealership. But you have less recourse if the car ends up having problems or needing a lot of repairs.

Vehicle history

A vehicle history report tells you what has happened to the car up until now, including who the previous owners were, any work that’s been done on the vehicle, and whether the car was involved in any accidents. These reports help you make a more informed decision when buying a car, but a vehicle inspection is also needed to determine the overall vehicle condition and wear and tear.

Some dealerships and online marketplaces offer vehicle history reports for free. If you need to purchase one, they typically cost between $25 and $40.

Check Out: Worst Used Cars to Buy: Guide to Buying a Used Car

Mileage

You should consider a vehicle’s mileage when purchasing a used car. Most experts agree you should aim for around 12,000 miles driven for each year of ownership. So if you’re buying a 3-year-old vehicle, 36,000 miles is a good mileage to look for.

Exterior of the vehicle

You should always do a thorough inspection before buying a car. Request that the vehicle isn’t driven for at least an hour before your inspection, and do the inspection during the daytime so you won’t miss any dents or problems with the car.

Paint

The paint color should be the same across every panel. Look for chips or scratches in the paint. Exterior paint doesn’t just make the car look nice — it protects the vehicle from rust. Even minor paint chips expose the bare metal underneath, which can cause rust to form.

Frame

Look at the vehicle’s frame to see if there are any gaps or misaligned areas indicating a poor repair job. Check for scratches, dents, and rust here as well.

Rust on the vehicle frame presents a safety issue because it compromises the vehicle’s structure and could make the car less safe in an accident.

Tires

When you’re inspecting the tires, check to ensure that all four are the same. If they differ, inquire why they were replaced to root out potential red flags if a relatively new car has brand-new tires.

Ask the seller if the tires have been regularly rotated. Tires that aren’t routinely rotated may have an uneven tread. 

Check if the treadwear is even across the width of the tread. Heavy wear on the outside of the tires could indicate the previous owner was an aggressive driver.

Under the vehicle

If you’re able, slide underneath the car and use a flashlight to look for signs of leaks, as well as kinks or dents in the structure that indicate a previous accident. Checking the ground where the vehicle was parked to look for puddles of leaking gasoline or transmission fluid is also worthwhile. You may want to have a mechanic do a more thorough check.

Glass

Check the windshield and windows for chips and cracks in the glass. Cracks in the windshield often spread, get worse over time, and can be costly to fix. Even if you still choose to buy the vehicle, you can use this as leverage during negotiations with the seller.

Learn More: Guide to Buying a Car Out of State: Considerations, Recommendations

Check under the hood of the vehicle

Once the engine has cooled, look under the hood to inspect the general condition of the engine. Dirt and dust are normal, but be on the lookout for oil splatters, signs of corrosion, or loose wires.

Oil

When you check the vehicle’s fluid levels, check the color of the engine oil. If it’s amber, that means it was recently changed. If the oil is darker, this could indicate contamination or the presence of additives.

Hoses and belts

If one of the hoses or belts fails, the engine can overheat, causing serious damage and expensive repairs. The hoses should be firm but not rock-hard, without any cracks. And the belts shouldn’t be frayed, split, glazed, or slick.

Radiator

As part of the engine’s cooling system, the radiator helps eliminate excess heat from the engine. The radiator has three main parts — the core, the pressure cap, and the outlet and inlet tanks.^[3]

Your car is at a higher risk of overheating if the radiator is low on coolant or one of the hoses is leaking. Check to make sure the coolant isn’t a rusty color, and watch out for greenish stains on the outside of the radiator — a sign of leaks.

Interior of the vehicle

You’ll spend a lot of time inside the car, so you want to ensure it works properly. These are the main factors you’ll want to look for in the car’s interior.

Radio and electronics

Try out the AM, FM, and satellite radio to make sure they work correctly. If the car has a CD player, make sure it’s still in good working order. If you have your smartphone with you, see if it will pair with the car via Bluetooth.

Upholstery

Try out all the seats in the car and make sure the upholstery isn’t ripped, overly worn, or stained. Damaged upholstery lowers the value of the car, and it’s a red flag if the car is brand-new.

Even if the upholstery is fine, consider whether it’ll fit your lifestyle and preferences. For example, leather looks nicer and cleans easier but tends to be more expensive. Cloth is harder to clean but can be a better choice for anyone living in extremely hot or cold climates.

Odor

When you inspect the car’s interior and trunk, check for any suspicious odors. A musty or moldy smell could indicate previous water damage.

If the car smells like smoke, the previous owner was likely a smoker. The smell of smoke is difficult to hide, and you may even find yellow-brown stains on the fabric.

Power windows

Most cars have power windows that can be raised and lowered at the press of a button. Check all four windows to ensure this feature works correctly. And if you have young kids, you may want to see if there’s a locking feature for the driver.

Read More: How to Return a Car You Can’t Afford

Test drive

Test-driving a vehicle helps you see if it’s in good working condition and determine whether the car is right for you.

Before driving the car, test out the interior features, like the seats, mirrors, and steering wheel. Is the vehicle comfortable to sit in, and do you have the visibility you need? How much leg room will your passengers have?

Once you start driving the car, listen for the noises it makes and how smooth the ride is on the road. At stoplights, make sure that the steering wheel isn’t vibrating and that the brakes don’t squeak. Try slowing down and then accelerating as you’re driving to see how the car performs.

Mechanic inspection

Finally, it’s a good idea to have the car inspected in all the ways we’ve outlined by a certified mechanic if your finances allow. A mechanic will spot potential issues that you might miss on your own.

Buying a used car FAQs