How to buy a used car

BE CONSERVATIVE: CONSIDER ALL PRESENT AND FUTURE COSTS

You do not want a vehicle you can’t afford to fix, or to default on a payment.

When considering finance, look at the interest rate (including all administration fees) and repayment period. A lower interest rate is better, but so is a shorter loan as it means less interest paid over the loan’s life.

Also, consider all other associated costs such as regular maintenance and insurance. And always be conservative in your budget.

Choosing make and model

Draw up a shortlist of suitable and desired cars. Do your homework. Familiarise yourself with these vehicles and their reputations. Read reviews and learn average prices. Search forums for common problems. Research maintenance. Learn the price of commonly replaced parts and what a typical service will cost without a maintenance plan. Consider your location and whether you have easy access to a service centre or parts.

Evaluating a vehicle

The ideal vehicle is one to two years old. These are usually still under warranty and represent good value for money.

If a later model isn’t within the budget, properly vet vehicles you consider. Get a full service history, and run through these checks, looking for signs of serious damage:

The windscreen for chips and cracks; That the engine starts easily; Tyre, rim, exhaust condition; That all electronics work, including instrument panels; and

Under the boot for signs of rearend damage.

Signs of any major repair work should be a serious warning sign. List any worn parts to calculate how much you would have to pay to restore the vehicle.

Once the vehicle has passed the “yard test”, check that it drives quietly, gears shift easily and brakes work smoothly on the road. If possible, test the vehicle on a highway and on quieter roads, where you can turn the vehicle in slow tight circles as you listen for noisy CV joints.

Finance

Your access to finance depends on: The vehicle’s age; Whether you have a mortgage; Whether you’re buying from a dealer or private seller; and Your credit score.

Mortgages

Used correctly, a mortgage is the best way to finance a vehicle. The interest rate is mostly lower than that of most vehicle loans. A loan’s term plays a big part in its overall cost.

Car loan

This is a good option for someone buying from a dealer. They’re typically only given for cars younger than 60 months. A deposit will notably reduce the loan’s cost.

Some banks will give loans for vehicles from private sellers, but they are typically harder to qualify for and usually involve higher interest rates.

Some banks will give personal loans for vehicles from private sellers, but they are typically harder to qualify for.

Shirley Smith Chief operating officer at Old Mutual Finance

Personal loan

If you buy an older car from a dealership, or a privately owned vehicle that does not qualify for a car loan, your only option is to apply for a personal loan, then pay cash.

As they’re unsecured, loans usually involve higher interest rates due to the extra risk. Thus, they can be expensive if not structured well. Go with as short a term as possible to reduce the amount of interest incurred.

Shirley Smith is COO at Old Mutual Finance. This was first published on Old Mutual Finance’s blog.