How to Buy a Great Used Car for Under $5,000

Friends Don’t Let Friends Get Ripped Off On Cars

A friend of mine was considering a used car, so they went around to several different used car lots. One in particular markets to people with low credit ratings, they show you a nice shiny looking car and quote a payment, and then push hard for the close. One car they were considering under bright lights was listed for $14,000, but the list Kelley Blue Book listed it for almost 1/3 of that.  The car was triple over-priced because they sell cars to people with really bad credit, who don’t have much money.  Usually lots like this sell to people who don’t have much car knowledge, and they are only looking for a monthly payment that they think they can afford.

I really hate it when people take advantage of people trying to get ahead financially, especially with cars. A bad car purchase sticks with people for years. An upside-down car loan is impossible to get rid of. Then you have auto repairs that people can’t afford with their high payments. Financial personality Dave Ramsey always recommends that people who are trying to get out of debt, accumulate savings, and be smart with their money to buy a good used car in the range of $5,000.  Here are the 11 most important things to consider when buying a used car.

  • Save $5,000. If you need a car now, will soon, or are selling a car with a high payment, you must scrimp and save up $5,000 first, that way you won’t have to borrow and you will not have a monthly payment.  Do whatever you have to do; work an extra job, sell stuff, watch every penny, and use tax refunds or bonuses.
  • Which car to buy?  First you must decide which car is the best in terms of being dependable and low cost to own.  The best car that fits this bill is 2001 – 2003 Toyota Camry or Honda Accord with less than 150,000 miles. Typically these are the most dependable mid-size cars that have ever been made. Camry’s are boring, so that helps to keep the price down, however they are big enough to haul for people with a decent size trunk. Plus they are plentiful, since more of them have been sold than other car. They are a little larger than a small car, so that helps with safety.  Gas mileage is good too, not great, but not terrible either. Only buy the 4 cylinder models because they get better gas mileage, and some Accord 6 cylinders had bad transmissions from that era. If you don’t care for these cars or want something other than a sedan, do your research. Spend a few hours at the library with note paper and several years of back issues of Consumer Reports. Also, examine the new and use car dependability ratings at J.D. Power.
  • Which car not to buy? Resist buying SUVs if you can because they get terrible gas mileage, cost more to purchase and the maintenance is higher than other cars. Many low income people can’t even afford to put new tires on them because they cost 2 to 3 times more per tire than small to mid size car tires. Secondly stay away from any car made in Europe, because they cost a lot more to repair, and stay away from most luxury brands for the same reason. Some low income and people in poverty are attracted to SUVs, luxury and European makes, but a neighbor of mine bought a Jaguar for a pretty good price, but it sits unused because she can’t afford the repairs to get it going again. I blogged about this before.
  • Take a big brother.  Don’t have a big brother, then maybe a father, mom, sister or friend, anyone that knows more about cars than you do. Take them with you to look at the car you are considering.
  • Buy from a private owner.  When you buy from an owner, you are not faced with the used car lot trying to make a big profit from the car. Secondly, you can hear the story about repairs, wrecks and maintenance and use your judgment about whether the person is being honest with you.  If the car is a one owner, that is even the better. Craigslist and the paper are typical places to find private owners, but take someone with you, for safety purposes. Ask your friends and relatives if they are planning to sell their cars. Be patient, I checked Cragislist almost every day for 6 weeks before I found the right car.
  • Look for little bar code stickers. If the car has been wrecked they will not be on the inside of all doors, trunks and hood- look for these, they are a telltale sign of the car being wrecked.
  • Thoroughly examine the car. Take it for a test drive, look under it, open all the doors, sunroof, and trunk as well as the all important engine compartment.  Listen for funny sounds, such as squeaks, rattles, and rubbing noises.  Take it for a test drive, without the radio on and the windows open and closed so that you can hear different sounds.  Sniff for smells on the inside (water damage?), and on the outside and engine compartment for burning: oil, transmission fluid and radiator fluid.  When you drive it see if there are any funky vibrations, transmission slippage/shifting, braking, suspension, or acceleration issues. Have someone stand behind the car when you start it or accelerate, and make note of any funky black or smoky tail pipe emissions or unusual smells. Crawl underneath it looking for overspray from body work, or anything abnormal. Look at the dip stick for the oil and transmission fluid for clarity and other signs such as liquids that should not be there. Same goes for the radiator fluid, and check out the overflow tank to see if it is dry (radiator leak somewhere?).  Ask them where they usually park it and look for leaks on the ground. The mechanic will do all of this and more, but you could save time first by doing these checks.
  • Ask about maintenance. I don’t care as much about mileage as I do if the car has been maintained regularly. Ask how often the oil has been changed and other regular tasks like the transmission fluid changed.  Also, pay particular attention to the timing belt. This belt and the water pump are usually changed after 80,000 miles (check the owner’s manual) and costs about $400 – $600 to do. Knowing this will help you negotiate a lower price.
  • Research. Look at the service records, order a CarFax report, and hire a mechanic to go over the car before you purchase. Obtain private seller cost estimate from Kelly Blue Book @ and Edmunds @
  • Plan to spend $250 – $1,000 when you purchase it. When I buy a used car, I find it usually needs some things. I bought a Camry recently, and it needed tires, a new headlight, couple of exhaust pieces, windshield, and replaced a filthy air filter. However the timing belt and water pump replacement, transmission service, and serpentine belts and water hoses had been replaced. By the time I paid for taxes and repairs, I spent an additional $1,000, but it didn’t bother me, since I found a one owner 2002 Camry with 159,000 miles for only $3,000. It is probably a good idea to replace windshield wipers and detail it out, you might find little things that need to be fixed- ours needed a simple low cost repair to one of the seat belts.
  • Maintenance.  You must pay closer attention to older cars with high mileage and make sure it it well maintained so that your new old car provides you with inexpensive transportation for many years to come.  Check out the owners manual, and establish regular intervals for transmission servicing, timing belt replacement, radiator flushing, air filter replacement, belts and hoses, tire rotation, and oil changes (to mention the most common ones).  I reccomend oil changes every 3,000 – 4,000 miles (maximum), even though cars these days recommend much higher intervals, since oils have gotten better. I find inexpensive oil change coupons for only $20 (versus $40 to $50 at regular cost) at Sears, through Groupon, ValPak, quick-lube places and some dealers several times a year. That is even cheaper than doing it myself. If you go to a quick-lube place, even though they inspect the car, I find those mechanics not always competent on more advanced things, so make sure a good mechanic also checks your car out from time-to-time, especially brakes, tires, and suspension parts.

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This sounds like a lot of work doesn’t it, is it worth it? Most people don’t have the patience to do all this research. However, here is something to think about. One of the most famous personal finance books of all time: The Millionaire Next Door, by Thomas Stanley and William Danko, says that people with a lot of wealth, spend dozens of hours researching the right make, model and year. Then they take weeks searching for the right car. Remember the opening paragraph, about how costly a car purchase can become if it is a bad buy? I’ve been there, and its painful. Take the time to do your research, it’s well worth it.