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How to Buy a Used Car on a Budget

In this article

  1. Used car buying guide: 7 tips for buying a used car
  2. FAQs
  3. Buying used cars the right way

Not sure how to buy a used car on a budget? We've compiled 7 tips – like setting a budget, knowing when to buy, & getting a vehicle history report – to help.

Timothy Moore • February 27, 2023

New car prices have reached all-time highs in recent years amid rising inflation and an ongoing supply chain shortage. For many drivers, used cars became the most affordable option.

Even so, used cars weren’t all that cheap. J.P. Morgan Research found in the years following the pandemic, used car prices climbed by 42.5% before topping out.1 In short, it has been a bad time to need a new set of wheels.

Until now.

While new car prices are still hovering above the manufacturer’s suggested retail price (MSRP), J.P. Morgan expects used car prices to drop 10% to 20% soon.2

Used car prices might not reach their pre-pandemic levels, but you can still find a good deal on a used vehicle if you know what you’re doing. We’ve put together seven tips for buying a used car on a budget to help you.

Ready to save up for a down payment on a used car? Sign up for Chime and open a high-yield savings account to take advantage of Automatic Savings features.

Used car buying guide: 7 tips for buying a used car

Buying used is a great way to save money on a car, but you must do your homework to ensure the vehicle you’re buying is worth the cost. Here’s how to buy a used car on a budget – and ensure the car’s in it for the long haul.

1. Set a realistic budget

Before anything else, calculate how much you can afford to spend on a used car.

That means saving for a down payment and estimating how big of a monthly car payment you can afford. It also means making room in your budget for fuel costs, routine maintenance, and car insurance.

You can use an online calculator to estimate what type of car you can afford based on your income and expenses. But online resources aren’t perfect. Use them to guide your decisions, but never spend more than you’re comfortable with, even if a calculator says you can afford to.

Here are a few tips for setting your budget:

  • Start saving now: Use a high-yield savings account to save for a down payment. The larger the down payment, the lower your monthly payments will be.
  • Get pre-approved for a loan: You can explore your loan options online and may be able to apply for pre-approval without hurting your credit score. Pre-approval can help you understand how much interest you’ll likely pay over the life of the loan. Check out our guide on pre-approval vs. pre-qualified to learn more.
  • Pay cash: Don’t want to worry about financing? If you’re in no rush for a new daily driver, save enough money to pay cash for a used car.
  • Don’t forget other expenses: When reviewing your monthly budget, leave some wiggle room for additional costs associated with buying a car. For example, used cars will likely need more maintenance and repair work over time – make sure your budget includes those costs.

Pro Tip: If you choose a shorter loan term (like three years instead of five), you’ll pay less in interest over the life of the loan. But that also means your monthly payments will be higher. Decide whether your budget can handle higher payments before choosing a shorter term.

2. Research online

Shopping for a used car should start online, but not on dealership websites or used car marketplace sites.

Instead, check out sites like Kelley Blue Book (KBB) and Edmunds, which often rank the best used cars under $20,000, $10,000, or even $5,000. These websites can give you an idea of the best cars within your price range.

You can also use data from J.D. Power Vehicle Dependability studies, which measure cars’ reliability over their first three years. KBB’s 5-Year Cost to Own ratings can also give you an idea of models that typically require less car maintenance.

After you have an idea of the best used car for your budget, you can start looking for used cars from dealers and private sellers.

3. Buy at the right time

If you’re shopping for a used car because your old vehicle was totaled in an accident or is too unreliable to drive safely, you don’t get much say when buying a used car. You’ve got to buy it now.

But if time is on your side, wait for one of the better times to buy a used car – when dealers run promotions and are more motivated to make a sale.

So when’s the best time to buy a used car?

  • At the end: Salespeople are trying to hit their quotas at the end of the month, quarter, and year. They may be more motivated to haggle and make a deal, giving you more negotiating power.
  • Around certain holidays: Many car dealerships run promotions during certain holidays, including Memorial Day, Labor Day, and Black Friday.
  • In the winter: Winter is generally less busy for car dealerships. Who wants to test drive in the cold? That makes it an excellent time to head to the dealership and find a good deal.

Note: These tips don’t apply to private sellers.

4. Know where to shop

You can usually get a better deal when you buy a car privately. Individual sellers don’t have the overhead of a dealership and used car lot, meaning their prices are typically lower.3 Individuals aren’t trained salespeople, so they’re less likely to (successfully) out-negotiate you.

But there’s more risk involved when buying privately. Independent sellers don’t have a website of reviews to back them up, so you don’t know whom you’re dealing with.

It’s easy to research dealers. You can read reviews before deciding to do business with one, and dealerships shouldn’t try to offload a bad car on you intentionally – they’ve got a reputation to uphold.

Used cars at a dealership may also come with a warranty, and you can test drive multiple vehicles on the lot before making a decision.

The downside? Buying a used car from a dealership is usually more expensive.

5. Get the vehicle history report

vehicle history report is essential when deciding whether to buy a specific used car. The report includes several details that can help you make a decision, like:

  • How many previous drivers the car had
  • Past accidents (if there was a police report or insurance claim) and repair work
  • Flood damage
  • Odometer readings
  • Inspection history
  • Open recalls
  • Past usage (was it a rental or leased car, for example)

These details can help you determine if the car is worth the cost. If you don’t like something on the report, you can walk away from the sale or negotiate a lower price.

Some dealerships will offer a vehicle history report to potential buyers free of charge. If the dealer doesn’t offer the report or you’re buying privately, consider spending the extra $25 to $40 to get a report.4 It may stop you from making a bad deal.

6. Consider certified pre-owned

Certified pre-owned (CPO) cars are more expensive than other used cars, but they’re worth the cost for some drivers.

Each automaker’s CPO program varies, but typically there are strict requirements for a used car to be certified – usually, it must pass a multi-point inspection and be below a certain mileage threshold.

In addition, buyers usually receive a vehicle history report for free, and CPO vehicles come with a limited warranty.

The point of CPO is to instill more confidence that a used car is in good condition and might have fewer mechanical issues.

But nothing is guaranteed when buying a used car, CPO or not.

7. Test drive it to a trusted mechanic

You should always test drive a car before buying it, especially when buying used.

But don’t just take it for a spin around the block. Go to a mechanic you trust – whether from experience or online reviews – and pay to have them inspect it.

While you can do your own inspection, like looking for rust on the body or listening for weird noises when driving, a mechanic can spot potential problems you might not know to look for.

Ask the mechanic to list any repair work the car would need to run smoothly and how much it would cost.

You can then determine if the car is still worth the price. If not, use the information to negotiate the price or walk away from the sale.

FAQs

What is the best method to pay for a used car?

If you can afford to pay for a used car out of pocket, it might be the best option, as you won’t have to worry about monthly payments, interest, or even a hard inquiry on your credit report.

However, if you don’t want to drain your savings or don’t have enough to pay for the car in full, you can shop around to get a good deal on a car loan. Some used car dealerships may help you find a lender.

How many miles is good for a used car?

Generally, a used car with less than 100,000 miles is a good option, but in recent years, vehicle technology has improved – and cars may last much longer.

Consider more than miles when buying a used car. Get the vehicle history report, take it for a test drive, and pay a mechanic to inspect it thoroughly before purchasing.

What credit score is needed to buy a used car?

According to Experian, there is no minimum credit score to buy a car, as it varies by lender. Even drivers with bad credit can qualify for car loans with specific lenders. They’ll just pay a lot more in interest.

To qualify for a conventional car loan with a lower interest rate, aim for a 661 credit score or higher.

If you’re working on improving your credit score, consider waiting until it’s in better shape before buying a car. Doing so may save you a lot of money on interest.

Looking to whip your credit score into shape? Open a Chime Credit Builder Secured Visa® Credit Card.5 On average, Chime members see a 30-point boost in their credit score after eight months of using the Credit Builder card.6

What is the rule of thumb for buying a used car?

Some finance experts recommend following the 20/4/10 rule when buying a used car.7 This rule entails that you:

  • Pay 20% of the cost as a down payment
  • Finance the remaining 80% with a loan that is four years or less
  • Keep all transportation costs (car payment, insurance, gas, maintenance, etc.) at 10% or less of your monthly budget

For some buyers, this makes it easy to set a budget – but remember that each situation is unique, and this rule may not always apply.

What to avoid when buying a used car?

Avoid models with visible rust, mismatched exterior paint, flood damage, or extremely high miles when buying a used car. If the vehicle identification number (VIN) doesn’t match the title, the car is under recall, or the seller is pushy or gives you bad vibes, walk away.

Buying used cars the right way

Buying a used car can be a smart financial decision. Just take the time to set a budget, do your research, and thoroughly inspect any vehicle you’re considering – and know when to walk away from the sale.

Still in the research phase? If record-high gas prices turn you off, consider buying a used electric car instead. Read our breakdown of gas vs. electric cars before deciding.

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1 Information from J.P. Morgan's “Inflation and the Auto Industry: When Will Car Prices Drop?" as of Feb. 3, 2023: https://www.jpmorgan.com/insights/research/when-will-car-prices-drop

2 Information from J.P. Morgan's “Inflation and the Auto Industry: When Will Car Prices Drop?" as of Feb. 3, 2023: https://www.jpmorgan.com/insights/research/when-will-car-prices-drop

3 Information from Edmunds' "Where's the Best Place to Buy a Used Car?" as of Feb. 15, 2023: https://www.edmunds.com/car-buying/wheres-the-best-place-to-buy-a-used-car.html

4 Information from KBB's "Vehicle History Report" as of Feb. 15, 2023: https://www.kbb.com/car-advice/vehicle-history-report/

5 To be eligible to apply for Credit Builder, you need to have received a single qualifying direct deposit of $200 or more to your Checking Account. The qualifying direct deposit must be from your employer, payroll provider, gig economy payer, or benefits payer by Automated Clearing House (ACH) deposit. Bank ACH transfers, Pay Anyone transfers, verification or trial deposits from financial institutions, peer to peer transfers from services such as PayPal, Cash App, or Venmo, mobile check deposits, cash loads or deposits, one-time deposits, such as tax refunds and other similar transactions, and any deposit to which Chime deems to not be a qualifying direct deposit are not qualifying direct deposits.

6 Based on a representative study conducted by Experian®, members who made their first purchase with Credit Builder between June 2020 and October 2020 observed an average FICO® Score increase of 30 points after approximately 8 months. On-time payment history can have a positive impact on your credit score. Late payment may negatively impact your credit score.

7 Information from Edmunds' "How Long Should a Car Loan Be?" as of Feb. 15, 2023: https://www.edmunds.com/car-loan/how-long-should-my-car-loan-be.html

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