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How To Get A Bargain Buying A Repossessed Car

I recently did a report discussing the spike in auto repossessions.  Although the thrust of my report was how to resolve being behind on your auto loan payments, I did incidentally make mention of the incredible buying opportunities this auto repo explosion has created.  So, I have been inundated with the question, “How do I find repos for sale?”  Today’s blog is going to answer this question as well as address the issue of buying a used car in general.

1.  Where Are The Repos?

What we found in our research is that most repossessed vehicles end up at an auto auction.  These auctions are not open to the public, only licensed dealers can bid.  The reason that banks and finance companies dispose of their repos in this fashion is that they don’t want to deal with the public on a retail basis.  By selling at auction, they don’t have to set up a sales department or worry about people bringing back vehicles that have mechanical issues.  The bottom line; banks and finance companies generally do not want the headache involved with retailing vehicles directly.  This does not apply to all banks and finance companies, there are some (especially smaller banks) that do sell their repos to the public.  You might find them by making calls to several banks in your area as well as keeping an eye on your local newspaper for announcements of public auctions.  The reality is that most repos ultimately end up at used car dealerships as part of their regular inventory.  Does this mean you can’t get a repo bargain?  Absolutely not.  The law of supply and demand is going keep depressing the prices on used cars.  If a dealer pays less at auction, they will likely sell that car for less once it reaches their lot.  Now is a great time to start looking for a bargain price on a used car (whether it is a repo or not).  I would comparison shop your local used car dealers, as well as cars being sold in the newspaper and online to find the best deal.

Popular Websites For Used Car Shopping

One interesting question I wanted the answer to, was what a person must do to become a licensed auto dealer and gain access to the auctions.  I have heard of some people getting into the auction through friends that were licensed dealers.  If you don’t happen to have a friend that has a dealer’s license, how can you get in?  In Florida, becoming an auto dealer is pretty involved.  You have to pay several hundred dollars to become licensed, you must obtain a $25,000 bond, and meet a host of other requirements.  After reviewing what was involved, I was quickly convinced that becoming a dealer to buy one or two family cars at a discount was not a reasonable idea for someone here in Florida.  This may not be the case in your own state and may be worth checking into.

2.  Risks Involved In Buying A Used Car

Obviously, purchasing a used vehicle brings with it the potential nightmare scenario of it immediately having a major mechanical failure.  Replacing an engine or a transmission can easily cost $2,000 to $3,000.  There are many other moderate mechanical failures that can cost hundreds of dollars.  These would include the failure of a water pump, air conditioner, starter, alternator, or a major electrical system failure.  So what is a person to do?  First, you can pay a mechanic to evaluate a used vehicle before you purchase it.  A good mechanic will be able to quickly determine whether or not the vehicle appears to have enjoyed good maintenance or not.  Additionally, they will be able to pick up on any obvious issues with the engine, transmission, or other major components of the vehicle.  This is not a guarantee that there will not be unforeseen problems that were simply undetectable.  You should be aware that most used cars are sold as is, and the moment you drive off the lot you likely have little recourse.  If you can prove that the dealer knew of an issue with the vehicle and did not disclose it you may have some legal options (but that is very difficult to prove).  Many reputable used car dealers will offer a very limited warranty of 30 to 60 days to give you a few weeks to uncover any major problems that were not apparent at the time of purchase.  

Remember, the idea behind buying a used car and paying cash or only financing it for a year or two is that we are going to save tens of thousands of dollars compared to buying a new car.  Part of this savings has to be earmarked for maintenance and repairs.  Although it would be very unlikely, even if you had to put $150 to $200 per month into repairs, you are still far better off than buying new.  I have said this in my seminars and had entire audiences look at me as if I have lost my mind.  This is a form of Jedi Mind Control that has been used effectively by U.S. auto manufacturers (pardon my Star Wars reference).  Most people don’t sit down and do a pencil and paper analysis on the modest cost of repairs compared to a hefty monthly payment.  

Consider this scenario:

New Car $30,000

Financed at 8% for 5 years

Monthly payment $608

Total of all payments $36,480

If you buy used and pay cash, you will not have a monthly payment.  This means that you are saving somewhere between $400 and $700 per month.  A portion of this has to be considered your maintenance and repair fund.  Many people become disillusioned when they buy a used car, save no money for repairs, and end up being hit with a $500 or $1,000 repair bill.  If you go into your used car decision expecting a couple of hundred dollars per month in repairs, you won’t be surprised.  I know this is a completely foreign concept to most people, but you are not going to end up financially secure following the crowd.  The fact that everyone in your neighborhood buys a new car every two to three years is not any reason that you should make the same bad decision.  Believe me the idea that we should buy a new car every two or three years is an American creation.  In Europe, the average age of a car on the road is 8 years old.  In some European countries, the average age of cars on the road is as high as 14 years old!  Cars that are 4, 5, or even 6 years old are consider newer vehicles in Europe.

Back on the subject of repos, it should be noted that many of them tend to be poorly maintained.  I imagine it is for the same reason that foreclosed houses are completely trashed by the prior owners.  For some reason, there are some people that feel better about losing their home or car if they get a chance to return it in sub par condition to the bank.  A necessary tool in checking out a car before you buy it is a vehicle history report.

From the CarFax Website:

Every CARFAX Report contains information that can impact a consumer's decision about a used vehicle. Some types of information that a CARFAX Report may include are:

  • Title information, including salvaged or junked titles
  • Flood damage history
  • Total loss accident history
  • Odometer readings
  • Lemon history
  • Number of owners
  • Accident indicators, such as airbag deployments
  • State emissions inspection results
  • Service records
  • Vehicle use (taxi, rental, lease, etc.)

Popular Websites That Offer Vehicle History Reports

3.  Buying A Warranty

Perhaps a middle ground answer for those that just can’t buy a used car because it does not come with a warranty, is to purchase one.  I have not had very good personal experience with after market vehicle warranties.  I fall more into the school of saying no to add-on warranties and set aside the money to cover my own risk.  This is not just with vehicles, but with virtually everything I purchase.  Even small electronics costing under $100 have associated warranty plans that are being pushed by retailers.  My personal brand of consumerism does not include the purchase of these warranties.  Warranties are difficult to collect on and are costly.  If you need to buy one to be able to sleep at night, go ahead.  You will still be better off buying a used vehicle and paying for a warranty, compared to the cost of buying a new car that includes one.

Websites Offering Vehicle Warranties

4.  How Much Should You Pay?

This is probably the toughest question of all.  I can give you the standard answer of checking the value of a used car in the Kelley Blue Book.  A better answer is to simply comparison shop between dealers.  Kelley Blue Book values tend to be on the high side since they represent retail price, which is more than likely the higher side of the price range that a car may be sold for. If you use a few online sites, your local newspaper, and a little shoe leather, you should be able to zero in on the true market value of a make and model you are considering.  Be sure you are comparing apples to apples.  You should be comparing models of similar age, features, and mileage to make sure you are doing a fair analysis.  It is also very useful to check with Consumer Reports and other sites that have vehicle reviews to get an idea of the historic reliablity of a particular make and model.  Most people only check these auto reviews when buying new, I suggest that they are great tools when buying used and perhaps even more important to the used car buyer than the new car buyer. 

Helping you make the most of God’s money!

James L. Paris
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