If you are considering downsizing your vehicles now that you’re no longer the kid’s personal taxi service, a good quality second hand car is a great option. However, getting the best value (or best car) for your money does require some work, and research. What do you need to consider, and why?
Age and Depreciation
Like everything, cars depreciate in value. In fact, they start losing value the second they leave the car yard. Luxury cars and high-end brands tend to lose it faster than economy brands.
What is the sweet spot for purchasing a used car?
A ‘sweet spot’ in relation to buying a used car means finding one that gives you the best combination of:
- Low depreciation.
- Affordability
- Reliability; and
- Modern features
For most makes and models of used cars, this is around 3 – 5 years old. By the time a car is this old, it’s already depreciated by 30 – 50%. However, they are still ‘young enough’ to provide 4 or 5 years of good value.
Most vehicle depreciation happens within the first 3 years after purchase from new. As a general rule, they lose ~10% when you drive them off the car lot and ~10% each year after that.
If you buy one that’s already past the initial value drop but still less than 3 years old, it will be at the lower end of this depreciation scale (around 30%). And should retain good value for at least the next 3 to 4 years.
Cars that are a little bit older – in that sweet spot of 3 to 5 years – have depreciated a bit more and will be closer to 50% in terms of depreciation. However, they are also more affordable. If they’ve been well maintained, had all their ‘new car’ services as and when recommended by the manufacturer, and have service logs to verify this, they should also be reliable.
And, even though vehicle technology is moving at a fast rate of knots, a car that is 3 – 5 years old is still comparatively modern when it comes to technology and safety features.
Running Costs
Always factor in the running costs of any used car you are considering, especially if it’s going to be your main drive, and will be clocking up a few kilometres. It may even pay to consider an EV, or hybrid.
Here are a few of the things to think about.
Fuel Efficiency:
With the cost of fuel being what it is, you want a vehicle that is big on fuel efficiency and low on running costs. Most small, light, modern cars are. Their manufacturers have emission targets they have to meet if they want to sell their cars into overseas markets with emissions standards. This will include Australia from January 1st 2025!
Maintenance:
If the car has been maintained and serviced in accordance with the manufacturer’s specifications, there should be a logbook with the vehicle verifying this. Check it.
Make a note of what was done at each service and whether there was anything out of the ordinary. This will give you some clues about potential issues the vehicle may have. Even almost new cars have their faults, and there’s usually at least one dud in every range. Make sure you aren’t buying that ‘one’.
Some brands have a better reputation for reliability and low maintenance costs than others. This is often because they, and their spare parts, are mass produced and readily available.
Other brands, notably those with a more niche product, have a reputation for being expensive to maintain because they aren’t mass-produced, and nor are their spare parts. Do your research.
Cheap To Run / Expensive To Maintain: A Deal Breaker?
Beware, or be aware, that good fuel efficiency can come with higher maintenance costs. This is because the technology used to achieve that fuel efficiency often requires engine modifications. That in turn pushes up maintenance costs because it requires a) specialist training and b) specialist parts. Specialist unfortunately usually means ‘expensive’.
Ultimately, if a vehicle costs more to maintain and service than what it saves in fuel efficiency, that’s probably going to be a deal breaker for many people.
Insurance:
Get insurance quotes for the models that make your shortlist. Generally, cars with lower market value and good safety records have lower insurance premiums.
Safety Features
Modern cars come with a host of safety features – ABS, airbags, advanced driver assistance systems (ADAS – lane departure warning and autonomous emergency braking), stability control etc.
Also check the model’s ANCAP (Australasian New Car Assessment Program) safety rating. Ideally, you want a car with a 4 or 5-star rating as this ensures it meets the highest possible independent crash tests and safety assessments.
Features
If technology matters to you, make sure the car has up-to-date technology such as Bluetooth, navigation systems, and infotainment systems. These are standard in most modern vehicles today.
Other features to consider are climate control, comfortable seats, and plenty of room.
Which Type of Vehicle Should You Consider?
Not all vehicles are created equal when it comes to running costs, and depreciation rate.
Sedans and Hatchbacks:
These vehicles are usually cheaper and more efficient to run, and have the lowest depreciation rates. They’re also cheaper to insure, and popular makes and models will be cost efficient to maintain.
SUVs and 4WDs:
If plenty of room and off-road capability is high on your list of must-haves, you’ll probably be looking at SUVs and 4WDs. These are bigger vehicles so offer more space inside and obviously that 4WD capability.
However, they do tend to be less fuel efficient, and have higher depreciation rates. Conversely, so long as they’re a well known, popular model (Toyota, Mazda etc) they should be relatively cost effective to maintain with plenty of available spare parts.
Utes:
Utes are popular because they’re versatile and utilitarian, especially if you have a bit of acreage or livestock (they’re probably almost a must-have in those circumstances). They also hold their value well. But, again, with the exception of a few brands, they are more expensive to run than smaller cars. Popular models will be cheaper to maintain than less popular ones too.
Dealer vs. Private Sale
Is it better to buy from a dealer, or a private owner?
From A Dealer:
Dealers can be more expensive but this is often because their vehicles come with benefits like:
- A statutory warranty for cars over a certain price ($4000 in WA), and under a certain age and mileage. In WA, both age and mileage affect the type of warranty that applies.
- Better consumer protection; and
- Financing options.
A dealer may also have a certified pre-owned program, which includes extended warranties and thorough pre-sale inspections.
By Private Sale:
Buying from a private owner is generally cheaper but comes with a lot more risks. The onus is completely on you to handle the due diligence yourself. If you don’t do a thorough job of it, you could wind up buying a lemon.
There are no statutory warranties with private sales so if something goes wrong with the vehicle after you’ve bought it, fixing it will be at your expense.
If you do want to pursue a private sale, take someone ‘mechanical’ with you. They will be able to spot obvious problems.
Verify the vehicle’s history, and have it inspected. The RAC have an inspection service.
Getting the Vehicle Checked
- If you’re buying through a dealer, make sure the vehicle has been professionally inspected. If buying privately, it’s wise to arrange to have it checked yourself by a professional mechanic or inspection service.
- Check the vehicle’s history. Get a Personal Property Securities Register (PPSR) check done to verify there aren’t any outstanding finances owing on it, that it’s not been written off through an insurance claim, or reported as stolen.
- Test-drive the vehicle on as many road conditions as possible so you can get a feel for its performance. Listen for unusual noises and check things like the braking, power steering, wheel balance and so on. If buying privately, this is where having someone with mechanical experience with you will come in handy.
Warranties
In WA, all used vehicles sold through a dealer that are over $4000, under 12 years old and/or have done less than 180,000 kms, must be sold with a statutory used car warranty.
An extended warranty can provide added peace of mind but check what it covers.
If the car is still fairly new, it is probably still covered by the original manufacturer’s warranty. Check that this is the case and if so, verify how much time is left, and what the warranty covers.
Additional Tips
Don’t be afraid to ‘haggle’, particularly if you’re buying privately. Sellers often list things for sale at higher prices than what they’re expecting to get because it gives them room to negotiate. Do some research first though to identify the average market value of similar cars so you have a good basis for negotiation.
Don’t forget to factor in the cost of transferring the vehicle into your name. This will attract motor vehicle duty (stamp duty), as well as transfer fees.
Final Thoughts
Buying a used car rather than a new one can be a smart financial decision. However, it does require some preparation and research. Think about the type of car you want. Check online reviews and customer feed back, and ask questions in forums and social groups set up for this purpose. And be aware that sometimes things like amazing fuel efficiency come with a trade off by way of more expensive maintenance costs.
