How Much to Spend for a Used Car

In the market for a used car and wondering how much money to spend? The answer depends on whether you are looking for reliable transportation or want to get a good deal on a low-mileage, late-model beauty.

Basic Transportation

Basic transportation is a car that is safe and runs well. This car is usually an older model that has been well maintained. The lowest price you can expect to pay for a reliable car is about $2,500. The price range for basic transportation is $2,500 up to about $5,000. These cars always are cash purchases.
There is no "blue book" value for basic transportation cars. You must judge the vehicle on its condition and mechanical soundness. You should be able to tell if the car has been well cared for by how clean it is and by a lack of damage inside and out. If you are not mechanically astute, take the car to a mechanic you trust and have him check it out.

Buying for Cash

Used car purchases from private parties are usually done for cash. You may be able to find a car, put down a deposit and then go get a loan from your bank, but this is a difficult path to take. Cash is king when negotiating with a private seller.
The value of most used cars can be determined online through Kelley Blue Book, Edmunds or the Nada Guides. When using these websites, you will want to look up two prices for the car you want to buy. The first price is average trade-in value. This is the amount of money the seller could get from any dealer in town and is the minimum she will accept for the car. The second price to find is the private party price. This is the average transaction price between private parties. You should negotiate for a price between these two values. Remember that after you buy the car, you will need additional cash to pay for registration and sales tax.

Financing your used car

To purchase a used car with financing and monthly payments, the best option is a new car dealership. New car dealerships only keep the best trade-ins for their used car inventory and have access to competitive financing programs. A dealer will usually purchase a car for the trade-in value and then spend money on cleaning and a mechanical check out.
The online used car guides will help you find the appropriate value for the car. Ignore the average retail price and start negotiating from the average trade-in value. Depending on how the dealer views his position in the car, you should be able to purchase it for $500 to $1,500 over the blue book trade in value. If not, look for a different car.
To calculate the price of a car to fit your budget, multiply the monthly payment you can afford times 35, then add the amount of cash you have for a down payment. For example, if you have $1,500 for a down payment and can afford $200 per month, you want a car that costs about $8,500. This calculation factors in sales tax, registration and a typical 48-month used car loan.