What to look for when buying a used car?

What to look for when buying a used car?

I have been buying and selling used cars in Australia for almost 10 years now. There are several things that I see people often get caught without knowing. Often times it's because of simple misconception, at worse they fall victim to common scams in Australian used car market.

In this article I'm going to talk about those things and how you can avoid them! Hopefully by the end you'll be able to buy your next car that will last you long time without drama and nonsense.

1. RWC DOES NOT MEAN THE CAR IS GOOD

If there's one thing I'm happy to shout from the depth of my lung is that RWC does NOT mean that the car is good to buy or mechanically sounds. If there's one thing you can take away from this blog or entire website then this is it.

Roadworthy certificate (RWC), also known as pink slip in NSW, only purpose is to verifies that a car is safe and ready for the road.¹

It means in practical terms when you drive the car, the front won't fall off suddenly or the wheels will just come off and fly to unassuming pedestrians. It does not mean that the car is mechanically sound and good to buy. A car can be safe to be driven on the road but has no working engine for an extreme example. A car can be written off or still encumbered by finance even if it has RWC.

The number of times I have seen colleagues, friends, and even families fall to this misconception is astounding but frustrating at the same time. The worse is when shady dealers or sellers target international students or first car buyers, claiming that everything is all good in the world as the car has passed safety check, has gotten RWC or something along this line.

Next thing they know, the car turns out to have major mechanical issues such as transmission or engine problem. Unfortunately by the time the car has been known to be faulty, it's already too late and the dealers or the sellers are suddenly difficult to be contacted.

In order to verify that a used car is really good as in mechanically sound, I really recommend you to organise an independent inspection by a qualified mechanic that's not associated nor connected with the sellers, dealers or private. Usually your state auto association like RACV (VIC), RACQ (QLD), or RNMA (NSW) can help you with this task.

DO NOT, I repeat DO NOT take the seller words if they say their "mate the mechanic" has checked the car.

2. DO PPSR CHECK

Whether you're buying a car privately or from a dealer you need to absolutely do Personal Property Securities Register (PPSR) check. Checking PPSR, for example, directly from Australian government PPSR site from just $2 ensure that the car you're buying is free from any security interests, in other words, it's not financed by somebody else. AND, it's also NOT STOLEN or written-off.

The last thing you want when buying a used car, is for the banks to come knocking down your door to reposess your supposedly new car because the previous owner still has not settled their finance with them or has gone bust. Yes that can happen because when you're buying a car in Australia, your car can still have security interest that has to be settled.

Lastly another big issue you can discover with your potential car is that it has written-off entry. What it means is the car has been insured before, it has had damage either from crash or other factors e.g hails, and the insurer has deemed it's not economical to repair it because the damage is too heavy and significant that the repair cost exceeds the value of the car.

What it means to you is the car is pretty much broken. Hear me out, we can talk a lot about the different between repairable and non-repairable write-off, etc. But for all practical purpose, if it's been written off, stay away from it.

3. Hidden costs

When buying a used car many people often don't consider that there are many costs they need to pay sooner or later, in addition to the purchase price of the car. These ranges from the very basic costs that are well documented such as registration cost (rego), stamp duty and transfer fee, to the more unexpected one such as wear and tear items that are found after car purchase.

Let's face it, a used car is used. Often times they are sold at 3 or 5 years mark, corresponding to common leasing period or unsurprisingly factory warranty duration. There's a lot of reasons why people sell their cars after that period, but the main one is definitely cost consideration.

Although 3 or 5 years is certainly not an old age for modern cars, they are a common age for lots of consumables, that means tyres, breaks and fluids are going to be need replacing soon. On some cars, there are also a major service interval. That is why when you are buying used cars, you could be up for all of the above very soon.

For example my partner bought a used 2018 CX-5 that just came off its lease period. It was just 5 years old when she bought it. It's mechanically sound and overall in good condition but 3 months after purchase, we had to fork out $800 to replace all 4 tyres as they were still on the stock tyres from when the first owner purchased the car. We also had to service the car within 6 months of purchase.

In the next table are the most common costs that you should consider outside of the car purchase price itself: Note that I'm excluding rego + transfer fee as they're not hidden and vary a lot by car price and states. You can't transfer the car or drive without those.

Typical scenario & costs from experience

I bought a used 2016 BMW 330i from a used car dealer for 35k driveaway (inc rego and transfer fee). After purchase the car was found to have common fault in the cooling system hose, plus all of the brakes are worn and barely driveable. My mistake was not getting a pre-purchase inspection (PPI) before. I ended up spending $4000 on top of the purchase price to fix up all of the mechanical issues. This is despite the car having RWC from dealer!

On the other hand, when I bought a used 2014 Toyota GT86 from a used dealer before for 19k, I did not have to spend a penny other than routine servicing 6 months after at around $500 at Toyota dealership. The car was faultless until the day I sold it. It needed only 2 rear tyres replaced to get a pass for RWC.

At the end of the day you need to make sure that when buying a used car you consider and budget these hidden costs. They might not be apparent at first but within few months you can be up for extra few thousands from your additional purchase price.

4. Research on common issues

Many people think these days that buying used car is just as simple as trawling FB marketplace or Gumtree for common electronic items like iPhone or iPad, or if they do go to dealer it's as simple as browsing which car on the lot interests them the most. Fact is, if you want to make sure the car you're buying is not a lemon, you have to do research, research and research.

You need to research for the car make & model you desire. Check what's the common issues with them. They can range from just minor annoyance e.g Ford Falcon & Territory is known to have easily broken door handles, to complete unexpected mechanical failure e.g some years of Mark 6 VW Golf with 1.4 litre engine is known to grenade itself.

On top of that it helps if you also research what's the cost of rectifying those common issues. If it's easy or expensive to get certain parts for that model. If it's something you can accept as part of your budget then it's ok to go ahead but it's not then stay away from that model and find a more reliable one.

With the advent of Google search, Reddit and FB groups, researching has never been easier. By just simply googling you can find if the particular car you're interested in is mostly reliable or a maintenance nightmare. Guess what, if you're overwhelmed with so much information online you can email us and I'll try my best personally to help you.

Alternatively if you're not so much into this online thing, you can simply call your trusted mechanic or an independent shop near your area and ask what do they think of this model you're thinking to buy.

5. Final dealer purchase price & add-ons

When you are buying a used car or even a new car for that matter from a dealership, you need to make sure you have a clear written amount of the final purchase price you have to pay AND that you are aware that is the amount that you'll be paying, not one cent more.

It seems pretty obvious: the car that you're buying is priced at 37k, therefore you are paying the dealer 37k. Often times however that's not the case. Even when looking at Carsales price list before you even go into the showroom, there can even be a clear difference as some dealers will not include onroad costs (rego, stamp duty) to their advertised price.

Driveaway price as starting point

The first thing that you have to ask is: What's the drive away price? Driveaway price is the key. If you're buying from a dealer, driveway price will includes all sort of costs needed to "drive away" from the dealer. This will include stamp duty, rego fee, dealer delivery fee and other fees. As per Australian Consumer Law (ACL) dealers must provide you with this total price.²

If you want to negotiate, and often times you will, you must start with driveaway price as starting point for your benefit. This will allow you to negotiate price with every legal costs included and not have a big surprise at the end when the dealer suddenly adds several thousand dollars to your already negotiated price.

The driveaway price will also make it easy for you to compare price between dealers or even different makes & models.

Finance & Trade-ins

If you don't have a trade-in or not planning to finance your car purchase you can skip this section. The driveaway price is the final price that you need to pay to the dealer. However if you have a trade-in or you want to finance your purchase the driveaway price is no longer going to be your final price. It's going to get more complicated.

I'm not going to go into details too much with financing as depending on banks, your personal circumstances, everything will vary a lot. However the fact is, if you're financing your car you will need to spend more money than you otherwise would with straight purchase. If you're using a bank or separate finance provider than your dealer, then you will most likely need to fork out $1000-$2000 for broker fee or other establishment fee. This is even before counting interest or other "finance or document fees".

If you're financing, you must ask your finance provider to list out all of the fees you need to pay, including interest, during the duration of your loan BEFORE you sign anything. Even though the amount that you'll be paying upfront is going to be less than straight purchase as you'll be making monthly repayments, the total purchase price (even before interest) could be greater than driveaway price.

On top of that if you have a car that you want to trade-in, the final purchase price is going to change again. In this case it is driveaway price minus the trade-in car price. If you're financing, the financed amount is going to be after you subtract the trade-in price from your driveaway price.

The important key point here is you need to be proactive in asking the dealer for a detailed breakdown of those. Unfortunately if you have a trade-in, it's likely the dealer will value it less compared if you sell that car privately. If you have a trade-in and finance, it's also going to be harder for you to compare price between dealers. One dealer might give you more discounts on driveaway price but give you less on your trade-in and tack on more finance fee, for example.

6. Warranty for used car

Another minefield where unsuspecting buyers often get burnt is in the matter of warranty. It doesn't help that often times there are tons of terms and jargons used around in the industry e.g statutory warranty, third party warranty, manufacturer warranty, so on and so forth.

They all seem to mean the same, and that having a warranty means peace of mind for you, the buyer. That if there's anything wrong with the car you can simply bring the car back to the dealer or the seller. But the important fact is, NOT all warranty is created equal.

Let's start with the strongest warranty of all and the only warranty you want. If you can verify that your used car have this warranty then 90% of times you are good to go. This warranty is known as manufacturer or factory warranty. As the name suggests, the auto manufacturer themselves is the one responsible in handling any mechanical issues related to the car in questions, not the dealer not some random third party. This warranty is the original warranty that comes with the car.

Factory Warranty

Factory warranty is legally binding under Australian Consumer Law (ACL) and gives you the best mechanical protection. If you're buying used car, this warranty is as good as if you're the original owner. However, this warranty is limited in duration. These days auto manufacturers offer 5 to 7 years warranty. If you're buying a car that's already 4 years old, your car is going to be protected only for that remaining time period.

After the manufacturer warranty, there is what's known as statutory warranty. This is a warranty that's given to you and legally binding if you're buying used car from a licensed car dealership. Unfortunately unlike the factory warranty, you start to get a lot of restrictions and exceptions.

Statutory Warranty

First of all for you to be eligible for statutory warranty, you must buy a used car from a licensed dealer. You will NOT get any warranty if you're buying a car from private seller or backyard dealer.

After that you need to make sure the car you're buying is eligible for this warranty. Your car needs to have traveled less than 160,000 km and are less than 10 years old. (Double check your state regulation as it might vary but this is the case for NSW and VIC)

As you can see, if you buy a car that's 10 years old and older you will not be eligible for any warranty. Lastly it's important to note that statutory warranty only lasts for 3 months or 5,000km from the date of sale (whichever occurs first).

Extended Warranty or Third Party Warranty

Unlike the other two warranties, this warranty can be argued to be the least desirable and useful. Why? The first reason is extended warranty is 99% of times a PAID warranty. That simply means you have to fork out your own money to get covered. Manufacturer or factory warranty is always free as it's what the auto manufacturer committed to when they bring the car to the market. Likewise for statutory warranty, as it's a legal requirement for licensed motor traders.

However, an extended warranty is something that's offered by third party company (that's neither the dealer nor the original car make) to you as buyer for "extra peace of mind" in exchange for an upfront fee. An extended warranty also has tons of other restrictions & requirements that are listed in the product disclosure agreement (PDS) that you have to adhere to for your claims to be accepted.

In other words if you buy a used car and then you find out it has a mechanical problem two or three months after warranty purchase, you have to check with the warranty provider that that mechanical problem is covered as part of your warranty. Let's say you got an oil leak in the transmission case and it'll cost $800 to fix. If the warranty covers oil leak then you're good, but if not your extended warranty is pretty much useless.

It is not rare to see many mechanical problems are actually not covered due to the warranty policy arranged such intentionally e.g you have a problem with oil leak then that is not covered, or if you have problem with the alternator it's suddenly considered as wear and tear items. The PDS of your warranty is the key.

Honestly if you were to ask me, I would not get any extended warranty myself due to the fact that I have to fork out extra sometimes extra one to two thousand dollars to get something that's not guaranteed to cover any mechanical issues I might have down the line.

Final Tips

To summarise this buying guide I just want to give you final tips to aid your used car buying journey.

• Mechanical inspection is a must: Do not get a used car without a mechanical inspection unless it's very brand new e.g 1-3 years old and still within factory warranty.
• Do research on common issues for make & model do you want to buy: Make sure that the car you want to buy especially if used and older are known to be reliable.
• Know the market value of the car: Come to the dealers or private sellers prepared with an offer in mind with 10% buffer to negotiate. Look at carsales, ask forums, how much does a particular model cost.
• Know your budget: As discussed in hidden costs section above, make sure you know your budget and consider all of the costs involved with buying a used car.
• Car is legitimate: Verify the Personal Property Securities Register (PPSR) of the car to ensure that the car is not financed and writen-off when you buy privately. Even though a licensed dealer must sell you a car with "clean" title, it pays to double check. This can also include odometer check if your state government supports it e.g NSW registrar.
• Know your rights: Know the cooling off period when you're buying a used car, know the statutory warranty you have if you're buying used car from dealership, and if the car is on newer end, verify that it still has factory warranty.
• Lastly, follow your gut feeling: You have done all of the paperwork checks, inspection etc. If the car doesn't feel right to you, do not force yourself to buy it. There are hundreds thousands used cars in Australian market. You won't miss out on that RAV4.

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