Life Lesson: Buying My First Used Car

by mzumtaylor on July 28, 2010

in Life Lessons Learned

The Story

In the spring of 2007, my boyfriend’s car totaled itself (the engine and the transmission crapped out at the same time). He was working as a delivery driver, and I worked about 2 miles from where we lived, but our schedules were diverse enough that we could share the car. In the event of an overlap, I would ride my bike wherever I needed to go, and he would take the car.

That summer, he got a job 20 miles away, so he took the car to work every day, and I got to learn the bus system of our mid-sized town. I would ride the bus to work and ride my bike home (down hill the whole way, whee!). The situation worked fine, but it was summer and the weather was nice.

Fall came and it started getting colder, and while I didn’t mind taking the bus and riding my bike, it was getting dark earlier every night, and the idea of me riding home after dark made my boyfriend nervous. I started looking for a car in earnest. Along the way I decided that, come hell or high water, I wanted a Subaru Outback. I didn’t do my research very well, and didn’t think there was a Subaru dealership in the town we were living in, so the first used Subaru I saw, I wanted to buy.

The car was on the lot of a very small used car dealership about five blocks from my apartment. I decided that I wanted THIS car. I took it for a test drive and loved it. I got the VIN to get a CarFAX report (never buy a used car without one), and learned that it only had had one owner and there hadn’t been any report of major problems with it. The CarFAX report did say that the specific model (’99 Subaru Legacy Outback with a 2.4 Liter engine and automatic transmission) had some potential problems, but the car was eight years old and hadn’t experienced any of them yet, so I didn’t really pay any attention. I asked my boyfriend’s step-dad, who I thought knew something about cars, to come take a look at the car with me, and he said it looked and sounded good, and that it seemed to run fine.

I decided to buy the car. I told the dealership that I wanted it, and they told me that without someone to co-sign the loan, I wasn’t going to be able to have it. I didn’t have enough of a credit history, which is a common problem for people in their early twenties, and my debt-to-income ratio was too high, thanks to student loans and the fact that I was working part-time at a minimum wage job.

My parents were already on the hook if I failed to pay for my students loans, so I couldn’t ask them to co-sign, so I asked my boyfriend to co-sign on the loan with me, even though his credit history and debt-to-income ratio were nearly as bad as mine. Fortunately, our incomes combined were enough (apparently) to convince them that we weren’t such a risk, and they were able to get us a loan.

Four weeks later, I drove my shiny new-to-me used car down to visit my family, and I noticed something wrong with it. For some reason, when I shifted from Park into Drive, the car would hesitate before starting to move forward. Uphills, especially. For the week I was visiting the problem got slowly, but steadily, worse. A friend who also had a ’99 Subaru told me that is was probably X thing (I don’t remember now) and I should get it checked out as soon as possible.

The car made it home and I took it to a mechanic who told me that X thing was in fact wrong with the car, and they could fix it for the low, low price of $900. However (isn’t there always a “however”?), the transmissions on ’99 Subaru Legacy Outback automatics with 2.4 L engines were faulty, and it would be better to have the transmission rebuilt, because if I didn’t the problem could recur. Of course, rebuilding the transmission would “only” cost $1,400. *gulp*

The string of mistakes that lead me to this point was long, which I’ll go into in a minute, but the end of the story is this:

Fortunately for me, the dealership didn’t know about the defect on this particular model of car either, and had therefore included with the purchase of the car a three month PowerTrain Warranty. Because PowerTrain Warranties cover transmissions, we ended up only having to pay $170 of the rebuild, but it could have been much, much more painful.

Mistakes Made

  1. I didn’t start putting money away for the down payment on a new car as soon as my boyfriend’s car broke down. I knew we were eventually going to have to get a new car, and I started doing research right away to see what kind of car we wanted to get, but we were living paycheck to paycheck at the time, barely able to pay our bills, and I didn’t know anything about buying a car at the time. See How to Save For Your Next Big Purchase for more details about how not to repeat this mistake.
  2. I assumed that I didn’t have any other options for the car I wanted where I lived. There are almost always other options, you just have to have patience and do a little research. If I had looked into it a bit more, I would have learned that there is a Subaru dealership not five miles from where I bought my little car.
  3. I only took the car on one short test-drive. Any time you’re considering buying a car, new or used, it’s a good idea to take it on a test drive that includes roads you’re familiar with, terrain you encounter regularly, and highways, just to see how it handles. It’s a good idea to drive it over bumpy roads and smooth roads, and to check both the acceleration and the brakes, to see how fast the car can stop in an emergency. If I had done these things, I might have noticed the transmission problem, and therefore not bought the car.
  4. I asked my boyfriend to co-sign on the loan. Co-signing a loan with someone — especially significant others, but even family — can be very risky. It is unfortunately very common. If you can, get a formal, written agreement describing what will happen in case of non-payment of the loan, or dissolution of the relationship.

    My boyfriend and I got married two years later (and we’re still paying off the car), but if we had instead broken up, I often wonder who would have gotten the car? Who would have made payments on it? Would we have shared payments on it, even after the breakup? I’m glad I never had to worry about this, but scenarios like that happen every day, and it’s something to watch out for.
  5. I didn’t take the car to a mechanic to have them check it out for me. The CarFAX report said that this model of Subaru had three potentially big problems: head gaskets problems (very expensive to repair), problems with the transmission (I learned about this one first hand), and the speedometer heads not transmitting the speed accurately (my speedometer reads that I’m going 3 mph faster than I actually am). I ignored the warnings because the car was already eight years old, and I thought those problems would have presented already. (This is a dumb assumption, don’t assume this, ever.)

    I should have taken the car to a mechanic with the report and asked him to give me a risk assessment. He may not have been able to tell for sure if the car was going to have any of the issues above, but then again he might have. As I found out later, the dealership that sold the car to the place I bought it from knew about the transmission issues and didn’t fix them so it wouldn’t show up on the CarFAX. I’m not sure this kind of thing happens often, but you’re always better safe than sorry.
  6. I used a credit card, one that already had a balance (if you’ll remember the car repairs I paid for using a credit card that I couldn’t pay off…), to put $1,000 down on the car. The credit card’s APR was 13.9%, and the loan we got had an APR of 8.0%. When I was able to refinance the loan a month later, we got an APR on the loan of 4.5%. If I hadn’t used the credit card for the down payment, we would have saved at least $200 in interest over the four years it took me to pay off that credit card.

Lesson Learned

  • Patience is a virtue, especially in car buying.
  • It’s important to get the car checked by a reliable, independent mechanic, and if the dealership doesn’t want you to do so, run away.
  • When you go to the mechanic, be sure to have them check everything that the CarFAX reports could go wrong with the car.
  • Make sure you have a down payment for the purchase, because every little bit helps.
  • However much research you think you should do, do more.

Resources

  • CarFAX: You can usually get the dealership to get the CarFAX report for you, so be sure to ask. If they refuse, ask them why. If they don’t give a good answer, walk away.
  • CarTalk.com – The Tackart brothers are a great resource for the potential hazards of just about any car you’re looking to purchase.
  • Kelly Blue Book Online – This site will give you an excellent idea of how much you should expect when buying a used car from a dealership, or from a private party.

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