So you want to buy a good cheap car. Consider the junkyard. Seriously. Just walk the back lots until you find yourself an automotive carcass that has been molderizing for a few seasons. Of course, once you buy it you'll need a new battery, tires, hoses, fluids, and maybe even a few important body parts like doors and a steering wheel. But if you want cheap, there you go!
The problem is that when most folks say cheap car, what they really mean is, “Where I can find a good cheap car?”
I have spent most of my 17-year career buying and selling cars as an auto auctioneer, car dealer, and part-owner of an auto auction. So let me offer you an uncomfortable answer that starts with the conventional places that are the high dollar beehives of retail, and gradually goes to those long forsaken places that can get you a great deal if you’re willing to take on the education and the risk.
From worst to first:
New Car Dealership: Worst Place
If you want to pay for skylights, marble floors, a not so small army of underpaid employees, and at least one bogus fee that’s named after the owner’s dog, buy your next not-so-cheap used car at a new car dealership.
New car dealer prices are sky high for two reasons. First, they expect some wheeling and dealing on their used cars, and second, they pay for a ton of overhead. It costs an awful lot of money to operate a new car dealership. After investing in a floorplan, physical equipment, personnel, the physical dealership, and local advertising, what most dealerships are left with is a financial hole that must be filled with a stiff price premium for their used cars.
Buy-Here Pay-Here Dealership: Pretty Terrible
$700 down and $60 a week for 2 years! Sounds like a great deal until you do the math. Then you realize that what they really mean is a $7,000 price tag for a 12-year-old Chevy Impala.
I own a dealership that does this for folks who have recently blown up their own credit and can’t get a conventional loan. Their past decisions have already cost someone out there thousands of dollars. Sometimes even tens of thousands of dollars. My job is to hedge that risk of default and make money. Typically, I’ll break even some time around the ninth or tenth month if the customer pays for the car and the vehicle remains in good condition.
Is this cheap? Not a chance. This is the deep sub-prime world of car buying where the risky pay a lot more money. If you have the cash or the credit, don’t go here.
Carmax And Other Auto Superstores: Not So Good
They have a tough balancing act. On one side of the fence they have to pay for the same types of overhead that most new car dealerships have to, along with shareholders and private investors.
However they are incredibly good at selling in high volume. They also have a well deserved reputation for picking out the better vehicles at the wholesale dealer auctions where millions of vehicles are sold every year (more on that later). These dealers average around $2,000 to $3,000 in profit before expenses. If you finance with them, that margin can go up substantially.
These places aren’t cheap, but they are easy to buy and do a better job than most retail competitors.
Independent Used Car Dealers, Cash Only: Decent
These places typically do not finance their own vehicles. You will see the cash prices on the windshields and the better run dealerships have been around for quite a while.
A used car dealership has as much access to the nice cars as the big boys without nearly as much overhead, and they will offer a cash price instead of asking for “$499 down.” The prices are substantially lower than the big volume dealers, but these dealers will also typically spend less money reconditioning their vehicles to get them ready for sale.
So If a few dings and scratches bother you, go to the big volume superstores. If you figure that someone is bound to put a minor ding on your car at some point or if you’re willing to buy an unpopular car with less than 100,000 miles, by all means shop here. The quality varies and you definitely need the cars to be independently inspected, but the deals are often better.
Private Individuals: Getting Better
There are two type of private owners that sell their own cars: The boutique dealers and the yard sale liquidators. Boutique dealers want you to pay for all the sentimental value they have in that car. To them, the stains on the back seat are an endearing reminder of when their little kid had his first Kit Kat bar. But to you, it’s a nasty remnant that’s going to require a shampoo detail.
Then there are the yard sale liquidators. They just want to get the car out of their lives either because they already bought something else, or they want to kick the bucket of future repair costs before it’s full.
Buy from the yard sale seller, but make extra sure you get it inspected before you hand over the dosh. A lot of these cars are in far worse shape than they appear.
Government Auctions: Now You’re Cheap!
This is where I would buy if my personal priorities were condition, price, and the color white.
Most of these vehicles go for $2,500 or less and the overwhelming majority have less than 100,000 miles on them. The catch? You need to look at them in person, because "AS IS" really means “As It Is,” which is to say you aren't going to be allowed to drive them around the block, and there are no guarantees. But what you can do is ask the local government’s maintenance department if you could have a look at the maintenance records. Most government vehicles are maintained every 5,000 miles and contrary to the modern myth, most of them are not worn out police cars.
Impound Lot Auctions: Now You’re Really Cheap!
This is where abandoned vehicles, drug-seized cars, and cars that were driven with no insurance all wind up. You will find these auctions advertised online here and at your local newspaper.
Are their deals to be had? Absolutely! But you will know far less about the vehicles than you will at a government auction. Some tow lots and wrecker yards let you start the cars. Others just want you to check the fluids and use your imagination.
I have bought plenty of vehicles at these sales where typically the cars sell for less than a thousand bucks. But I had a big edge. I was the auctioneer and the owner couldn’t afford to burn me. These places are a cheap emporium but they’re also a no-no nadir for those who aren’t true hardcore do-it-yourself car owners with a lot of spare money and time.
Used Car Brokers
When I say broker, I really mean anyone with a used car dealer license who is willing to buy for someone else at a wholesale dealer auction. The typical fee is the actual cost of the vehicle plus $500 and the more shrewd operators will ask for a 20% deposit up front. I run a variation of this on a Facebook page I developed and I have been doing this in metro-Atlanta for a little over a decade.
The risk is two-fold. You need to buy from someone you can trust and you also need to be realistic. Most auction vehicles will have a discount price ranging from 10% to 30% off retail. With unpopular cars getting a far bigger discount than a popular late model vehicle.
Most brokers who do this strongly prefer to buy for businesses instead of individuals. Why? Because businesses and the self-employed who drive a lot are perfectly fine with buying a workhorse, while individuals always want a showhorse and don’t understand that a few dings and dents come with that discount price.
So if you’re a true cheapskate that could care less about cars, I would opt for the government auctions and I would focus on those cities and counties that are the most affluent. Those places on average will do a better job with maintenance and repair. Want a late model car that is five years or newer? Go with a private individual or a broker. And if your house already has a built in lift, you absolutely love cheap cars, and you have absolutely nothing better to do with your life, go to the impound lot auctions.Just remember one thing.
It’s the stingy person who pays the most. So do your research on the car’s past, get it inspected or have the recent maintenance verified, and be brutally honest with yourself. Nothing’s worse than owning an expensive car that requires champagne cash to own when you’re on a cheap beer budget.