Due Diligence When Buying a Used Car

Due Diligence When Buying a Used Car

You need a car but don’t want the initial expense of a brand-new vehicle. Nor do you want the sizable, ongoing depreciation that comes with a car straight off the production line. Consequently, you decide to buy a used car. Now, used cars can be an excellent investment, but due diligence is required when Buying a Used Car. Thus, gather as much information as possible about a car before buying it. But, what do you need to find out and what can a vehicle history check tell you?

Of course, start with checking the vehicle’s make, model, year (production and model year), body type, trim, transmission, engine size, and engine type. Don’t stop there. Learn its history, condition, real market value, and monthly cost of ownership.

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1.    Vehicle History

How old is the car, how many owners has it had, and what has happened to it in its lifetime (so far)? This is crucial information when buying a used vehicle.


Undoubtedly, the newer the car, the better. However, you don’t want it so new it’s still depreciating fast. Cars depreciate the most during their first year, sometimes dropping in value by a whopping 20% or more.

Takeaway: Do not buy a used car in its first year of life. Its value has quite a long way to fall.

A car in its second year would have at least already depreciated by 20%, so you can get it at a more favorable price than what it cost in its first year. From then on, the car will typically lose about 15% of its value every year until its fifth year. However, depreciation is also dependent on other variables, like the make and the model of car, mileage and more, so a car’s value may drop at a faster or slower rate than this.

Three to four is a good age for a used car. You may also go for a five-year-old car to save even more money. However, consider other factors like mileage. Age plus mileage is a good indicator of how heavily used the vehicle has been thus far.


Ideally, you want a car with only one previous owner, especially if you’re buying in the lower age range. Too many owners or a high turnover in such a short period can mean something is wrong with the car.

In any case, you can evaluate ownership information in the context of maintenance records. That will tell you if the owners took good care of the vehicle and reveal potential issues the previous owners might have all grappled with.

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Maintenance Records

Look at receipts and maintenance records. Has the car been getting regular oil changes and engine checks? How often has it been sent to the mechanic, and what issues were addressed during these visits? You should also verify which parts have been replaced, if any.

Accident and Other Records

Has the car ever been reported stolen? Has it ever been in an accident, and if yes, how grave was it?

It’s not a good idea to buy a car that has been reported stolen, of course. As for a vehicle that has been in an accident, it depends on how severe the damage was and how well the car was repaired; the maintenance records should clue you in on this.

If the car has been declared a total loss, think twice before buying it. A total loss means the repair costs exceeded the car’s market value at that time. A totaled car may be more affordable, but it may be more expensive to insure.

2.    Car Condition

How good does the car look, and how well does it run? You need to know this mainly to assess whether it’s worth the money the seller is asking for and, more importantly if it won’t saddle you with expensive repair costs.

First, ask the seller for a recent vehicle inspection report from a trusted car inspection service. That should tell you about the condition of the:

  • Bodywork
  • Under bonnet
  • Interior and controls
  • Under chassis
  • Wheels and tires

Ideally, the report should also rate the car’s roadworthiness.

View and test-drive the cars with good numbers. This way, you can test and confirm the scores and ratings indicated in the report, and, hopefully, decide on the car you want.

3.    Real Market Value

As a car buyer, you also want to know if the selling price is justified. Is the car worth what the seller is asking for?

To make this judgment, you should know how much the car’s actual market value is based on various factors. Things that affect market value include:

  • Condition: showroom level, gently used, normal wear and tear, needs attention
  • Seller: dealer or private
  • Buyer: dealer or private

Naturally, you want a car selling at or below market value to save money. You can also say you’ve made immediate gains on your purchase – i.e., the difference between what you paid and the vehicle’s value. That said, buying at a selling price above the market valuation can still be worth it in the following instances:

  • Rare or classic cars: Paying above the market rate can be worthwhile when it involves rare and classic cars, especially if their value is expected to appreciate even more over time. Age and mileage do not dictate the value of rare and classic cars. Rarity, historical significance, and emotional appeal add value and thus inflate prices.
  • Excellent condition and service add-ons: If the used car has exceptional upkeep and a full, detailed service history and is sold with extended warranties and a service contract, it can be worth paying above market value. The excess amount can be the trade-off for peace of mind and future savings on maintenance.
  • Customizations and upgrades: A used car with desirable, non-stock features may also command a selling price higher than its market valuation. The gap in selling price and market valuation is justified if the modifications have been professionally done, enhance the car’s performance and safety, and are things you need and want.

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4.    Monthly Cost of Ownership

How expensive will the car be to own? Factors that determine the cost of ownership include:

  • Financing: Includes loan processing fees, interest payments, etc.
  • Insurance: Includes third-party liability or comprehensive insurance premiums and insurance add-ons, like personal accident cover, roadside assistance, etc.
  • Consumables: Consumables include fuel, engine oil, tires, and other parts you regularly refill or replace in a vehicle. Fuel consumption (vehicle efficiency) matters.
  • Depreciation: Depreciation is an inevitable loss in value through the years.

Make an Informed Decision

Buying a used car can help you avoid the cost of depreciation, but you must perform due diligence to ensure you don’t buy a car for more than it’s worth. In particular, check a car’s history, condition, real market value, and monthly cost of ownership before you buy it.

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