Top Five Red Flags of Used Car Buying in USA

Buying a used car at a dealership can be an intimidating experience even for the most experienced car shopper. Price-gouging, title-washing, hidden mechanical problems, bogus back-end deals and extended warranty programs are just some of the hazards that a consumer can confront when buying a used car from a less-than-reputable car dealer. Let's take a look at the more common practices – or malpractices! – and what you can do to avoid them.

1. Price Gouging On The Window Sticker

Next time you're strolling through a used car dealer's facility, take a close look at the window stickers. You might notice all sorts of strange charges listed there. One common tactic for a dealer to pad his margin would be something that goes by the acronym "MVA." This stands for 'Market Value Adjustment', and it's just one way the dealer tacks on additional profit to the vehicle in an effort to bolster his bottom line.

Two more acronyms that can stand in the way of accurately negotiating a price with a dealer is 'ADM'. This stands for 'Adjusted Dealer Markup', an even more blatant rip-off. While this charge could conceivably be justified by aftermarket add-ons such as a high-end stereo system, sunroof, tinted glass or some other accessory that has value, you should get a complete and thorough explanation as to what this charge is for. Likely it's just padding the dealer's pockets.

Another confusing, nondescript charge is "prep fees." Dealer prep should always be figured into the retail price of the vehicle before putting it on a lot. So get a full explanation as to what these fees are for, and negotiate them out of the vehicle's price. Keep in mind that the retail price you'd pay to have a car cleaned and detailed is just that - a retail price - and a dealer's costs for such services are much, much lower.

If the dealer is firm on including such add-ons without giving a reasonable explanation, then walk away. There are more reputable and trustworthy dealers out there. Find one.

2. Evidence of Title Shenanigans

Make sure before you buy a vehicle that has a clean title; Carfax is your ticket here. This is a huge electronic database of vehicle transactions collected from all over the country. Whenever a vehicle changes ownership a paper trail is left that documents the owner and mileage at the time of the transaction. By pulling a Carfax you can verify mileage and see whether the vehicle in question was owned by an individual, a company, or a fleet.

This information is helpful in determining a vehicle's history, and it can also help you identify those cars you wouldn't want to touch with a 10-foot pole: salvaged vehicles. For instance, if a vehicle was acquired by an insurance company after being totaled, but was later sold at auction to a salvage company, you should be able to see those ownership transfers. If you're looking at the vehicle and it's back on the market with lower miles and a clean title, it's a pretty safe bet that the vehicle probably had the odometer turned back and the title washed by an unscrupulous rebuilder. That's the sort of situation you want to avoid.

3. Obvious Defects

Mechanical condition is critical to any used vehicle purchase. Everybody knows this, so it's hard to imagine why a used car dealer wouldn't at least fix the easy stuff like cracked tail lenses, bald tires, or a rusty exhaust system that announces its presence with every bit of acceleration. You can bet that a car being sold 'as-is' with glaring problems hasn't been subjected to much scrutiny by the service department, no matter what the window sticker says.

Even a used vehicle that appears to be in sound condition should be subjected to a pre-purchase inspection (PPI), where mechanical condition is evaluated from stem to stern. Underhood inspection includes looking at the fluids and a charging system analysis. Ideally it should also include a performance evaluation and compression test, along with hooking the car up to a computer to read the powertrain and drivetrain control modules for any codes stored in their memories. These codes can tell whether the car has experienced any failure symptoms that might suggest larger problems. An under-car inspection is also vital. This includes a close look at the brakes, steering and suspension, and the chassis to determine the health of the undercarriage and related systems.

You can't depend on a dealer's own service department to perform such an inspection, though having a service technician show you what he looked at it is better than nothing. It is worth your time and effort, however, to have an independent repair facility or another dealer take a look at the car. If you're buying a used vehicle from a dealer than doesn't service that make, this is also an opportunity to check out the dealer you might be using for service if you do buy the vehicle.

Don't neglect to perform a cosmetic inspection as well. Often a pre-purchase inspection can be so focused on mechanical issues that things like burn holes in seats or evidence of mediocre bodywork can go overlooked. Keep in mind that mechanical repairs are often both cheaper and easier to remedy than a ratty interior or bad paint. Once an inspection is completed and you have the information you need, you can more confidently go to the negotiation table.

4. Getting The Run-Around By The Finance Department

While it's possible – and often preferable – to obtain your own financing and never have to see the dealership finance manager, most people subject themselves to using dealer-supplied financing. If you plan to try your luck in the finance department, make sure you understand the details of the terms and percentage rate. There are numerous documented accounts of people being charged exorbitant financing charges, entirely unbeknownst to them. Don't be one of those people who sign a loan agreement without actually reading it!

In addition to financing, you will invariably be offered other products, services, and possibly an extended warranty. Products like glass etching, rust proofing, fabric guard, paint sealant, and a host of other charges can be added into your monthly car payment, dramatically inflating the cost. Some of these items may have merit. For instance, glass etching is a good theft deterrent. On the other hand, rust proofing can be worthless if it's not a proven system, fabric guard can be bought at your local supermarket, and paint sealant can be added later at a much lower price. And remember, anything you buy extra that gets rolled into the sales price of the car is subject to the same finance charges, meaning you'll be paying for those extras for the entire term of your car loan. Do the math and you'll see that an expensive way to buy these upsells is through the F&I department.

5. Being Pushed Into Buying An Extended Warranty

Extended warranties raise so many questions. Who is the carrier? Do some research to find out how they do business. How long have they been in the extended warranty business? How much do they pay in claims each year? A company that has been in business for a long time and has paid claims consistently over the years is a company that does what it says it will do.

Also important: where is the warranty honored? Always make sure the warranty being offered is honored at locations across the country. If your car breaks down a thousand miles away from home, you don't want to have to pay out-of-pocket and hope you get reimbursed. Does the warranty company work with other dealers across the country? A large network is a good sign, as it indicates that service departments probably find the company easy to deal with. And that's an accurate litmus test as to how well they will respond to you in the event of a claim.

What is covered? Make sure you understand exactly what's covered and what's not. A salesman is likely to suggest "everything is covered" when describing one of the more comprehensive warranties, but every warranty has exclusions and those items that aren't covered have a bad habit of being expensive to repair. Make sure you understand your obligations to the extended warranty agreement, as there are requirements you have to uphold to be covered.

Finally, don't feel obligated to buy the extended warranty promoted by the dealer. Many people don't realize that you can purchase one on your own.