Understanding Used Car Prices

By Matt Keegan
Last Updated 11/08/2016

If you are in the market for a used car, making sense of car prices and dealer terminology can be a challenge. Used cars typically cost thousands of dollars, which is money that can be difficult to part with. In view of these facts, we will look at used car prices and how they are determined, as well as some of the key terms associated with car values. Moreover, we will share our tips on how you can save yourself some money or enhance your buying experience.

Certified Pre-Owned (CPO) and Used Cars

Many used cars are older and may only carry a short-term, dealer-backed warranty. In particular, you may receive a warranty covering the first 90 days or 4,000 miles of ownership, whichever comes first. However, that warranty may be limited to certain components such as the powertrain (the engine and transmission). Furthermore, it may apply only to vehicles of a certain age range, such as those that are 10-years-old or less. Both car dealerships and dedicated used car lots may offer these types of warranties. Ask the salesperson for a copy of that warranty so that you can review the fine print.

For newer vehicles, especially those that are less than three- or four-years old, a certified pre-owned (CPO) warranty may be offered. These types of warranties are often backed directly by the manufacturer and give buyers a stronger level of protection than a basic warranty. Qualified vehicles must meet the manufacturer’s comprehensive multipoint inspection checklist criteria, and many must have a clean CARFAX Vehicle History Report. CPO cars, trucks and SUVs may also benefit from an extension of the new vehicle warranty, and many allow the powertrain and corrosion warranties to be transferred to the new owner. Thus, CPO vehicles provide a level of protection that’s similar to what new vehicle buyers enjoy.

Used Car Prices

So, how much is that vehicle worth? What should you pay for it? Can you negotiate a better deal? These are among the key questions used car shoppers ask when searching for a new car.

There are a few online sources to consider, which will help you learn whether the price a dealer is asking is in line with what you should pay. Kelley Blue Book and NADA Guides offer that information at no charge to you. Certainly, visit both sites to compare used car values.

On Kelley Blue Book (KBB), you can visit the website, choose “Price New/Used Cars” and begin your search. You will then be taken to another page where you will find three choices for the type of vehicle you want (new, certified or used) under “Select a Vehicle.” Make your selection by entering the model year, the make (brand) and the model. Click the “Next” button, enter your zip code and choose a car based on its category. For example, the Cadillac CTS is available in coupe, sedan and wagon body styles, depending on the model year. Choose the style that corresponds to the car you are considering.

Next, you may see an assortment of trim levels. To get an accurate price, match the car with the trim level before selecting “Choose this Style.” Then, add in information about the powertrain, packages and options. Check the corresponding circles and boxes to provide that information.

The more details you enter, the closer you should come to the dealer’s price. After that, select “Choose Price Type” where you will identify the type of seller — one of three choices will be presented to you. The “Buy from a Dealer” option covers most used cars that are not certified pre-owned. If the car is a CPO model, choose the second option — “Buy Certified Pre-Owned (CPO) from a Dealer.” The third choice is “Buy from a Private Party.”

When you select one of the first two options, KBB delivers a specific middle-of-the-range price. You’ll also see a “fair market range” with low- and high-end pricing available. This is the range that the car’s price should fall in. If not, you need to press the salesperson for an explanation.

Your other choice is to visit NADAGuides.com. To begin, click the “New and Used Car Prices” button. Next, you will be taken to a new page where you can choose your car based on the brand name within that list. Then, choose a car based on the presented list of choices or enter your own information based on the model year and body style. A list of choices will be presented.

Once the correct car has been identified, you can narrow your choices further by selecting the trim level. You will be taken to another screen where you can enter the car’s mileage. Also, choose whatever additional package options or upgrades are presented to you at this time before selecting the “Continue” button. Here, NADA Guides presents several pricing options. Review the “Clean Retail” number for your car.

Determining Your Cost

Likely, there will be a price difference between KBB and NADA Guides. Still, the two numbers can serve as a ballpark figure, giving you some room to negotiate. You can also show the salesperson your information and ask for a lower price. Most cars on dealer lots present an asking price, giving buyers room to counter with their own offer.

As you negotiate your price you will eventually arrive at a final figure. If you are satisfied with it, then ask the salesperson for an “out-the-door” price. That figure will include the cost of the used car and sales tax, as well as the registration and document fees. In some cases, the document fee may be capped by your state. If it isn’t and you’re being charged more than $200, ask the dealer to lower that cost.

Let’s Make a Deal

You should only sign a contract when you are satisfied with the deal and understand your out the door price, the financing cost and the warranty coverage. These points and a clean CARFAX Vehicle History Report will help provide you with the confidence to make a deal.

Related: 4 Vehicle History Factors That Impact Car Prices »