Part 3 - Where should i be looking for a pre-owned car?

Story by Ming Jie
20 Apr 2010
 

Thinking of buying a used car? Here's a series of guides on how should you go about doing it.

Buying used

Do not have the misconception that all pre-owned rides at a dealer come from an owner who had decided to sell his car.

As early as 5 years ago, most people looking for a pre-owned car will just head straight for a pre-owned car dealer as that is the easiest way to find one then. However, with the advent of Internet classifieds and motoring websites such as Oneshift.com's used car section, buying directly from car owners is becoming increasingly popular in recent years.

With the ever-constricting COE quota given out each month, Authorised Distributors of New Cars are also moving into the pre-owned market as a way to sustain their business as well.

We dissect the different avenues to buying a pre-owned car here to help you decide which route you should take.

Pre-Owed Car Dealers

A pre-owned car dealer is the middleman that connects the sellers with the buyers. Their typical business model is to buy in cars from different sources and than resell them at a marked-up price to buyers looking for a pre-owned ride.

Do not have the misconception that all pre-owned rides at a dealer come from an owner who had decided to sell his car. Dealers also get their cars from sources such as:

New Car distributors
Dealers can be appointed by New Car distributors to take in traded in cars from them. They can cost the pre-owned car dealers a fee, or depending on relations, it can be free as well.

Trade-Ins
Dealers will also accept a trade-in for the purchase of a pre-owned car. Depending on the condition of the trade-in car, they may be resold, exported or scrapped.

Direct Owners
Instead of waiting for people to come to them to sell their cars, pre-owned car dealers also reach out to owners who are selling their own car. They search for owners selling their cars through newspaper advertisements, online classifieds or referrals.

Auctions
Banks or finance companies with repossessed vehicles hold these auctions to recover the loss they incurred from car owners who defaulted on their loan repayments.

When shopping between pre-owned car dealers, you might have come across the term "In-House Financing". This term means the dealer will offer to loan you an amount of money to pay for your car. Dealers do this by loaning a large amount of sum from banks at one go and than offer smaller portions to their customers. Interests from such "In-House" financing are usually higher than normal bank rates as the dealers benefit from the difference in the interest charged.
Dealers do these financing because there are always customers who are interested in buying a pre-owned car but are unable to secure a bank loan (due to bad debt or low income) and dropped the deal in the end.

However, take note of dealers who use the term "In-House Financing" wrongly. Instead of offering you a loan from them, what this dealers meant is for you to secure a bank loan through them. Doing so will benefit by earning a commission from the bank every time they get a buyer to sign for the loan.

In the same way, when the dealer claims he is offering "In-house Insurance", it means that he is getting you to sign up for an insurance plan through him so that he can earn a commission from the respective insurance company.

The pre-owned car dealer business is one that requires high cash flow to be sustainable. This meant that dealers would often push-sell their cars in order to secure a good price for the car since a car sitting in their parking lot will only depreciate with each passing day. Less cars moving in and out of the dealership means less money for the dealer.

Due to this urgency to sell, some pre-owned car dealers might resort to lying about the condition of the car in order to get it out of the dealership hands as fast as possible. Some dealers might also purposely price their cars low to attract potential buyers and than use unscrupulous tactics to recover their losses. (Go to "Protecting Yourself" to find out what are the common tactics used and how you can protect yourself from being conned)

However, an honest pre-owed car dealer can still offer you certain benefits such as service packages, warranty, grooming service and having the car sent to reputable inspections centres for free.