Used car prices fall

As used car prices drop by 5%, we look at further ways to ensure you bag a bargain.

Last month, sales of new cars recorded their strongest growth in two years, thanks to increased demand from private buyers.

In July, 143,884 new cars were registered in the UK, up nearly a tenth (9.3%) on July last year. This was the fifth monthly increase in a row and the strongest growth so far this year. As a result, the Society of Motor Manufacturers and Traders (SMMT) estimates that 1.97 million new cars will be sold in Britain in 2012, up 1.6% on 2011.

Used-car prices fall

Partly thanks to this surge in demand for new cars, the prices of used cars have dipped recently. According to the Auto Trader Retail Price Index, the average used car now costs just £8,620, down 5% in the three months to June, the lowest it has been since 2010.

One of the reasons car buyers have moved towards new cars is that they tend to be more economical, as older vehicles are more expensive to run and maintain.

With prices slipping, the market for used cars is firmly weighted in favour of buyers. If you're on the lookout for a used car, then here's how to find your ideal vehicle at a bargain price...

Five affordability checks

Let's start with five ways to ensure the car you've found will fit within your budget.

1. Check fuel economy

According to the AA, a litre of unleaded petrol costs an average of 132.2p, while diesel costs 137.3p per litre. This means that the UK has the most expensive diesel and the eighth-highest petrol price in Europe.

With fuel prices so high, motorists want efficient, economical cars that do plenty of miles to the litre or gallon. So always check a vehicle's fuel economy before buying, as this will affect its running cost and future resale value.

2. Check tax bracket

Another unavoidable bill for running a car is Vehicle Excise Duty (VED or 'road tax'). Depending on a car's CO2 emissions, its VED bill could range from zero (for electric, hybrid and low-emission vehicles) to £1,030 a year (for gas guzzlers). Look up a vehicle's VED.

3. Check insurance group

Insurers classify cars into 50 different car insurance groups, based on make, model, value, performance, safety and security, and repair costs. Cars in high groups cost the most to insure, because they are expensive, high-performance models. To prune your premiums, pick a car in a low insurance group. Check a car's insurance group.

4. Check depreciation

Depreciation is the tendency for car values to fall over time, largely thanks to years of wear and tear. Some cars depreciate in value much faster than others, so it pays to check depreciation rates before buying. These 10 models hold their value well.

5. Check reliability

Some vehicle makes and models are more reliable than others -- and no-one wants to buy a car that keeps breaking down. In general, Japanese and German cars are the most reliable, while French cars are seriously unreliable (with lots of electrical faults, in my experience). Here are Britain's most reliable and unreliable cars.

Seven tips to bag a bargain

Once you've identified the right car for you, here are seven tips to bag a bargain, whether you're buying from a dealer or privately:

1. Check price guides

To avoid being duped into over-paying, check price guides such as Parkers and Glass's Guide to confirm valuations are in the right ballpark. Local classified ads can also help with valuations. In addition, specialist websites such as Honest John contain heaps of advice on car-buying.

2. Arrange your own finance

It's almost always the case that dealer finance (car loans and hire-purchase agreements) is more expensive than finding an unsecured personal loan. Why pay interest rates ranging from 9% to 25% a year, when the top personal loans can be had for under 6% APR? Check out Marks & Spencer cuts rate for medium-sized loans to 7.3% for a full round up.

3. Check the service history

To avoid big repair bills, buy a car that's been properly serviced and maintained. Ask for and carefully check a vehicle's service history, looking for documentary evidence of yearly services and previous MoT certificates. Check a vehicle's MoT status and history.

4. Take a test drive

Never, ever buy a vehicle without taking it for a spin, or you may end up buying a banger disguised as a Bentley!

During your test drive, make sure that your driving position is comfortable and you can easily reach all the controls. Look, listen and smell for signs of mechanical problems, such as unusual engine noises, smells, smoke or vibrations. Arrange proper insurance to drive test vehicles, especially privately owned cars.

5. Beware of clocking, cloning, and cut and shuts

Clocking is the illegal act of winding back the odometer ('mile-o-meter') to increase a vehicle's apparent value by making it appear less well-used. Most cars do 10,000 to 12,000 miles a year on average, so be very suspicious of older cars with unusually low mileages.

Cloning involves giving a car (often stolen) a new identity by replacing its number plates with those from a vehicle of the same make, model and colour. This 'vehicle identity theft' is on the rise, so never buy a car without an authentic V5C registration document and service history consistent with its age.

Two or more cars that have been damaged in accidents and 'written off' by insurers can be welded together to make a 'cut and shut'. These are illegal death traps and are not easy to spot, except by a qualified mechanic or engineer.

To find out more about a car's accident and financial history, get an AA Car Data Check.

6. Get a car checked over

If you're not a car expert, then take a knowledgeable 'petrolhead' with you. Even better, pay for a professional to look over a used car for you with an AA Vehicle Inspection (call 0800 056 8040).

7. Get the paperwork right

Before doing the deal, make sure that all the paperwork is in order. Ask to see the vehicle's logbook, handbook, security-system and in-car entertainment guides.

Most important of all, check that a car's V5C registration document is genuine, matches the vehicle identification number (VIN) and correctly identifies the registered keeper. Since 2010, new-style V5Cs are being rolled out. By the end of next month, blue V5C registration documents should no longer be in use.

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