How to buy a car: GoodtoKnow's guide for buying new and second hand cars

Buying a car, whether it's second hand or brand new, can seem daunting. Paperwork, mileage, test drives, MOTs,... there's a lot to consider, so we've made it a little easier with this handy guide to buying a car.

Do I need a car?

For many people, there's no option. A car is necessary and saves both time and money. But if you're able to get about without a car e.g. you can walk the kids to school, take the bus or train to work or the shops, cycle at weekends, you might find you don't need one. For people in this situation, it can be cheaper to hire a car for particular weekends or take part in a car-share scheme. So before you assume you need one, just double check that you do!

Budget and payment

Working out your budget is very important so think about what you can afford. This amount will also act as a filter as to what sort of car you can consider. If you need to sell your current car before buying a replacement, get a couple of estimates. You can either sell it privately, through a dealer or even do a part-exchange to make your new car cheaper.

How you pay for your car is important. Few of us have the cash to hand but because cars lose their value so quickly, it's important not to get caught up in a very long-term payment where your overall cost far exceeds the car's value. A common method is hire purchase where you pay a fixed sum every month and eventually own the car. However, you can also consider the PCP (personal contract plan) where you decide at the end of the payments whether to own the car (by paying a larger 'balloon' sum), get a different car or hand the car back.

As with credit cards, 0% deals will keep payments low for a shorter payment period, or you can opt for a longer-term payment plan. You'll have paid more for the car in the end, but for some people this works best on a month-to-month basis.

New or second hand?

The main advantage with a new car is you don't have to worry about its history plus you'll get a full warranty and other tempting extras. Newer cars often have better fuel efficiency and better safety features, but naturally they cost more and when they break down, it's often an electrical fault which can't be fixed immediately. Spare parts for newer cars can also cost more - the technology used to make them is more advanced which is reflected in the cost of parts.

The biggest market is for second-hand cars. They can be great value for money - remember, about 20% of a new car's value disappears once it's left the showroom. If you buy second hand from a dealer, warranties are often included and you can even buy used cars through a manufacturers' own approved scheme. You can also buy privately, which can get you a bargain, but it's best if you, or someone you know, is knowledgeable about cars, as you need to be sure of its history.

There's also a middle ground - the 'nearly new' car, usually from a dealer's demonstration or excess stock. The only downsides are they will already have a name on the registration document (which means it will look like two people have owned it, but really only an issue if you're planning to sell later) and they may have clocked up a few thousand miles, but they can be a good deal.

Your car checklist

Make a list of what you need from your car e.g. how many people will usually be travelling in it and what will you be mainly using it for? Also consider which features and functions are a must e.g. central locking, air conditioning, easy fold-down seats or a large boot. Making a comprehensive checklist will make the buying process simpler as you can quickly eliminate cars which aren't right.

Other things to consider are buying a car that's fuel-efficient as it will cheaper to run. Cars with lower CO2 emissions also attract less road tax and you may benefit from cheaper insurance too.

What to ask

Ask the right questions and you should get the car that's right for you. Be frank and ask about the car's history and the condition it's in. It's a buyer's market so don't be shy about asking too many questions as there are plenty of cars out there if you're not keen on the seller or dealer.

First, ask if the seller is the registered keeper when arranging to meet. You should view a private sale at the registered keeper's address and a trade sale at the office or premises. Daylight hours are obviously best so you can see the car properly, and ensure it's dry weather so you can examine the vehicle thoroughly and spot any damage.

Ask for the registration number, make and model of the car in advance, as well as the tax disc expiry date and MOT test number. The car's history is all-important. You must make sure it doesn't have any payments still outstanding on it, and it's essential to know it's not been stolen or written off. You can do a vehicle check at www.gov.uk/ and you can even check the MOT status and history at motinfo.direct.gov.uk.

You should also check the paperwork and documents - this means the logbook, service history and MOT certificates. One thing to double check is that the car hasn't been 'clocked', in other words, where the mileage has been tweaked so it shows a lower number on the mileometer. Readings should match those in the service history. You can ask the AA or RAC to conduct a vehicle examination and if you're not confident about the car's history, they can also perform car history checks. Only do this when you're very close to buying it as these services cost money.

The test drive

Don't buy any car without a test drive. You should drive it for at least 15 minutes and if possible, on different types of road, so try to include a faster A road as well as local streets. Make sure you're insured for the test drive. It's best to start the car when it has a cold engine as that way you'll see any excess smoke or strange noses. Gears, steering, brakes and suspension should all work smoothly, with no odd sounds.

Check that all the car's features work, from the heating and radio to the wipers and door/boot openings. It's a good idea to look for rust, mismatched paint and uneven gaps between body panels too.

Closing the deal

Starting prices (as with property) are usually negotiable so it's worth haggling. Make sure you know the car's actual worth. You can get a price valuation from Which car? for £3.50 - all you need is the car registration and current mileage - and you'll get a comprehensive report which will look like this. Don't stray from your own budget either. It's best to bid low and see where the prices goes. Don't get worked up - after all, the seller also wants to make money from their sale - but if you can't agree on a price, walk away and remember that there are plenty of other vehicles available.

After you've agreed a price and paid, you should get a receipt which both the seller and the buyer has a copy of. You must also fill in the 'new keeper' sections of the V5C (logbook) and send this to the DVLA. It's worth noting that the DVLA is replacing blue registration certificates (V5C) for all vehicles, with a new red V5C by November 2012 so if you're buying your car after this, the document you receive should be a red one. A genuine V5C also has a DVLA watermark when held up to the light.

The V5C is not proof of ownership so make sure the document matches the car details and other documents. The serial number is also important - you'll find it in a white circle at the top right hand corner of the V5C. It should not have been altered.

At the bottom of the windscreen, you'll find the car's Vehicle Identification Number (VIN). It's also under the bonnet and stamped into the chassis under the carpet beside the driver's seat. It should be the same VIN in the logbook. Addresses should also match up.

How to keep you car running cheaply

As you probably know, cars aren't cheap to run but you can reduce your costs by following some simple tips. Petrol prices vary so to find out where to buy cheapest petrol, look at the website PetrolPrices.com to find your cheapest and nearest fuel. Some petrol stations sell 'high performance' fuels but unless you drive a sports car, you don't need to use this more expensive petrol.

Keeping the tyres properly inflated will also make your car run more efficiently and cheaply. If the pressure is too low, you get more 'drag' on the car which makes it use more petrol. Keeping your car light also helps so if you're using the boot as storage, so it's time to declutter! You should also take the roof rack off when you're not using it. Accelerating and braking sharply also increases fuel costs so drive as smoothly as possible.