(This is the 5^th post of the 8-part series An investing-friendly car buying guide.)

Visit Carfax with your list of cars and their VINs. This is where you look up the entire history of the car, from its birth up to now. Carfax offers a free service too, but it is more than your money’s worth to pay $30 for the detailed history report for unlimited number of cars. The icing is Carfax’s “buyback guarantee”, the offer to buy the car back from you at the price you paid if the report misses any serious violation. Enter each of the VINs on your list, and look them up.

Study the report carefully. Things you should check for are

1. if the car had been to any major accident or had storm/flood damage and salvaged in the past (remove it from your list rightaway);
2. any odometer “rollback” (inconsistency in mileage shown - a no-no again);
3. any report of it being stolen (run!);
4. ownership history - it is desirable to have a single owner for the entire period, and Carfax shows a “1-owner” seal of approval in its report. Also check if any rental agency owned the car during its early years - such cars tend to have many dents and scratches.

Pick out 4-5 best prospects from your original list based on these reports. Keep this new list short so you can inspect and test drive all of them in a single weekend. Check with your DMV office to see if the car has any outstanding lien on it - loan amount that the previous owner hasn’t paid off yet (you do not want collectors to knock on your door for money that you do not owe!).

Last but not least, you need to know how much you expect to pay for these cars in your area. This is the price you should bargain for with the dealer, no matter how high his quote is. Here comes Edmunds’ TMV (”true market value”) to your rescue. From your ZIP code, it will give you the average market price of your car, from both the dealer and private seller, based on the year, make, model, mileage and other details. Take a printout of this page along with you when visiting the seller.

Go on to Check the car out »

See related posts:

1. Making a list
2. Checking the car out
3. Internet resources on buying cars
4. Wrapping it up