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While the pandemic and a computer chip shortage continue to upend the auto industry, online used car dealerships are thriving. Sales at the three biggest online retailers — Carvana, CarMax and Vroom — are up more than a third year over year, according to 2021 fiscal reports from the three companies.
“These online used car sellers have revolutionized the used car marketplace,” says Josh Sadlier, director of content strategy at auto site Edmunds. “The transparency they give you into the vehicle and buying process gives you the extra dose of confidence to buy that car.”
Buying a used car online allows buyers to avoid much of what they hate about the traditional dealership experience, as well as the hassles caused by inventory shortages. When you shop online, you know the car advertised is available and you know the out-the-door price — without having to speak to anyone.
Armed with a bit of knowledge about the online buying process, you can zero in on the car of your dreams while binge-watching your new favorite show. But when you're ready to buy, the process requires a different approach from a traditional dealership.
Here’s what to know as you navigate this emerging marketplace.
Advantages of online shopping
With more buyers than cars available for sale, taking the online route prevents having the car sold out from under you before you reach the car lot. Once you find the right vehicle on the company’s website and put down a deposit, the car is yours.
Here are a few other advantages to buying online:
More transparency. At dealerships, some fees aren't revealed until you see the contract. Buying online lets you see everything, and a breakdown of the cost, before you commit to the deal.
No negotiating. Online sellers typically offer only fixed pricing for the vehicle you want to buy and your trade-in.
Convenience. You can search online inventories, set up a loan and have the car shipped to your home or office — wherever you prefer to sign the paperwork.
Included warranty. Most of these car sellers include a limited warranty that lasts anywhere from seven to 30 days. They'll also be happy to sell you an extended warranty for a fixed price.
Shop for a car online
Downsides of online shopping
The biggest problem with buying remotely is the inability to take a test drive. With voluminous information and specifications online, buyers sometimes think the test drive is unnecessary. But the true look, touch and feel of a car can be experienced only by driving it yourself.
There are several other disadvantages to buying on the internet:
Only used cars are available. If you want a new car, you have to go through a franchised new-car dealership.
Few options for negative equity. Many traditional dealers will bury negative equity in the new car loan. If you're upside-down — owe more than your car is worth — the dealer will include this amount in your next loan. But with an online transaction, you'll have to bring that amount to the table.
You can't inspect it. Online used car sellers tout their thorough pre-purchase inspection. But, hey, it’s a used car — it will have wear and tear. You can only see the actual condition of the vehicle you’ve bought once it's shipped to you.
Limited older inventory. Online car dealerships are not the place to find a $5,000 beater. If you're on a very limited budget, there are better places to find an affordable car, like your local Craigslist or Facebook Marketplace.
Online car buying tips
With these pros and cons in mind, here’s how to shop these online used car sellers.
Take a pre-purchase test drive. While you can return the car if you don’t like it, that's still a hassle you want to avoid. Furthermore, you might be deciding between competing models and need a test drive to make a decision. Consider borrowing a friend’s car, finding a similar car on a dealer’s lot to test-drive or renting a car for a longer trial.
Shop for your own loan. These car sellers offer their own financing, but it’s always a good idea to shop several lenders for a preapproved loan. This step will reveal any problems with your credit and give you an idea of what interest rate you'll have to pay.
Arrange an inspection. Since you'll have only a short window to return the car, you should have arrange a used-car inspection right away. Begin by evaluating the wear and tear yourself. Then, take the car to a mechanic for a thorough inspection where they can put the vehicle on a lift and check for any leaks or damage to the underside.
Take a post-delivery test drive. If you didn’t take a pre-purchase test drive, drive the car immediately upon arrival. Also, make sure it fits in your garage and is big enough to carry all your commonly needed items. Be aware that you'll be limited in how many miles you can drive before you return the car without a penalty.