A new car can be pricey, but a used car can come with hard-to-detect issues. Fortunately, automakers have come up with a compromise between the two. A certified pre-owned vehicle has been verified to be in excellent condition and comes with many of the benefits you’d get with a new car.
What Is Certified Pre-Owned?
In the early 1990s, auto manufacturers developed something called a certified pre-owned (CPO) program. With this program, dealerships could take advantage of the many cars that are returned to them in excellent condition. By inspecting and reconditioning them, they can sell those cars at a higher rate than they’d get if they sold them used.
But there are benefits to you, the buyer, as well. Dealerships can offer either an extended or limited warranty to cover any problems you experience after driving the car off the lot. However, you typically pay more for a certified pre-owned vehicle, so it’s important to know what you’re getting.
The Pre-Owned Certification Process
Some certified pre-owned vehicles are certified by the manufacturer. They follow a very specific process so you can be assured you’re getting a vehicle that meets the manufacturer’s standards. However, not all vehicles are certified by the manufacturer.
If you see a vehicle marked “certified pre-owned,” it can’t hurt to ask if the car is certified by the manufacturer’s CPO program. A dealership can come up with its own CPO program and set its own standards. As a prospective buyer, feel free to ask exactly what standards the dealership uses in labeling the vehicles it’s selling as certified pre-owned. That way you'll know if they're up to your own standards.
Certified Pre-Owned Versus Used
Let’s face it, "pre-owned” is just a salesy term for “used.” But a certified pre-owned vehicle is typically in better condition, in addition to having extras like a warranty. You get some of the benefits of a new vehicle without the depreciation that comes in the first year after purchasing a new vehicle.
If you’re shopping for a CPO car, it’s also important to look at new and used cars of the same make and model to compare the prices. Make sure the extra you’re paying for certified pre-owned versus used is worth it. You can typically purchase an extended warranty for a used car, as long as you shop around and work only with reputable providers, so a used car can have the same perks.
Read More: Negotiating a Used Car Price
Certified Pre-Owned Versus New
If you’re comparing a certified pre-owned car to a new one, the benefits are a little more obvious. A new car depreciates significantly during the early years of ownership. By the second year of ownership, your car will be worth 85 percent of what you originally paid for it, dropping 15 to 20 percent each year thereafter.
Used cars have long been a better financial option due to new-car depreciation. But with a used car, you often give up perks like a warranty. A certified pre-owned vehicle has the cost benefits of a used vehicle while still offering those new-car perks.
Still, if you’re looking for a brand-new car, you have to shop for a very low-mileage CPO vehicle. You may find you’re giving up the latest Bluetooth technology or that new-car smell, so you have to decide just how much those perks are worth to you.
Where to Buy Certified Pre-Owned
Given that not every “certified” vehicle is part of a manufacturer’s CPO program, it’s important to shop carefully. If you want to make sure a vehicle follows the manufacturer’s requirements, go to the dealership of that manufacturer. For a certified pre-owned Chevy, go to a Chevy dealership. For a certified pre-owned Ford, go to a Ford dealership.
If in doubt that a certified vehicle is actually certified, ask for details on what the certification process entails. Understand that widespread issues with a particular make and model of a vehicle won’t necessarily be fixed in a certified pre-owned vehicle, just as they wouldn’t be in a new vehicle. If in doubt, take the vehicle to a third-party shop to make sure none of those issues exists before you buy.
Why Certification Matters
The biggest benefit to purchasing a certified pre-owned vehicle is quality. Getting behind the wheel is a uniquely pleasant experience, but it can be cost prohibitive. Certified pre-owned vehicles let you enjoy that experience without the high cost.
But there are other new-car perks that you may find with a certified pre-owned vehicle. They include:
- Very low mileage: To qualify for a dealership’s certified pre-owned program, a car typically needs to have lower mileage than what you’d find with a used car.
- Clean history: While you should always look at a vehicle history report before buying, a certified pre-owned vehicle should have a clean history. This means no past accidents or disasters that led to damage that might cause problems later.
- Multi-point inspection: Many CPO programs require dealerships to put cars through a rigid, multi-point inspection. They look at all of the components, identifying any that need to be replaced or repaired, and do the work before putting it up for sale.
- Roadside assistance: New and certified pre-owned cars may come with free roadside assistance. If this is offered, ask how long it lasts. Some roadside assistance programs only cover the car during the initial warranty period.
- Free satellite radio: Although your certified pre-owned car may include free access to Sirius XM, be aware that this is usually just a free trial. At some point, the service will cut off if you don’t sign up for a paid subscription.
Pricing for Certified Pre-Owned Cars
As you’re considering all the perks of a certified pre-owned vehicle, it’s important to weigh the extra cost. Generally speaking, you’ll pay at least $1,000 more for a certified pre-owned car than you will for the same car without certification. In some cases, that premium bumps up to thousands of dollars.
How much is that certification worth to you? There are some things you can do on your end to enjoy the perks of a certified pre-owned car without the cost, including:
- Shop around: One defining factor of a certified pre-owned vehicle is its excellent condition. If you’re willing to broaden your search and take some time, you can track down a similar low-mileage vehicle in the make and model you want.
- Search the history: If the seller doesn’t provide it, pull a Carfax report on any used vehicle you’re considering buying. You can view any vehicle’s history for yourself.
- Request an inspection: Whether you’re going with a dealership or a private seller, you have the right to require that your own mechanic take a look at a car before you commit. This independent review gives you the information you need to determine if it’s a good buy.
- Purchase perks separately. You don’t need a dealership to provide you with Sirius XM access. You can buy roadside assistance, extended warranties, satellite radio and more. Plus, since you’re shopping around, you can choose the package that best fits your needs.
Read More: Compare AAA Vs. AARP Auto Club
The Value of Extended Warranties
One of the most valuable items in a CPO program is the extended warranty. You typically get a full bumper-to-bumper warranty, covering everything that could go wrong. But that warranty has limits. Usually, that extended warranty lasts one year or 12,000 miles, whichever comes first after you buy the vehicle.
Most CPO programs include a powertrain warranty that continues beyond the extended warranty. This warranty typically lasts for the full life of your ownership of the vehicle --100,000 miles or six to 10 years is the standard. A powertrain warranty covers the engine and transmission.
Although third-party extended warranties can be expensive, you can buy them through the dealership. It’s important to pay close attention to the fine print in the contract, though. You may find that a dealer-provided extended warranty requires you to bring your car to that dealership, while a third-party warranty lets you have the car repaired at any participating dealership.
Certified Pre-Owned and Financing
One benefit of buying a brand-new car is that you can often get a deal on financing if you go through the dealership. A certified pre-owned car sometimes comes with that same perk. As long as you have solid credit, this can save you some money on interest.
However, going through the dealership for financing isn’t always the best idea. As you’re shopping around, if you plan to take out a loan for your car, price interest rates at a variety of lenders. You can then compare them to what the dealership is offering to see if you’re getting a good deal.
Returning Pre-Owned Vehicles
In some cases, CPO cars come with a built-in return policy. That means if you decide it isn’t the right vehicle for you, you can return it and get a refund. This type of policy is unique to certified pre-owned vehicles, making it sometimes a better option than a new car purchase.
Even if your CPO vehicle doesn’t come with a return policy, lemon laws may still apply. These laws vary from one state to another, but if you buy a car with severe problems, lemon laws may require the dealership to refund your money. A used car won’t be covered under lemon laws without a warranty, but because CPO programs include a warranty, the verbiage in that paperwork protects you.
Read More: Can I Default on My Auto Loan If the Car Is a Lemon?
Selling Your Vehicle as CPO
Dealerships that sell CPO vehicles need inventory. That means if you have a low-mileage vehicle in excellent shape, you may be able to get top-dollar for your trade. It’s important to note that the dealership decides whether your car qualifies for its CPO program. You just increase your possible price by being aware of CPO programs.
If you’re hoping to make more money off your low-mileage car, SUV or truck, first be aware that dealerships can only sell their own makes and models as part of the program. So you need to take your like-new Volvo to a Volvo dealership, not a BMW dealership. You also need to have a squeaky-clean vehicle history report and a damage-free exterior and interior.
CPO Guaranteed Buyback Programs
In addition to roadside assistance and satellite radio, some CPO programs include something called a buyback program. A buyback program covers your vehicle if you discover fraud was committed. If you find flood damage or that the odometer was rolled back, for instance, you can return the vehicle for a refund as long as this protection is in place.
But this protection may be available no matter what type of car you buy. If the dealership provided a vehicle history report from AutoCheck, any errors may be covered. There will be a big logo on the front page of the report indicating buyback protection applies if the vehicle you're purchasing includes this coverage.
Shopping CPO Programs
The problem with buying a certified pre-owned vehicle is that the program differs from one manufacturer and dealership to another. If you’re open to a wide range of vehicle makes and models, shop around to find the dealership offering the best deals on a certified pre-owned vehicle. Decide the perks that are most important to you and find a dealership offering them.
But if you know the exact make and model you want, make sure you research all the dealerships within the distance you’re willing to travel. If there’s only one Lexus dealership in your town, but you don’t mind taking a day trip or even traveling overnight, you may find that you get a better deal by making that trip.
When a car is advertised as certified pre-owned, it typically means it’s been inspected and deemed to be in excellent condition. But not all certification programs are manufacturer-based, and programs can vary from manufacturer to manufacturer and dealership to dealership. So it’s important to clarify exactly what you’re getting by going with a certified pre-owned vehicle versus a used vehicle of the same age, mileage, make and model.
- U.S. News & World Report: Certified Pre-Owned Cars: What You Need to Know
- CarsDirect: Why Does a New Car Lose Value After It's Driven Off the Lot?
- Edmunds: Certified Pre-Owned Cars: A Reality Check
- Cars.com: Are Certified Pre-Owned Cars Worth It?
- Carfax: CARFAX Vehicle History Reports
- AutoTrader: Can You Return a Car You Just Bought?
- Norman Taylor & Associates: Is My Certified Pre-Owned Vehicle Covered Under Lemon Law?
- Cars.com: Is Your Trade-In a CPO Candidate?
- Car and Driver: Pros and Cons of Buying a Certified Pre-Owned Vehicle
- AutoCheck: Vehicle Buyback Protection
- Consumer Reports "The Truth About Certified Pre-Owned Cars," Accessed Nov. 30, 2019.
- Carfax. "Car Depreciation: How Much Value Will a New Car Lose?," Accessed Nov. 30, 2019.
Stephanie Faris has written about finance for entrepreneurs and marketing firms since 2013. She spent nearly a year as a ghostwriter for a credit card processing service and has ghostwritten about finance for numerous marketing firms and entrepreneurs. Her work has appeared on The Motley Fool, MoneyGeek, Ecommerce Insiders, GoBankingRates, and ThriveBy30.