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Understanding Certified Pre-Owned Cars

What Is a Certified Pre-Owned Car?
Austin Kilham
Austin KilhamUpdated April 11, 2023
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As 2022 came to a close, the average price for a new car hit $48,681, a new record high, according to Kelley Blue Book. As the price of new cars continues to climb, consumers experiencing sticker shock may increasingly look to used vehicles. Certified pre-owned (CPO) cars offer a number of advantages over other options for those looking for a quality used vehicle. You can typically find CPO cars at a dealership that sells new cars. But before you make a visit to your local dealer, here’s what you need to understand.  

What Is a Certified Pre-Owned Car? 

A certified pre-owned car is a used car that’s usually less than five years old and has less than 60,000 miles on the odometer. They are typically sold by franchised new-car dealers. CPO cars receive an inspection by factory-trained mechanics, and worn out parts or other damages are replaced or repaired. The car is fully backed by the manufacturer, and is sold with an extended warranty that works at any dealer throughout the country. CPOs may come with other services such as a limited bumper-to-bumper warranty and roadside assistance. Be aware the “dealer certified” is not the same thing and does not come with the full backing of the manufacturer. The CPO process eliminates a big sticking point for many when it comes to buying a car on the used car market — namely whether they’re buying a car in good working order. A CPO car essentially offers a guarantee that the vehicle you buy is in good condition, so you can save money on a car and still maintain good peace of mind. 

Difference Between Used vs Certified Pre-Owned

Used cars typically don’t come with the perks offered by CPO vehicles. When buying a regular used car, you’ll be responsible for paying to have it inspected. You’ll also likely be responsible for making any necessary repairs to the vehicle. A used car may still be under the manufacturer's warranty if the warranty is in effect and fully transferable to a new owner. Regular used vehicles in a variety of outlets, from private parties and franchised dealers to rental companies and leasing companies. A used car may also be of any age and mileage, whereas CPO vehicles must fall under strict age and mileage limits. And finally regular used vehicles can be in any condition and have any accident history. Cars with major damage in their past typically aren’t eligible for CPO programs. Recommended: Trading in a Car in 5 Easy Steps

Pros and Cons of Certified Pre-Owned Cars

When weighing whether or not to buy a CPO car, there are a number of pros and cons to consider. For one, there’s peace of mind. You know you’ll be buying a late-model vehicle — a car that’s been recently designed and manufactured — and you know that it’s passed an inspection that certifies it to be in good working order. CPOs include a manufacturer backed warranty and should cover any repairs needed during the given period of time. So there is no need to worry that you’ll be left scrambling to cover the cost of unexpected repairs. What’s more, if you need to finance the purchase of a CPO vehicle, you may find you qualify for a lower interest rate. For example, many dealers offer special CPO rates that are lower than traditional used car rates. On the downside, there’s no guarantee that problems won’t crop up. The certification and warranties reduce the risk the buyer is taking on, but use cars can still have troubles related to normal wear and tear. CPO vehicles are also more expensive than regular used cars. That’s because the dealer foots the bill for the inspection, any necessary repairs, and they may even need to pay a fee to participate in the manufacturers CPO program. Those costs are all passed on to the consumer. For low-cost vehicles, the price difference between CPO and regular used cars may be several hundred dollars. It may climb to several thousand dollars for luxury vehicles. Finally, when you shop for a CPO vehicle, you are limiting the pool of vehicles you can choose from and the places from which you can purchase a used car. 

How to Buy a Certified Pre-Owned Car

When buying a CPO car, your first step is to figure out your budget. You can use online resources like Kelley Blue Book or Edmunds to help you look for makes and models that you can afford. Once you’ve decided on a make and model go to a dealership that sells certified-pre owned vehicles of that manufacture. Looking for a CPO Toyota? Head to a Toyota dealership. Recommended: 9 Tips on How to Shop for Auto Loans

Is Buying a Certified Pre-Owned Car Worth It? 

Consumers may pay hundreds or thousands of dollars more for a CPO car compared to other used options. Whether or not the increased price tag is worth it may come down to personal preference. As a car buyer, does the responsibility of having a vehicle inspected and repaired on your own sound like a burden? Does it bother you if a car shows some signs of wear and tear on the exterior? Do you prefer to have a late-model vehicle? If the answer is yes to these questions, a CPO might well be worth it. 

Is It Better to Buy a New or Certified Pre-Owned Car? 

A new car offers many of the same guarantees as a certified pre-owned vehicle. They are guaranteed to be in working order, and the manufacturer’s warranty covers repairs. That said, they cost quite a bit more. So how do you compare the two? For one, if you’re someone who likes to have a car with the latest features and safety technology, it may be worth it to buy the new vehicle. However, if you don’t mind being a few years behind, a CPO car may be more economical. This is especially true given that cars depreciate quickly during their first years on the road. In fact, a car can lose up to 20% of its original value in the first year and 40% by year five. As a result, a CPO vehicle that’s just one year old may offer significant savings over a new counterpart with little wear and tear and little lag time when it comes to technology. 

The Takeaway

A CPO vehicle can take a lot of the guesswork, and legwork, out of buying a used car. For many, the peace of mind offered by the certification and inspection processes and manufacturer's warranty is worth the steeper price tag. And if repairs are needed during the warranty period, the CPO price may quickly pay for itself.  

3 Auto Loan Refinance Tips

  1. Refinancing your auto loan could lead to lower monthly car payments and more money in your budget. Lantern by SoFi can help you find the right auto refi loan for you.
  2. Shortening the term of your auto loan may increase your monthly payments, but you’ll likely pay less in interest over the life of the loan.
  3. Generally, the newer your car, the lower the refi interest rate. This is because younger cars typically have a higher value than old or used cars — and the car serves as collateral for the loan.

Frequently Asked Questions

What is a certified pre-owned car?
Are certified pre-owned cars guaranteed by the seller for quality?
What is the difference between a certified pre-owned car and a used car?
Photo credit: iStock/AleksandarNakic

About the Author

Austin Kilham

Austin Kilham

Austin Kilham is a writer and journalist based in Los Angeles. He focuses on personal finance, retirement, business, and health care with an eye toward helping others understand complex topics.
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