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How to saving thousands by buying a repo

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Vehicle repossessions are financial tragedies of the first order, but they can be bonanzas for bargain-hunting car shoppers. So says Gary Hoffman, writing for AOL Autos:

In one of the few silver linings of today's economy, more and more repossessed vehicles have streamed into the market, offering consumers at least the possibility of saving thousands of dollars on good -- and sometimes spectacular -- used vehicles.

"Repos can be a good deal if you are smart and know what the market value of the vehicle is," said Jeff Ostroff, publisher of carbuyingtips.com.

About 1.8 million vehicles were repossessed in the U.S. last year, up from a million in 1995. The rising tide hasn't spared owners of high-end vehicles either, as BMW's, Jaguars and Cadillacs are well represented on repo lots around the country. Repossessed vehicles are sold from a wide range of venues, from financial institution parking lots and websites to auto brokerages and car auctions.

A risky proposition?

Shopping for a repo vehicle can be a trip into uncharted territory. The actual condition of the car, truck or SUV is always the big unknown. Vehicle histories aren't always available or may be incomplete and repo vehicles usually lack warranties. If owners have been in dire financial straits, they may not have been able to afford regular service for their vehicle. Some have been known to stop maintaining fluid levels or to trash their cars as a parting message to their lender.

In the worst-case scenario, a bargain hunter may not be able to distinguish a repo vehicle from a salvage vehicle. By definition, a salvage vehicle has suffered damage equivalent to at least 70 percent of its value. That means it could be ready for the junkyard -- or have just come from one.

"When something is 'as is,' with no warranty, you are assuming 100 percent of the risk," Ostroff said. "If the car were to drop dead after you drive 30 feet off the site, you own it."

Perhaps the easiest way to buy a repossessed vehicle is to visit a dealership that specializes in them. While the discounts you'll get from a dealer may not be as substantial as can be had at an auction, buying from a dealership offers another upside. Without the high-pressure environment of an auction, buyers may be able to do a more thorough inspection of the vehicle.

And even at a dealership, buying a repo car can save you plenty. For example, Schultz Auto Brokers of Wayne, Michigan, recently put a $10,500 price on 2004 Audi A8L Quattro, which was about $2,000-$4,000 below its book value. In mid-October, a 2002 Jaguar XJR was priced at $9,500 -- as much as $4,000 below its value.

Another option for buying a repo is to inquire at your local bank or credit union, as some financial institutions offer repossessed vehicles for sale directly at a branch or on websites.

If a vehicle is in good shape, a credit union may be tempted to sell it directly to one of its members, said John Kurtz of the Texas Credit Union League. He has seen credit unions market their repos from branch parking lots. Sometimes, members will be given a chance to bid on a car over a period of several days, with the vehicle going to the person who makes highest bid over a set minimum.

Some institutions will also sell repo vehicles for fixed prices. Buyers benefit in two ways, as they pay a fairly low price for a used car and get rock-bottom interest rates in the bargain.

"Credit unions usually set the sales price to cover the amount owed on the loan," Kurtz said. "They offer interest rates as low as zero percent on the car, but there is no bargaining on the price."

A repo car tends to be in the best shape if the borrower has turned it in voluntarily, Kurtz said. So a consumer would be wise to ask how the car was repossessed. If a car has been abused, the credit union often won't be selling it on its own -- it's usually taken to auction, he said.

This is the classic strategy for buying a repossessed vehicle, and the way some savvy buyers have been known to reap the biggest savings.

Jeff Karpinski, general manager of the Greater Detroit Auto Auction in Brownstown, Mich., said bidders can generally count on good prices at his events. "On the bank repossessions, the prices are almost always below Blue Book," he said. "That's just the way the auction formats work." Bidders tend to be cost-conscious and don't drive prices beyond that level, he said.

Auctions also pose a special challenge to consumers. Vehicles in every imaginable condition are on the lot, and it can be hard to find a good one. Vehicle documentation is another issue. In many cases, that can be in even worse condition than the cars. One of the clear signs to walk away from a deal is that there's no title, which means a buyer may have problems proving ownership or licensing a vehicle for the road.

A buyer might be told that the title is "in transit," but according to Ostroff, "There is no reason for the bank or the repo company to not have a title."

Some auctions make the process a bit easier for buyers. At Greater Detroit Auto Auction, bank repos account for just a small portion of the 300 to 500 vehicles auctioned each week at his company, and they are clearly designated on its bid lists, Karpinski said. Each comes with a vehicle history and a title in the bank's name, with VIN numbers and pictures posted on Greater Detroit Auto Auction's website. Creditworthy buyers can even head into the auction with pre-approved financing from a credit union affiliated with the auction.

Many auction houses even offer customers the chance to inspect and drive vehicles before the bidding starts. Interstate Auto Auctions in Salem, New Hampshire, for example, holds auctions on Wednesdays and Saturdays and gives bidders access to vehicles for several hours before each event.

In this uncertain environment, buyers ought to at least exercise some control over the price they are willing to pay. Ostroff recommends that buyers set their maximum bid in advance. In the weeks before the auction, they can go on eBay and look at successful bids to get a price range for the models they are targeting, he said.

"Because you are taking on additional risk, you want to get the car even cheaper than those prices," said Ostroff. "If your bid isn't accepted, that's fine. If it is, then you got a really good deal on something that is in your price range."

And that, of course, is what makes all the effort worthwhile.