(MONEY Magazine) – Used car. The image isn't a pretty one. Slippery dealers in bad suits. Cream puffs that turn into lemons. The sense of helplessness that comes with not knowing how much you're being ripped off on what could be a $10,000 or $15,000 purchase. Well, snap out of it! The used-car market has changed drastically in the past two to three years. A combination of market forces and new technology is transforming the business, mostly to your benefit.

First, used cars are just better than they were: U.S. automakers worked hard in the mid-'90s to close the quality gap with Japanese manufacturers, and both domestic and import cars improved. Second, used-car prices have stayed steady or declined over the past year, in large part because of the constant stream of late-model cars coming off lease.

Better cars for less money--sounds easy. But other changes are at work as well, and these are far more complicated:

--The Internet. There are dozens of Websites vying for your attention. Which are worth your time? Is the pricing data on any of them reliable?

--Superstores. Clean, hassle-free and well stocked, these national chains have done much to improve the experience of shopping for a used car. But does their no-haggle marketing pitch translate into good deals?

--"Certified" cars. To fight back against the superstores, traditional dealers now offer late-model vehicles that are inspected and repaired according to the maker's specs and that carry a manufacturer's warranty. Is that protection worth the $700 on average that you'll pay?

We'll help you answer these and other questions as we steer you through the new way to buy an old car. On the theory that knowing the other guy's business can only help you at the negotiating table, we'll also take you inside a closed auction where dealers buy the cars they'll sell you (page 127) and explain how a car is priced in all the transactions you don't see as it moves from the new-car showroom to the used-car lot (see below). We've also included our choices for best values in three- and six-year-old cars (page 126).

We can't guarantee that our package will save you thousands of dollars. It's easy to knock four figures off a new car's sticker price, which is little more than a brazen attempt to goose a dealer's profit, and even he doesn't expect to get away with it very often. Used cars, however, are usually--though not always--priced closer to reality.

What we can do is show you how to avoid overpaying, how to make an informed decision about warranties and where to find the best combination of price and quality. The used-car bogeyman needn't scare you anymore.

FINDING THE RIGHT PRICE ON THE INTERNET

The Internet's reality often falls short of its hype. But as a place to find pricing information on cars, the World Wide Web works. Probably the best site is www.edmunds.com, run by the publisher of the authoritative Edmund's car guides. The free site, updated monthly, also offers safety and reliability ratings and performance reviews.

Let's say you're interested in a 1995 Toyota Camry LE V6, a popular, solid car. Edmund's will give you the average retail price and trade-in allowance, usually about 20% to 25% less than retail, which is close to the gross profit a dealer hopes to make on a typical sale. In mid-April, Edmund's priced this Camry at $14,610 retail, $11,685 as a trade-in.

These prices assume mileage of 12,000 to 15,000 a year and a car that is, as dealers say, "clean." To fine-tune that average, click on the links that explain how to adjust for mileage and options on the Camry. Edmund's tells you to deduct 8[cents] for every mile over 40,100 and add 8[cents] for every mile under 36,100. So cut about $400 from a car with 45,000 miles. Then click on the equipment link, and you'll learn to add $330 for a CD changer. If you print out the Edmund's screens, you'll have a benchmark to measure specific cars against.

To find these cars, start with the online advertisements. Besides Edmund's, we like two sites: Microsoft's CarPoint (www.car point.msn.com) and the automotive section of Yahoo! (www.autos.yahoo.com). All let you enter your zip code or home town and pull up local dealer ads for the model you want. We looked for 1995 and '96 Camrys in the Tampa area and turned up 11 on Edmund's, then found 22 others on CarPoint. Obviously there are more late-model Camrys than that for sale around Tampa; only about 10% of the dealers in a given area advertise on any one site. But online ads give mileage, engine specs and other details not found in newspaper classifieds. Those stats can help you decide how one car stacks up against another without having to visit multiple dealers.

Individual sellers and independent used-car dealers (not allied to a new-car dealership) also advertise on the Web. But think twice about using them when buying a late-model car; if anything goes wrong, you may have little recourse. (A late-model car bought from a new-car dealer almost always has at least a 30-day/1,000 mile warranty, and manufacturers often will respond to complaints about a used car bought from one of their dealers.) If you're looking for a pre-1991 model, you'll probably have to shop private sellers and independents, since new-car dealers often don't stock older vehicles.

WARRANTIES: A MIXED BAG

Once you have a good idea of prices in your area, line up your financing. Then, before you start calling or visiting dealers and superstores, ask yourself this question: How much protection do you need to sleep at night? The answer will determine how and where you shop. Do you want to pay from $500 to $1,500 over the average retail price for a car that's been certified as mechanically sound and re-warrantied by a manufacturer? Or does getting the best price possible make a dealer's normal 30-day warranty acceptable? Given the improved quality of most late-model used cars, we think certification and other warranty options aren't worth the price, especially since you can have a car checked out by a mechanic before you buy. But that's our opinion. Certified cars are popular because they offer peace of mind, and you may decide that's worth an extra 3% to 10%.

If so, head directly for local dealers offering certified cars, which tend to be big outfits in or near major cities. About half of Toyota's dealers, a third of Ford's and a tenth of GM's participate in certified programs. To certify a car, the dealer inspects and reconditions it to meet a checklist of 100 or more items. The manufacturer sponsors (and charges the dealer for) a warranty that runs at least one year or 12,000 miles and comes with roadside assistance. That protection is often added to the end of any new-car warranty that's still in effect on the two- to four-year-old vehicles that are in certification programs.

Be advised: Warranty details vary wildly. BMW adds two years or 50,000 miles to its new-car warranty, and the add-on covers almost everything. Toyota extends its new-car warranty to a total of six years or 100,000 miles but insures only the engine and transmission. General Motors adds 12,000 miles or one year to its new-car warranty and protects nearly the whole vehicle.

Our problem with certified cars is that they cost too much: an average of $700 more than the same model without certification. Certified Toyotas command up to an extra $1,500, giving the dealer a markup on repairs and warranty of nearly 100%. That seems expensive to us, considering Toyota reliability. And since certified programs are popular, it's difficult to negotiate the warranty bill.

Once a car hits 50,000 to 60,000 miles, manufacturers don't want it in their certified programs. Here the alternative is the dealer's extended-service contract. Shop carefully. These contracts can be overpriced and may duplicate coverage that's still left on a new-car warranty. You may be able to knock a couple hundred bucks off a dealer's opening price, however. Never pay more than $500, and buy protection only for the engine and transmission, the sources of the biggest repair costs.

HOW TO USE THE SUPERSTORES

If you don't need a warranty and you live in the right area, start your shopping at used-car superstores, principally CarMax and AutoNation USA. They blanket the Southeast and Southwest and are arriving in California, the Midwest and the Northeast. A superstore will let you view a big selection quickly in a no-pressure atmosphere. You can pick up printouts detailing the mileage and options on cars you're interested in. The stores won't haggle on price but may negotiate over your trade-in.

Superstores are clearly the best places to shop, but they aren't necessarily the best places to buy. Research by CNW Marketing/Research of Bandon, Ore. shows superstore prices average nearly 1% higher than franchised dealers'. Take the superstore printouts to a local dealer. He should be able to beat the competition by $200. You may even get a car with fewer miles because dealers affiliated with a maker get first crack at the best cars leased by the manufacturer's finance arm. Most dealer cars are leases or trade-ins, which are generally in better shape than the rental and corporate fleet vehicles that tend to find their way to superstore lots. (Superstores note that they also get cars through trade-ins and from the two-thirds of leases financed by third-party lenders.)

If you aren't near a superstore, arm yourself with those Edmund's printouts. For a late-model car with less than 40,000 miles, push for the average retail price--probably $800 below asking price. If the car is a little worn, aim at least 10% below average.

As an alternative strategy, make a cash offer of 10% over what the dealer paid for the car, provided he shows you his paperwork. Many dealers won't do that; others will if their inventory is high.

You've got a deal, but you're not done yet. No matter how much used cars have improved, plenty can go wrong. So run two checks. For $12.50 on the Web (www.carfax.com) or $20 by fax (888-422-7329), the database firm Carfax will research a car using its vehicle identification number, or VIN, found just inside the windshield. Online ads also list the VIN. If the car now has 30,000 miles on its odometer but had 50,000 when its title last changed, take a pass. Carfax says it finds a red flag for one in nine cars.

Once the car checks out, have a mechanic inspect it. Some dealers, worried about thieves, won't let their cars off the lot, but you can hire an on-the-spot inspection service for $100. It's worth the price. After all, shopping for a used car has become less scary, but you don't want to be doing it again too soon.