Auto manufacturers offer certified pre-owned programs to alleviate car buyers' concerns about buying a lemon. But how much more should you be willing to pay for a certified pre-owned car?

In a recent post, we talked about why you should (almost) never lease a new car.

But let’s say you want a used car. As with new, there are also multiple factors to take into account. You can buy the typical used car, either from a private owner or a car dealership, or take a dive into a category known as “certified pre-owned.”

Wait, isn’t that just a fancy name for a used car? Well, not exactly. But understanding the world of certified pre-owned can be daunting. For the meantime, let’s put it this way: It’s not the same thing as buying your Uncle Ronnie’s ’83 Chevy Caprice for dirt cheap. Here are some important pointers on how to get the most drive for your dough.

Why pre-owned cars?

If you’re considering saving money by buying a new car, the first thing to keep in mind is that they don’t make used like they used to, in a good sense. “Used cars last much longer than previously,” says Jack R. Nerad, Executive Editorial Director of Kelley Blue Book’s “These days even cars with 100,000 miles on them can be good values.”

Now that doesn’t apply to every used car, so which ones with high mileage can still deliver high value? Says Nerad: “Toyotas and Hondas typically are very reliable and long lasting as evidenced by our resale values for them.”

Used cars can also present a bargain compared to their newer counterparts—not just in price (typically half or less when the car is at least four years old), but also in terms of what you get. That much cheaper used car may come with a lot more fancy options than the new model in its most basic form.

The pitfalls of typical used cars

Especially when you buy from a private owner, it’s difficult to tell how much that used car was used up: that is, how previous drivers treated and maintained the car, regardless of mileage. (You can kick the tires; it won’t help.) The seller, even if it’s a friend or family member, may have no idea when a costly repair lurks just around the corner. Think of all the fights that get started this way.

For anyone buying privately, insist on taking the car to a mechanic—preferably one that you know and trust—to get the car checked thoroughly. But even then, one ace grease monkey working over a few hours might not catch everything potential issue.

If the owner can produce documentation of regularly scheduled maintenance (oil changes, tune ups, tire rotation) you’ll at least have some indication it was properly cared for. But fixed body damage from a collision, for example, is hard for the typical buyer to spot.

And if you buy from a dealership, small or large, you need to know two things. First, there may be limited guarantees, or none at all, once you drive off the lot. And second, dealer financing terms will often be less favorable. That’s especially true at small, private car lots not operated in association with any major brand — the kind that promise financing to just about anyone.

Buying a certified pre-owned car can at least answer the wear-and-tear questions and how they were addressed. The financial picture has upsides, as well as downsides, which we’ll address here.

Understanding certified pre-owned

Certified pre-owned cars started with luxury brands such as Lexus and Mercedes-Benz, and have now filtered down to virtually all makes and models. The advantages are many—so much so that some would argue that “pre-owneds” belong in a category of their own.

A certified pre-owned car is usually less than five years old, with a maximum of between 50,000 and 80,000 miles. (Toyota’s can be up to seven years old, and Porsches eight, the Kelley Blue Book people tell us.)

Unlike the typical used car, a certified pre-owned is put through a fairly rigorous inspection by auto manufacturers: somewhere between 100 and 160 inspection points, Nerad says. “Certified pre-owned cars can take the worry out of buying a used car, if they are certified by the automaker,” he adds. Yet he also advises to “be wary of other certification programs” that mimic the CPO process.

Dealers also attach extended warranties and other perks before offering these cars. And yes, it’s true that dealers can charge premium prices as a result, in part because CPOs have been heavily marketed to consumers.

Kelly Blue Book cites the example of a larger non-luxury car, which might have a certification premium above $1,000 compared to its run-of-the mill used counterpart. By entering information here, can tell you the value of any make and model—certified, dealer used or from a private seller—with the added flexibility of selecting the year and options. It will also give you a reasonable guess on mileage.

Let’s take a standard hatchback 2009 Toyota Prius in very good condition. In will likely have about 73,000 miles on it; a fair price is $13,460 as a CPO, $12,160 from a dealer, and $10,692 privately purchased. KBB also puts you a click away from credit checks, insurance and extended warranties.

Nearly $2,800 might seem like a high premium to pay between privately used and CPO. And that’s where you need to use your judgment and research skills. The more you know about that privately sold car, the better you can determine how quickly the price difference might be a steal … or get eaten up by mechanical headaches. But there’s more to the picture.

So which option is best?

Nerad points out that CPOs will come with warranty coverage (typically at least five years and 60,000 miles), along with special financing terms that make them worth the extra cost. “Peace of mind will be much better with a CPO car,” he says, adding: “I think CPO cars can be excellent values for many buyers.”

That’s not to say you won’t do well with the other options. It’s also important to point out that any used car, even a certified pre-owned, can run into trouble. But if you go in with a warranty, and come out with better financing, there’s a lot to like about certified-pre owned vehicles.

Besides, your Uncle Ronnie smoked like a fiend. How on earth are you gonna get that cigarette smell out of that Caprice?

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About the author

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Based in Chicago, Lou Carlozo is a personal finance contributor for Reuters Money, a columnist with, and a former managing editor at AOL's Contact him with story ideas for Money Under 30 at [email protected], or follow him via LinkedIn and Twitter (@LouCarlozo63).