Can Buying a Demo Car Save You Money?

You're on the dealer lot or website and come across an intriguing used car. It is the same model year as what's currently available new, yet it is being sold at a discount for thousands less than the MSRP of a new one. This used car could either be a demo, loaner or program car, which saw limited use in some dealer capacity and is now being sold as a used car. But are any of these vehicles actually a good deal? 

In some cases, a demo vehicle can be a good way to save some money on a nearly new car. But shoppers need to do extra research to make sure they know the vehicle's history and condition and verify whether the price is actually a good one.

Definition of a Demo Car, Program Car and Loaner

Car dealerships use demo cars for test drives when popular new models are in short supply, explains Chris Cutright, a former car salesman. Often, the dealership's managers also use demo cars for commuting. However, dealers do not always register demo cars, so the vehicles may still be considered new, even with the added mileage. When their dealership duties are over, the cars go up for sale with between 1,000 and 3,000 miles on their odometers. Demo cars come either from the dealership's own inventory or an auction at which the used-car manager purchased them, Cutright says.

Demos shouldn't be confused with what are called "program" cars, which are driven by manufacturer representatives and then distributed to dealers to sell, with as many as 10,000 miles on the odometer.

Finally, a "loaner" or "courtesy vehicle" is a used car that was once used as the temporary mode of transportation for customers whose vehicles were in the service department. 

Demo Cars: Pros and Cons

"Buying or leasing a demo car can be a great deal if the price is right," says Dennis Rayfield, the former fleet manager for a Hollywood talent agency. He now works for Edmunds giving car-buying advice to consumers via the Live Advice service. In some cases, he purchased these cars for his clients to save money. In other cases, he bought demos because he couldn't find a car with the options and features a client wanted in the dealership's inventory.

Buying a demo car is a "potential" good opportunity, stresses Oren Weintraub, president of Authority Auto, a car-buying service in Sherman Oaks, California. But here's the key: Is the dealership willing to give you a good price? A demo car is not automatically a low-priced car, Weintraub says.

Cutright agrees. While demo cars offer the opportunity for a bargain, a smart shopper can often do just as well buying a new car. With manufacturer incentives, special leases and smart negotiating, "you don't have to mess around with things like buying a demo," he says.

Other Tips to Consider

Still, because a demo car is a used car with some miles and a little wear and tear, the savvy shopper can press for a good deal. But the experts say to keep these points in mind:

Verify the car's history: Ask the salesperson for details about the car's use. Also, request a vehicle history report and read it carefully. Otherwise, you could miss something important.

Check the warranty date: Ask the salesperson to provide proof of the "in-service" date, which is when the warranty begins. The in-service date is usually the date when the buyer purchased the car. But the in-service date could be earlier if the dealership uses the car as a demo. Unless the dealer extends the car's warranty, the buyer misses out on what could be months of coverage. If the warranty has already started to run and the dealer isn't willing to extend it, ask for a lower purchase price.

Compare it to a certified pre-owned (CPO) vehicle: In most cases, though the demo is being sold as a late-model used car, it will not be considered a CPO vehicle. This distinction means that it will not have the benefits of a CPO, such as an extended warranty or complimentary maintenance. Honda's HondaTrue Certified+ is one of the first CPO programs to rectify this issue, offering an additional year of warranty coverage for loaner vehicles. Another thing to keep in mind is that if you go back a couple of model years, the CPO vehicle will usually be less expensive than the demo. 

Do a new-car cost comparison: Get a price quote for the demo car from the dealer and then look up the cost of a comparable new car. Make sure you review the True Market Value (TMV^®) price of the new car and include any incentives and rebates. Then ask yourself if you are really saving enough money on the demo car to justify the other factors such as the wear and tear, miles and shortened warranty.

Price the demo: There is no official way to price a demo car. But the pricing experts at Edmunds recommend that you use this method to arrive at an approximate value:

1. Calculate the TMV price for a comparably equipped new vehicle of the same make, model and style.

2. Apply any new-car incentives or rebates being offered for that make, model and style. Consult our Incentives and Rebates section to determine if any are currently available for the vehicle you're considering.

3. Deduct at least 20 cents for every mile the car has been driven. This figure is compensation for the mileage driven and for wear and tear on the vehicle.

Check the condition: Salespeople use demo cars for test drives, and the tight quarters of dealership car lots are notorious for producing dings and scrapes on cars. That's why it's important to check any demo car for damage. Ask the salesperson if the vehicle has had any bodywork or painting.

Cutright offers one more note of caution. Some salespeople might offer a demo car and make shoppers think they're getting an inside deal. But if you take the time to check pricing and run a comparison, you might just find out that the demo "isn't any less than a brand-new car they just got off the truck," he says.

Take the time to run the numbers on a demo car. Then you will know for sure if it's saving you money or not.