How to Really Buy a Car

Buying a different car (notice I didn’t say new car) is an event many individuals experience throughout their lifetime. Personally, I have had a number of cars in my lifetime, and I’m sure I’ll have a few more (right now the ol’ mini-van stands at 241,000 miles). My goal is not to spend too much on a depreciating asset, yet make a sensible purchase based on reliability, fuel efficiency and insurance costs. Although some readers may not agree with me, here are some tips on how to really buy a car.

1. Do your homework. Websites such as Kelly Blue Book (kbb.com) and Edmunds.com have valuable information on used car prices, reliability reports, known recalls, expert and buyer reviews and what to expect at the dealership. In addition, obtaining information from these websites gives you bargaining power when you go to purchase your vehicle at a dealership or from a private party.

2. Never, ever walk into a dealership and tell them your monthly payment you’re hoping to get. In fact, don’t tell them if they ask you. Instead, negotiate the price of the car first. Many dealerships are more than happy to get you the payment you want, while not helping you consider total cost, interest on financing, etc.

3. Try to never, ever have a car payment. Think of it this way, you’re making monthly interest and principal payments on a depreciating asset. If you can, hold off on the purchase until you’ve saved enough cash to buy the car outright. This also gives you more negotiating power knowing you can walk away from the deal and buy the same car at a different dealership. And no, you don’t need a new car every five years.

4. Don’t buy the hype. Just about every dealership offers the same discounts and pricing. The reason is that other than freight charges, most dealerships pay the same for the new vehicles going on their lots.

5. If you can, avoid buying new car. Consider this; an individual making $100,000 in annual income who purchases a $30,000 new car just spent 30% (nearly a third) of their income on a depreciating asset. There are plenty of reliable, used cars that are in perfect working condition. In fact, take advantage of the fact that the used car has already had much of its depreciation absorbed by the previous owner. Furthermore, I have seen too many individuals buy a new car, finance it, then end up upside down on the car. This means they owe more than the car is worth. To make matter worse, some individuals wreck their cars, have nothing to drive, yet still have to make payments. Ick.

6. Buy your car before you have I’m not suggesting you buy a car you don’t need. What I am suggesting is that you have the car you want ready to purchase when you need to. That is, if your current vehicle breaks down or is no longer running, you know you can get the vehicle you researched, instead of making a fast, emotional decision that will likely cost you more money.

7. Avoid leasing. This never made sense to me. Often the rationale is “if you want new car every three years, then leasing is the way to go.” Baloney. Leasing is simply making a car payment on an asset you don’t Save up and buy the car outright. As mentioned earlier, if you don’t need a new car every five years, you certainly don’t need one every three.

8. The exhilaration of the purchase wears off fast. Buy a car that’s affordable, practical, reliable, and fuel efficient. Forget about what the Joneses have or what they think. Take what you would have paid for the monthly payment and put it toward retirement, college, or saving for a house.

9. Insurance matters. Especially if you’re young, insurance on vehicles matters. The price of insurance on a used sports car is much more expensive than a used sedan. In addition, lenders will often require that you have insurance to protect their asset (it is theirs since you borrowed their money to buy it) including comprehensive and collision which adds to premium amounts. Generally, the older, less sporty the car, the lower insurance premiums.

10. Avoid the extended warranties. In most cases, these warranties are not needed. Instead, use the aforementioned sites to research the vehicle’s reliability so you don’t need to purchase the warranty. Finally, should a major repair be necessary, simply use your emergency fund or rainy day fund to pay for the repairs. Also, a major repair doesn’t indicate you need a new vehicle. Quantify the cost of the repair versus a purchasing a different vehicle. Often, the price of the repair will outweigh purchasing a different vehicle altogether. Sometimes, repairs can be made by you. With a little elbow grease and YouTube you’d be surprised at what you can do, and how much you can save.