For the past decade I’ve driven my cars into the ground. Two of my last three cars were driven, quite literally, until the engines blew up and they had to be towed away. The average age of my last three cars at the time I bought them has been 13.5 years old. Buying older cars and driving them into the ground has allowed us to get ahead financially. In fact, driving older POS vehicles for the past decade allowed us to buy a brand new car this week.
Buying a new car is downright blasphemous in the financial independence, early retirement community. For many of you this is a cardinal financial sin. This post isn’t to try and convince you otherwise nor to justify my decision to buy a new car to anybody, nor should you feel the need to justify your financial decisions to anyone but yourself.Personal finance is just that – personal.
Just because many “experts” tell us all to not buy new cars doesn’t mean we shouldn’t ever, under any circumstances do so. Those experts might be right most of the time, but every situation is unique and there isn’t a one size fits all, single path to financial independence.
Understand your own situation. Consider the many variables that are unique to you. Think it through, but in the end, do what’s right for you.
If you do find yourself looking to buy a new car I want to tell you how I go about the process. I was a car salesman when my wife and I got married 17 years ago. I sold new and used cars for about four years and while I’m certainly no expert on the matter, I think I know how to buy or lease a car better than the average Joe off the street. Maybe this post will help you save a few bucks next time you’re in the market for a car; it’s worked well for me and my family.
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5 TIPS THAT WILL HELP YOU GET A BETTER DEAL ON YOUR NEXT NEW CAR
Don’t rush it.
The best way to get a bad deal in almost any situation, especially when making big ticket purchases, is to put yourself into a position where you HAVE to buy something quickly (think last minute purchases for birthdays, anniversaries, Christmas, weddings, etc). Next time you start shopping for a car, take your time, do your homework online, read reviews, keep narrowing down your search until you’re looking for a very specific vehicle. When you know exactly what you want (and what you don’t want), and what a good deal looks like you’ll be able to stay focused and keep emotions out of the transaction when the time comes to make the purchase.
Dealerships will often “hold points” on your auto loan when you finance a vehicle through them, which ends up costing you a lot of money over the life of your loan. Here’s how it works: when a dealership sends your credit application to a bank for approval, the bank will tell the dealership ‘We’ll offer this buyer a loan at 4% interest.’ The dealer comes back to you with the good news: “We got you approved at 5%!”
In this example the dealer holds that one percentage point for themselves as profit, which is very common and totally legal. You can avoid this by pre-arranging your financing with a locked in interest rate before you ever step foot on a car lot. If the dealership can get you a better interest rate than the one you walked in with then great, take their better deal, but don’t let first interest rate you see come from the dealership.
Paying cash? Keep that quiet.
Some people think that you’ll get a better deal by being a cash buyer. That’s usually anything but true if you’re buying from a dealership. Dealers make their money from several different sources* (trade-in, new car, financing (i.e. holding points), service packages, extended warranties, accessories, etc).
When you eliminate that potential source of income from the dealership then they’ll attempt to make up for it elsewhere, usually in the form of a higher price on the car you’re buying. If you are paying cash, there’s no need to start your negotiation off by saying “Give me your best cash price” – that’s a great way to make sure you pay a higher price. Instead, keep that information to yourself until the price of the car has been agreed upon.
One deal at a time.
If you’ve got a trade-in then you’re actually buying and selling two cars: yours and theirs. When this happens it’s best to deal with one transaction at a time. Either focus in on the price of the new car first, or lock in the value of your trade-in first – never look at ‘blended numbers’ where the details from both transactions are smooshed into one. That gets confusing and it’s easy to get bamboozled.
First, agree on the price of the new car. Only then should you let your salesman know that you’ve also got a trade-in. By doing this, you’ll see the true price of the new car you’re buying and the true price of what you’re getting for your trade. When you combine the two transactions, it all becomes a shell game when numbers are shifted from new car to trade-in, then back again until you’re looking at something which is hard to understand.
Don’t bother, just do one deal at a time. In our case, we were able to agree on a number we liked for our trade, then we focused on the price of the new car. That’s backwards from how I like to handle things, but that’s OK. Whatever order you do this in, just make sure you deal with one transaction at time.
Stick to your budget or walk away.
After you’ve narrowed your search, test driven several different cars and finally found the exact one you want, it’s time to start talking numbers. I prefer negotiating face to face, but many like to do their negotiating over the Internet. Whatever works best for you is great, but I prefer in-person transactions.
Part of doing your homework (from step one above) is knowing what a good deal looks like for the vehicle you’re buying and how much you’re willing to pay. At the beginning of every negotiation I make it clear to my salesman that I have a very specific budget that I’m working with, and that I won’t “get close” or “almost get there” – I need to come in under our budget or there’s no deal.
Depending on the personality types of you and your salesman, it can feel uncomfortable to hold firm and not budge. That’s not you being a jerk – you’re just protecting your wallet. And from the salesman’s perspective it actually makes doing the deal pretty simple. No B.S. or games – just a single number to deal with. When you’re willing to walk away, you have all the leverage. The dealership has the car you want, you have the money the dealership wants. If you’re willing to walk away, you have the upper hand.
Got any car buying tips of your own to share? How about a horror story? Leave a comment and let us know.