Buying a car is a necessary evil for those who are financially savvy. Why? Because a car is a lot of money and it depreciates almost immediately. Basically, it’s an investment that’s going to decrease in value. Nonetheless, most of us need a car. So, for that reason, here’s what you need to know…
5 Dos for Buying a Car
1. Create a budget and stick to it.
- Figure out how much car you can afford and create a reasonable budget.
- Don’t test drive an Audi if you can’t afford it. Instead, create your car budget and stick to it. Don’t even look at cars out of your price range. This means that you’re looking at the total price, not payments.
2. Research and test drive before you decide what to buy (shop before you buy).
- Research cars to compare prices, reliability, and overall reviews to make sure it’s a good overall fit.
- Find out what the dealer paid for the car. You need to know how much the dealer stands to profit in order to be in a good position for negotiating.
- Test drive cars and determine which car you want to buy.
3. Negotiate via email or phone (not in the dealership).
- Call or email dealers and talk price. Don’t cave to an appointment – do your negotiating via email or by the phone. This will take all emotions out of the process, which is what the dealer doesn’t want.
- Talk price, not payment. You want to focus on the total price of the car, not the payments.
- Negotiate upwards from the dealer price versus downward from the sticker price (the sticker price is the price the dealer is offering to sell the vehicle).
4. Buy used unless you’re filthy rich.
- A new car goes down in value as soon as you drive it off the lot. A new vehicle depreciates about 15-20% each year (30-40% loss after two years). If you can afford this immediate depreciation, then go for it – otherwise, make the financially wise decision and buy used (I like to buy 2 years old, certified pre-owned).
5. Sell your car privately.
- You’ll get more money for your car, in general, if you sell it privately versus using it as part of your trade-in. You can see this when you use Kelley Blue Book to estimate the value of your car – the trade in to a dealer price is always less than the sell privately price.
5 Don’ts for Buying a Car
1. Don’t lease unless you’re filthy rich.
- Leasing creates the habit of having a car payment (or renting). You don’t actually ever own the car, so after the number of years, you have to start over. When you own a car, you can pay it off and continue to keep the car for years to come. If however, you are rich and can afford to constantly pay for a car without ever owning it, I have no problem with it. But for everyone else, leasing a car doesn’t make financial sense.
2. Don’t finance for more than three years.
- Three years is a good indicator of how much car you can afford. Any longer and you’re stringing on payments for years, adding hundreds of dollars to the overall price of the car by way of interest.
3. Don’t try to keep up with the Joneses (or your friends).
- Your financial situation is different than everyone else’s. Remember this when it comes to cars. What your friend buys is not what you should buy. You should do what’s wise for you given your financial past and your future goals.
4. Don’t forget to consider the “total cost of ownership”.
- Maintenance, gas, and insurance should factor in to your budget. It’s not about the monthly payment of a car – it’s about the overall cost of owning a vehicle. Remember this when you’re creating your budget.
5. Don’t show your hand to the dealer immediately during negotiations.
- Like any good negotiation, you should try to hide your hand for as long as possible. Otherwise, you’re helping your opponent and giving him the leverage that you want on your side.
Remember that there’s no rush to buying a car. You should shop first and take your time, then buy. Use the dos and don’ts from above as a guideline for yourself or as helpful tips. Only you know your financial situation, so always make the wise choice for you. Buy a car the right way so you don’t regret it later. And remember, “it’s better to want than to owe.”