Buying a car definitely takes a good bit of time and effort. It’s a big purchase and, if you’re like us, you want to get the most bang for your buck. Both of our cars are still running pretty well, but we know that they won’t last forever, so we’ve been thinking ahead.
At some point we’re going to have to replace them, so we opened a savings account specifically for a new car. Even though we hope to put off the purchase as long as possible, we want to prepare now for the inevitable purchase.
What’s your budget and time frame?
The biggest factor for most people when deciding whether or not to buy a new car, as well as which one to get, is their budget. You have to first determine how much you can afford, and then whether or not you’ll be able to buy it with cash, or if you’ll have to take out a loan.
Having no car payments is great for your monthly budget, so don’t just assume that you should go for a new car loan like many people do. If you are looking at making car payments, you should plan on making a nice sized down payment to minimize your monthly obligation.
If you already own a car, you have two options, and each has its own pros and cons.
- You can drive your current car until it completely dies. This option can give you some more time to build up your car fund. The downside is that you won’t get much (if anything) in return for your current car.
- You can buy another car sooner and sell your old car. This option may give you some more money than the first (depending on the condition of your car), but it also means you’ll have to buy a new vehicle much sooner.
In our case, we’re planning on driving our cars for at least a few more years. We’d like to build up our car replacement fund up to an adequate level instead of having to borrow a bunch right now.
What to look for in your next car?
Before getting into the new vs. used debate, you should have a list of desirable features in mind for your next car. This list should include both deal-breakers and preferences. Some factors to consider include:
- Manual vs. automatic transmission
- Coupe vs. sedan vs. SUV
- Passenger and cargo capacity
- Engine size
- 2WD vs. 4WD
- Standard vs. hybrid drivetrain
- Historical reliability
- GPS, Onstar, entertainment system, etc.
Using resources like Consumer Reports and Edmunds can help you determine which cars fit your needs. Regardless of where you stand on the above list, you should always consider the total cost of ownership on the various makes and models.
Now that you have an idea of the type of car you want, you can decide whether you should get a new or used model.
Buying new vs. used
Many personal finance bloggers, including myself, have written about the financial virtues of buying used vs. getting a new car. I’ve come to learn, however, that it’s not always as clear cut as you might think.
You should really weigh all your factors when looking at buying either new or used. How long do you plan on keeping your next car? If you’ll only be keeping it for 3-4 years, then why lose all that money on depreciation with a new car? If, on the other hand, you plan on owning it for the life of the car, then this becomes less of an issue.
Another factor to consider is the historical rate of depreciation for your desired make/model. Some cars depreciate rapidly whereas others depreciate very slowly. In the former case, you’ll likely do better with a late model used car. In the latter case, you can get the peace of mind that comes with a new car purchase without paying a ton of extra money.
After you’ve gone ahead and decided on the car that you want, you should check out the series that Nickel wrote about getting the best deal. You can save a lot of money by following his tips.
- Part I of “Buying a New Car”
- Part II of “Buying a New Car”
- Part III of “Buying a New Car”
- Part IV of “Buying a New Car”
Your thoughts and tips on buying a car
I’d love to hear your take on buying a car. Have you purchased a new (or new to you) car recently? If so, what factors did you consider when shopping? Did you buy new or used? Why? And do you have any tips for getting a great deal?
All other financial considerations aside, my wife wants our cars to be new, off the lot. Minding the axiom that a happy wife equals a happy life, that trumps all the other very good financial reasons to buy used.
We bought our last car through a service called Cartelligent. The company’s pitch is that they deal directly with the owners of car dealerships, bypassing all the salesperson commissions. The idea, according to our rep, is that supposedly Cartelligent promises dealers volume and in exchange, they give Cartelligent a price such that, even with Cartelligent’s commission, the price you pay is better than you could get through a dealership.
While we did not go through the two rounds of bidding suggested by your Car Buying series, we did email local dealerships with our Mini Cooper configuration, and Cartelligent’s price did beat them all.
In addition, even if we didn’t get the absolute rock bottom price, using Cartelligent saved me the hassles of going through the back-and-forth outlined in the Car Buying series (that attempt by the dealer to add the last minute fee would have driven me through roof) at what seemed to be a reasonably low price comparatively speaking.
I would love to know what you (or others) think about services like this. I am concerned about my finances, but at a certain point, my time becomes more valuable than getting the absolute best deal.
That said, I haven’t really seen any discussion of these types of services on financial sites, and that makes me curious. If I’m somehow being taken advantage of in some way that I am not aware, I would want to know.
Thanks for your website!
I’m currently in the market for a very used car: Coupe, manual transmission, Honda, Toyota, VW, Volvo mostly. Since my previous car purchase was an ’88 Volvo 240 DL, I sort of feel like a fish out of water when it comes to looking for and buying a car. I do my research in terms of what’s the best car to buy, but getting the right deal is a little tricker.
I appreciate the feedback on car shopping! I well know that things don’t always go according to plan, so we decided to get a bit more aggressive with our car fund over the next few months.
Thanks for mentioning warranties and all the other add-ons. It really pays to do your research on what’s a reasonable price to pay for your next car. It makes it easier to say no to unnecessary costs.
Enormous generalization alert: mid-range cars with standard (manual) transmissions *in general* will be better maintained than those with automatics, simply because people who tend to drive standard know and care more about cars than people who can’t or won’t. And be sensible; a manual Civic with all that stupid boy-racer junk tacked on and blapping through a fart-can muffler isn’t what you want. I’d avoid lower-end cars of any kind because they typically aren’t cared for much at all. One of my cars is a 1991 Volvo 240 5-speed manual in pretty excellent shape because the original owner was very meticulous about maintenance. Guys who drive stick are generally “car guys” and take care of their wheels.
Obviously the little-ol’-lady 1994 Camry automatic with 34,000 miles on it is worth a look too, though that’s what I bought from my mom this spring and it needed about $1,500 in service: complete flush and fill of all fluids, tires, timing belt, etc. just because it’d barely been driven since about 2001. Still, this is essentially a 16-year-old new car. No you can’t have it!
One other thing you have to be careful about is extended warranties. They may be a good deal and they may not. Quite often the coverage offered by the warranty is very difficult to qualify for.
I just bought a nearly new motorcycle and they offered me a 4 year extension to the 1 year factory warranty for $700. I paid $8700 for the bike. I typically don’t go for extended warranties, and I was most certainly not going to agree to it the minute they offered it. I’ll look over the coverage and see if it makes sense, but for someone that can do routine maintenance themselves or plan to make any modification to the vehicle, extended warranties are often more trouble than they are worth.
I originally wrote this just over two years ago, but never got around to posting it. I’ve updated some for you, but apologize if other info is outdated (like links – I didn’t double check those…kind of busy). But the majority of it still applies:
DON’T GET SCREWED AT THE DEALERSHIP
How much did you pay for your car? It amazes me how many people do not know the answer to this simple question. When I bought my car, I discovered that there are quite a few people who will buy a car just based on the monthly payment they can get from the dealership – not realizing how many factors go into calculating that monthly payment.
If they bothered to do a little homework before purchasing, I’m sure many of my friends & family could have gotten a much better deal – and even a lower monthly payment (if they really wanted to finance for 6 years) on their cars!
I want to pass along some advice I learned from my recent car purchase, some of which was given by my brother-in-law, who worked in the car industry for 20+ years.
THE CAR: You gotta do your homework!! Are you lookin’ at buying new? You can do a lot of research on Edmunds.com – this site will give you invoice price on the cars, and even tell you what people have actually been paying in recent transactions. It will also tell you what incentives the dealers are getting (sometimes dealers get rebates that they don’t pass on to the customer, or even tell the customer about) – so if there’s a dealer incentive on a particular car, you’re more likely to get the dealership to accept an offer UNDER invoice. One very important thing to do is to find at least 3 dealerships to give you quotes. KNOW what you want and do NOT let them upsell you. Make sure they are all giving you quotes on the same thing so you know you are not comparing apples to oranges (and do not let them drag your trade-in into the calculations – this is where a lot of people really get screwed!). I told the car salesmen up front that I just wanted to pay the lowest TOTAL price – INCLUDING their dealer fee (which varies by dealer and they never tell you about it until you are signing the paperwork and ask “what’s that additional $400 there?â€). And don’t forget tax, tag, & title in your calcs! Once you’ve got the lowest price at one place, go ask the others if they can beat it. When I bought my car, I checked dealerships in Tallahassee, Thomasville, and Orlando. Each dealership knew I was checking others – I wanted them to know they were competing for this sale and that the dealership that offered the best price the FIRST time would be where I would purchase the car! The lowest price I got was from the Orlando dealership (which is a 4+ hour drive from where I live). And so what, I lied to them. I didn’t just buy from Orlando (even though I was thoroghly pleased with the price!). Nooooooo…..I took that to the Tally dealership and made a counter-offer to them based on what the Orlando dealership quoted me. I actually offered $300 less than what the Orlando dealership quoted me, fully expecting a round of negotiations. But what d’ya know, they accepted my first offer! I was just hoping Tally Honda would MATCH the Orlando price (or at least come within $500 – worth a little extra to buy locally, don’t ya think?), I didn’t expect them to BEAT Orlando by $300! Especially after my brother-in-law told me that they would not accept it (he advised me to start as low as I did and expect negotiations). It made me wonder how much lower they would have accepted – we were already below invoice (which, I know, BTW, is not REALLY what the dealer pays) on a car that was so popular that there were none on the lot (I bought directly off the boat!). Maybe they figured they would get their profit out of me in the financing…..which moves me to my next point.
THE FINANCING: Just like with the car itself, you gotta do your homework on the financing! And you really should do the homework on this BEFORE you begin price negotiations with the dealerships. Don’t let dealerships try to sell you on the idea of “zero percent financing.” A majority of the time, you’ll find you can get a better deal on the car when you tackle the sales price separately from the financing (most who get zero percent financing pay a higher price for the car, a price that more than offsets the zero percent financing “deal”). Shop around and find where the best rates are (the local credit unions tend to offer the best rates), and then run the numbers so you know ahead of time what your payment will be! You can do this with interest rate calculators online if you don’t have a financial calculator. The calculator on First Florida’s website is accurate (but you have to exclude the payment protection that pops up when you hit “calculateâ€)
http://www.firstflorida.org/consumer_loans.htm
Based on the homework I did, I figured I would be financing no more than $12,000 (we had cash for the rest) for 36 months for the car I wanted to buy (I am of the personal opinion that if you can’t afford to pay a car off in three years or less, you can’t afford that car!). So I calculated what the payments would be at 5%, 6% and 6.5%(pretty decent rates at the time I purchased). So after we agreed on the selling price of the car, the dealership told me that they could do a rate of 4.75%. Knowing that was a good rate, I said go for it! (many times the dealership rate is not competitive with the credit unions.) The dealership came back with payments of $378 for financing $11,740 at 4.75% for 36 months – which was about $18 more per month than what I calculated on $12,000 at 5% for 36 months (this is where my husband’s eyes would glaze over if I tried to explain it to him!). I told them to go back and recalculate it. The finance manager came out with the new monthly payment of $350.00 and apologized saying he accidentally entered in the $36 tag transfer fee as $360.00. But when I got home and entered the amounts into my financial calculator (I was hating myself for forgetting that thing at the dealership!!), I backed into the number he was using…$324 error my a$$!!! He added exactly $920 to the financed amount! If I had not done my homework on the rate, I would have never noticed the “error.” An “error” I later discovered was also made on my friend’s purchase at a different dealership (but she didn’t catch it and ended up paying it). Sneaky little ba$tards at those dealerships, aren’t they?
So there it is – just a few things to help you make a smarter purchase should you decide to go car shopping in the near future. There’s PLENTY more advice on Edmunds, including the 4 square scam car salesmen use to worm every possible penny out of their customers. Don’t be lazy on your car purchase. Don’t let your emotions take control over your brains (Stick to your guns and don’t worry about being nice. They don’t like car purchasers who do their homework, but SO WHAT?!?! Remember, it’s YOUR money they want!). And definitely do not walk into a dealership completely uneducated!!
~your favorite acccountant 😉
PS – a side note to Laura – like you, we were saving in hopes of paying cash for the car, but, thanks to a bad mechanic, ended up needing another car about a year sooner than expected…AND had to sell the old one for so much less than what we should have gotten (as much damage as the bad mechanic did, it’s a wonder we got anything for it!). So we financed part of the new car (but paid it off before the 3 years was up). And as for new vs used – I was also of the opinion that buying new was a dumb financial move, but have also realized that the decision is not so cut & dry for everyone. For us – we wanted a car (a larger sedan or SUV rather – to fit 3 kids in) with 30K miles or less, and would drive it until it dies (as we do with all our cars). At the time of purchase, the used cars fitting my criteria were MORE than the new cars!
I hope you can go as long as we wanted to before you need to purchase 🙂