Are you thinking of buying a car? Whether you currently don’t own a vehicle or your current vehicle is breaking down, buying a car is a big decision! This guide will help you through the car buying process and more importantly help you get a great deal on your next car!
First off, ask yourself why do you need a new car? For some people they need one to fulfill their day-to-day obligations. Other people simply want a new car because they are tired of their old one and can afford a new one. Make sure your need is greater than your want if you are in any way concerned if you can afford the monthly payments on a new car. Besides loan payments, you will also need full coverage car insurance. This can cost $50-100 per month, and we can’t forget about gas! Vehicles cause huge drains on your cash flow, so make sure you can afford a car before buying a car.
Guide to Buying a Car
1. Research What Car You Want
- Use the Internet– The Internet provides you with a huge amount of data on cars that never use to be so easily discoverable. Most car website include car ratings, reviews, and pricing information. Cargurus.com, for example, is a great resource that provides you with the car’s price history and how may days the car has been sitting on the lot. This information can be helpful when negotiating a price on the vehicle (which I will discuss later in this article).
- Visit Local Dealers– To get an idea of the type of vehicle you think you might want, find a local dealer and view the vehicles in person. When you go in person, you can go inside the car and take it for a test drive to get a better feel for it.
- Once you find the vehicle you like, compare the cost of the same model across multiple car dealerships in the area and across multiple websites.
Now that you know what vehicle you want to purchase, we can focus on your different purchase options.
2. Buying a Car vs. Leasing a Car
- When you buy a car you are paying a monthly loan payment on a car loan and once the loan is paid off, the vehicle belongs to you. At this point the vehicle is only costing you the gas to drive it, insurance, and storage cost. Since the car belongs to you, you can either sell it privately to help pay for a new car or trade it in with purchase of a new car if the price is right. You will get a better price if you sell it privately yourself. Or, once your car is paid off, keep it for another five years and have no car payments at all!!
- When you lease a car you don’t own the vehicle at the end. You make monthly payments and are essentially renting the car. When you lease a vehicle, you also have restrictions on how many miles you can put on it. If you go over on mileage, you could get hit with an expensive penalty. Leasing does allow you to get new vehicles more frequently but in the long run, you’re paying for something you don’t own and it ends up costing you more.
3. New vs. Used Vehicles
- Buying a brand new car is the most expensive way to own a vehicle. New cars depreciate very quickly. Meaning, after owning your car for only a short period of time, the value of the vehicle drops 20-30%. A smart decision would be to buy a car after it depreciates by that amount, getting you a great deal on a basically new vehicle!
- Buying a used car can save you a significant amount of money in the long run. You can find great deals when searching for a used car that is only a couple years old, with low miles and no accidents. Many of these vehicles still have manufacture warrantees that are included. My first car was a one-year-old Certified Pre-Owned vehicle with the original warranty and only 6,000 miles. Brand new, my car would have cost me $25,000. Instead, buying a year old CPO car, I paid around $17,000 for it.
4. Negotiating The Best Price On Your New Vehicle
- Don’t settle on the price listed on the car. In many cases, the sales person acts like they can’t go any lower on the price when they actually can. This happened to me when I bought my first car. I eventually got the guy down almost $2,000 after he said he couldn’t go down on price (which he obviously could)!
- Be prepared with information on the vehicle you are looking to buy. After you check out websites like cargurus.com, you will know if the car has been sitting for a while which can help you get a better deal. A car sitting on a lot isn’t making the dealership any money, so the longer the car sits, the faster the price drops. Also, know the price history on the car and the prices of the same car at other dealerships.
- Be willing to walk away. You can always find another car you will fall in love with. Also, don’t show your excitement to the car salesman or they might not give you a deal because they believe you will buy the car either way, making the salesperson more in commission.
- Once you do settle on a price, your next battle will be the loan officer to try to get the best deal on a vehicle loan to finance your new car.
5. Financing Your New Vehicle
- Multiple places offer car loans including credit unions, banks, or through the dealership’s financing. Credit Unions are said to be the best place because they give you the best interest rate. If you go through the car dealer financing, they will search multiple banks at the same time to get you multiple different car loan rates.
- The finance guy’s job (loan officer) at the dealership is to get you on a high interest rate and sell you additional add-ons on top of your vehicle purchase. My article What Is Interest will explain in detail how interest can affect your purchase, making you pay way more for the vehicle than you initially planned.
- Interest Rate – Your goal is to get the lowest interest rate possible when buying a car, leading to lower car payments. You can negotiate the rate to some point, but your credit score mostly determines this.
- Loan Term – This is how many months you will be making your monthly car payment. 5 years (60 payments) is pretty standard but they also have 6 years (72 payments), which reduces the monthly payments because you are paying for a longer term.
- Avoid Buying All The Add-Ons – The loan officer will try to “bundle” these in the total cost of your car loan so you don’t notice you are paying for them. These are almost pure profit for the dealership and for that reason, they aggressively try to sell these add-ons on top of your original car loan.
Buying a car is a big deal but with the right information you can come out on top! Do your research and know what you want before talking to a car salesperson. Finding a nice used car that is only a couple years old will get you the most value for your purchase. It’s also very important to not forget about getting a good deal when you finance your new vehicle as well. When you negotiate a great price on a car and get a great financing deal as well, YOU WIN.