When one is looking to buy a car one wouldn’t think it would be an evil thing, right?
What if I told you that most financially savvy people hate when it comes time for this? Why? Because a car is expensive and it depreciates immediately once you drive it off the lot. To put it simply, it’s like an investment that will do nothing but decrease in value. There are some exceptions, but for the vast majority, this is what will happen.
Nonetheless, most of us need a car, so here is what you need to know…
4 Dos When Buying A Car
1. Create and stick to a budget
- Figure out how much you can afford and stick to it.
- Don’t test drive something like a BMW or an Audi if you can’t afford it. Don’t even look at cars out of your price range. This means looking at the total price of the car (insurance, maintenance, fuel usage, etc.) and not just the payments.
2. Research and test drive BEFORE you decide what to buy
- 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.
- Research cars to compare reliability, pricing and overall reviews to ensure it meets your criteria.
- Test drive and determine which cars fit your needs and your budget.
3. Negotiate via email or phone (not the dealership)
- Call or email dealers to talk price. Don’t cave to an appointment. The point is to take out all emotions out of the process, which is exactly what the dealer doesn’t want.
- Talk price, not payment. You want to focus on what the total price of the car will be, not what you can afford per month. Often times they will stretch out payments for years on end making it seem like a good deal when it’s really not.
- Negotiate upwards from the dealer price vs down from the sticker price (sticker price is what the dealer is offering to sell the vehicle). The dealer price is what they paid for the car and what they need to sell it for to break even.
4. Buy used, unless you make it rain money
- A new car goes down in value as soon as you drive it off the lot. Just imagine coins spitting out of your vents while driving. That is your car depreciating. A new vehicle can depreciate anywhere from 15-20% per year. If you can afford this, then by all means, go new.
- Otherwise, make the financially smart decision and buy used. Even buying a 1-2-year-old car can save you thousands.
4 Don’ts When Buying A Car
1. Don’t keep up with the Joneses (or your friends)
- Your financial situations are different from everyone else’s. Remember this when it comes to cars. What your friend buys is not what you should buy.
- You need to do what’s right for you and within your budget given your financial past and future goals.
2. Don’t forget to consider the total cost of ownership
- That brand new BMW may look nice and shiny compared to the Honda next to it, but all extra nice things come at a price.
- Maintenance, gas, and insurance should also be factored into your budget. It’s not just about the monthly payment, but also the overall cost of owning a vehicle.
3. 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. Wait ’til all the dealer’s cards are out on the table. Otherwise, you’re helping your opponent by giving him leverage that can be used against you.
4. Don’t finance for more than three years
- Three years is generally a good rule of thumb on how much car you can afford. Any longer and you can be stringing on payments for years adding hundreds, if not thousands of dollars in extra interest payments.
Remember, there’s no rush to buying a car. Make sure you do your due diligence first before you buy, and use the tips above for guidance. Only you know your financial situations, so always make the best choice for YOU. Buy a car the right way, so you don’t regret it later.
Good Luck, Newbies