There are two kinds of people: those who like cars and those who don’t care about them. I’m one of the former; people who are better at building wealth are usually the latter. It’s ok. It’s just important to know thyself first before buying a car. Regardless of which one you are, there are ways to save money on one of the most expensive purchases people make (and continue to have to make) during their lifetimes. Here are some tips to save money when buying a car.
Last year when the pandemic hit, car sales plummeted and it was possible to get some great deals on new and used cars. Fast forward a year and demand is surging because of new jobs and low interest rates. At the same time, there is a shortage of cars because of decreased production and prices are higher than they’ve ever been. What’s a savvy consumer to do? Here are our tips:
Tip 1: think about keeping the car you have.
The best way to save money on buying a car is not to buy one. Seems obvious, right? Cars that are a few years old can still be driven for years with a little maintenance. They often have many of the safety features you need, and since it’s your car already, you don’t need to worry about what happened to it before you owned it.
On the flip side, there comes a time when the cost of upkeep becomes either too high or too unpredictable to fit within your budget. Or when you’re not sure it’s going to get you where you want to go and you’re worried it’s going to break down, that may be a sign to replace it. Is the amount of a one-time maintenance cost more than half what the car is worth? Is the average spent over the year more than a monthly car payment would be? These are a couple of good rules of thumb to help you assess when may be the right time to replace your current vehicle.
Being a car person, I have a hard time keeping my cars for more than a few years. When they start needing tires and brakes, that’s when I start dreaming of a new ride.
Tip 2: consider a slightly used vehicle.
It used to be that a used car that was a few years old was a great deal. For many in-demand models, this may no longer be the case. You’re more likely to get a great deal buying a used car these days if it’s slightly less desirable. Maybe it has a weird color. Perhaps it is not the top-line model with all the bells and whistles (or it is, and no one wants to pay that much when they could get a lesser model new one for cheaper).
You can sometimes find cars that are only a year-old. They usually have a lot of miles on them because they were a corporate perk car, or a rental car. There are risks to buying this kind of car, so please do your research on the car’s history on Carfax.com. Then there are the year-old cars that have fewer miles, because maybe they were a dealer demo or courtesy vehicle. More plentiful are cars that are 2-4 years old that are coming off leases. These cars can be great deals because they’ve usually been well-kept and have low mileage. Many of them come certified pre-owned by the dealer and include the balance of the manufacturer warranty and even additional warranties. If the car is older than 4 years and is out of warranty, it makes sense to have it checked over by an independent mechanic before you buy.
If a used car deal seems to be too good to be true, it usually is. Last time we were looking at used cars, we came across a couple of issues. The first one is that some of the vehicles with low prices had obvious flaws once we went to see them in person. Take a good look under the hood, under the chassis, look at the tires, and look for any obvious signs of wear and tear. Also, call ahead to see if the dealer has added any aftermarket accessories to the car. We found a couple cars where the online advertised price was thousands lower than the one on the car once we arrived because the dealer had added items to the car where they hoped to make a profit.
In the case of late-model used cars, you can usually finance the car at a low rate and terms only slightly higher than a new car. This is a great way to get a lower car payment, but I still don’t recommend financing for more than 5 years.
Tip 3: Consider buying a new car as a last resort.
Maybe you just can’t give up that new car smell, or maybe you want a specific model in a specific color with a certain set of features. For whatever reason, know that this is not the more financially sound choice in the long run. The value of the car will drop around 20% the minute you drive away from the dealer. But I get it, so let’s figure out how to save you some money.
Know your local market and the value of the car before you go into the dealership (this applies to used cars as well). Do your research online and check out truecar.com or a similar website to see what people are paying for similar cars near you. Be willing to walk away and don’t be afraid to play dealerships against each other if they both have cars you want. There are a couple of times of year where it can be easier to get a deal like holiday sales, end of year/model year events, and the end of the month or quarter when dealers are trying to make their numbers.
Tip 4: Dealers can be shady.
Don’t be surprised if the first question a dealer asks you is what payment you are looking to get into and whether you are trading in your current car. This is where they start to decide whether they want to make money off you by leasing or financing, or low-balling your trade. They have a lot of tricks they use to get you into the payment you mentioned. Extending the financing to 72 or 84 months is typical these days!! Don’t be sucked in by a low monthly payment.
Negotiate the price of the new car first. Then discuss financing/leasing options. Then bring in the trade conversation.
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