Car Buying Tips

Making a car buying mistake, or worse, making several car buying mistakes, can leave you broke. You may be living paycheck to paycheck and not even know why. Here are a few tips that can help keep your finances in the black.

Tip #1: Try to avoid being in a hurry to buy a car and don’t fall in love with any particular car. It is a good idea to have several months of lead time before you actually purchase your next vehicle. This gives you time to research the car you want, shop around for financing, and find the best deal on the car you want. If you are in a hurry, you might jump at the first car you find and end up with undesirable financing. Falling in love with a particular vehicle prevents you from looking at it objectively and almost always keeps you from getting the best possible deal. I once almost bought a car out of desperation and desire to have a particular car when my brother told me “you could easily get a better car for the same amount of money or less”. As soon as he said it, I knew he was right and I used that statement as a lesson and a reality check from that point on.

Tip #2: Do research on the car you want. One of my favorite auto research sites is msn.com’s auto section. There they have: reliability ratings, safety ratings and features, fuel efficiency listings, noted vehicle problems and the cost to fix them, user reviews and rankings, and cost ranges.

Tip #3: Try to avoid buying a brand-new vehicle. Sure it is nice to have that new car smell and to pick your favorite color, but it will cost you. Cars lose thousands of dollars of value just by driving them off the new car lot. Even if the manufacturer is offering all kinds of incentives for the vehicle, keep in mind that other customers are getting those too, and it usually actually makes the vehicle worth less when you go to sell it. If you want a very new car with a warranty still intact, keep an eye out for cars that were kept only for a few months, and for whatever reason, returned (often lack of ability to pay for the vehicle plays a major factor).

Tip #4: Older doesn’t always mean less reliable. I know of several cases where a vehicle with just a few hundred miles on it had to be towed back to the dealership for repairs—you probably do too. Point being, that although used vehicles are viewed to be less reliable; you can choose a model that has a good reputation, has been well taken care of, and you can drive with confidence (without the extra budget strain). Not surprisingly, the maintenance issues that do come up with most well-made older vehicles generally cost far less than making larger payments on a newer vehicle.

Tip #5: Shop carefully for financing. Pay cash if at all possible, even if it means you have to sacrifice a couple of things. Above all, don’t be at the mercy of the car dealership’s finance guru. They are being paid top dollar to ensure that you pay the highest interest possible. Be prepared. Take a couple of bank offers with you and think of other financing possibilities. Sometimes, if you have really good credit, your credit card company will lend you a portion of your available balance at a low fixed rate good until payoff. If you choose that option though, be sure that your initiation fee won’t be too high and be sure to put it on a credit card that has a $0 balance and that you can get by without using for the period of the loan.

Tip #6: Don’t let dealerships negotiate payments with you. This far-too-common tactic gets your mind off the actual price and interest rate you are being charged as they ask you things like “could you afford $X per month?” or “what if I could get this car down to only $X per month?”. The problem is that with very low payments, it is likely that they are extending the loan term to 5 or even 6 years. The best thing you can do is negotiate down the price of a car for which you already know you can afford the payments over a period of four years or less. Otherwise, you are getting into trouble if you ever need to sell your car, or if you are in an accident in which your car is totaled. Very long loan terms often result in being “upside down” in your car loan. That is, your car loan is higher than the price you could sell your car for.

Tip #7: Don’t pay too much for good gas mileage. The rapidly rising price of gasoline infuriates most of us, but it is usually a mistake to go out there and spend thousands of extra dollars on a car for a few extra miles per gallon. Here is how you figure out if you are the exception: Write down the total number of miles you typically drive in a year, multiply it by the number of years you will keep the car, divide that by the average miles per gallon you think the car will get, and multiply the result by the average price you think gas will be over that time period, do all of that again for the other MPG car and see what the difference is.

Example: I currently have a car that gets 27 mpg and I drive 10,000 miles per year. I plan to keep my car for 5 years and I estimate that during that time, gas prices will be an average of $3.50 where I live. I am thinking about upgrading to a car that gets 30 mpg and would cost $6,000 more.

Currrent car:

10,000 x 5 = 50,000 / 27 = 1,851.85 x $3.50 = $6,481.48 (approximate amount I will spend on gas in the next 5 years)

Upgraded car:

10,000 x 5 = 50,000 / 30 = 1,666.67 x $3.50 = $5,833.33 (the upgraded car would only save me $648.15 in gas costs over a 5 year period and would cost me $6,000 more than my current car plus any interest I would pay on that $6,000 if I financed it.)

Tip #8: Shop around for the vehicle you want. Don’t be in a rush when you go visit dealerships or individuals selling their vehicles. Know what you want to pay and what you want to see for that price. Check local online newspaper listings first thing in the morning and call immediately since the best cars at the best prices are usually taken right away. Also, don’t be afraid to ask the simple question “is that the best deal you can offer me?” while looking at the car.

Tip #9: Don’t trade-in your vehicle. Except in rare cases, it is not a good idea to trade in your vehicle. You will usually be able to make thousands more selling your vehicle to another person. You win, because you just helped cover some of the cost of the new vehicle, and your buyer wins because they don’t have to pay the prices charged by dealerships for the same car.