Car Buying Tips

Jane Young, CFP, EA

Jane Young, CFP, EA

Aside from a home, purchasing a vehicle will probably be your single largest expenditure, so it merits some serious consideration and in-depth research.  The decision on what to buy should include budget, practicality, safety, reliability and cost of ownership.  A vehicle is a very expensive depreciating asset. Unless you have a large disposable income it’s advisable to buy a practical car.  If your heart is set on a more extravagant sports car or luxury car consider buying an older model, used vehicle.   Cars have become a status symbol but there are plenty of less expensive ways to express your style and status – many of which are better long term investments.

Ideally, save your money to purchase a used car that is about 2 to 3 years old with cash.  The car will be greatly depreciated and you get a relatively new car for much less than a brand new car. If paying cash is unrealistic, work with your bank or credit union to get pre-approved for a loan.  This can give you a good idea of what you can afford.  As a general rule, your household budget on vehicle expenses should not exceed 20% of your take home pay.  This includes car payments, gas, insurance and maintenance.

Decide how much you want to spend and make a list of your must have features.  Conduct some on-line research to narrow down the range of possibilities.   The following websites can provide price quotes and information on the cars you are interested in – Edmunds.com, Truecar.com, KBB.com (Kelly Blue Book) and NADA.com.  Once you have settled on a couple of options do some further research to find the invoice price.  Generally the dealers actual cost is the invoice price, less about 3% to 5% for factory hold backs.

Now you’re ready to negotiate the purchase of your new car.   Get quotes from several dealers and make it clear that you want to focus on the total cost to buy the vehicle, with cash.  Don’t let them side track the conversation with discussions about monthly payments, trade-in deals and financing options where it is harder to decipher the true cost of the vehicle.  If purchasing a new car, inform the salesperson that you have done your homework and you have a good idea of what the dealer paid for the car.  They will try to focus on the MSRP (Manufacturers Suggested Retail Price).   Let them know you have quotes from other dealers and you are ready to buy a car for their cost (not the MSRP) plus a reasonable profit.

When buying a used car, you can get reasonable purchase prices on Edmunds.com and KBB.com.  You can probably get a better deal through a private seller than with a dealer.  Before signing the papers, get a vehicle history report form Carfax.com or Autocheck.com and have the car inspected by a good mechanic.

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