When I was about thirteen years old, my dad dropped me off at Tae Kwon Do practice and left to go look at a car. Five hours later (needless to say I was tired) my mom picked me up and took me to the car dealership where my dad had been the entire time. For five hours he had been picking out the exact model car with features he wanted, learning financing options, warranty plans and then negotiating. We ended up spending another three hours at the dealership when the poor car salesman finally made about $25 dollars over cost and probably cost the dealership that in the endless flow of Pepsi he provided my dad which was used as his CHEAP fuel. I like to think that car salesman got the last laugh because he actually sold my dad a 1997 POS Previa. Don't ask me what he was thinking, he got the numbers to work and that was all that mattered. This is the guy that would use a gallon of gas to drive cross town to save three cents of fuel. Actually he sent me and that's probably I waited so long to get my license. So when I write these posts a true concern of mine is to teach ways on how to save as much money as possible but also ENJOY life and not overdose on stupid penny saving ideas.
Car buying can be a lot of fun. It takes patience, self-control and legwork in doing your homework, planning and calculating. But at the end of the day, you are buying something that is typically worth a lot to you, that you will have a lot of pride invested in and will be tied too financially for a long period of time. There are a plethora of options and its easy to get overwhelmed but the principles are the same as any other purchase. There are just more zeros behind it.
The first step is coming up with a definitive amount that you are willing to spend. This is not just on the car, but on tax, title, license, insurance (usually more expensive on more expensive cars), extended warranties, maintenance plans and don't forget the polished chrome key change from the dealer. There are a ton of extra costs that are associated with buying a car, multiple things the dealer will try to sell you, charge you for or just sneak in there on the invoice. So figure out what you can afford to spend. This is NON-NEGOTIABLE when you go look at cars. If you reach that number (within 1-2%) and can't get there with the dealer, you're done, move on.
Part of this number can include a trade-in. Your first bet is to go on Kelly Blue Book and research what you can get as a trade in value for the most conservative view of your current vehicle and make sure you designate it as a dealer trade (those are lower). If you can sell on the open market yourself, you can definitely make more, but its time consuming and there are risks with poor payments and shady buyers, so I'm just talking trade-ins here. That trade in value is important, but include that to your budgeted number above and forget what Kelly Blue Book says (I will explain later).
Finally, get pre-approved for financing. Do this before you go in, because it will save you a headache and time in the long run. Your best bet is your current banking institution or particularly a credit union. Also, investigate Costco, for a $50 membership they have financing plans that may or may not be cheaper, but a fraction of a percent can save you a lot of money depending on the amount you are financing and over how long. I promised on an earlier post to put a loan amortization schedule that will calculate all these financing costs (for both a car or a house) and I will get it up, but not quite yet. But they have some programs online that will help you calculate financing costs and most dealer websites will have a crude version as well so you can prepare. Include these interest costs into your budgeted amount.
At the end of the no one component matters at all. If you find a cheap car but they give you a lowball trade-in value its ok. If they give you a great trade-in value but nickle and dime you on the vehicle it doesn't matter. Just know what you are willing to pay in the end for the car you want for what you are trading in and you have wrecked their selling strategy. The dealer will try to confuse you, will try to twist things and thow a ton of different numbers at you. They'll tell you they can't do any better, that they are making nothing, that it's a great deal. NONE OF IT MATTERS. If they can't hit your number (and this assuming your number is a reasonable number for what a person would spend for the car and be paid for the trade-in) then you say "thank-you", stand up and walk to the next spot. There is the self-control. You can't get in the mindset of "Oh its only a thousand more and I REALLY want it." Patience. There is always more cars, always other deals. So politely leave and move on.
Now that you are prepped and have a game plan in place, turn in next time for actually buying the car.
Sincerely,
Jonathan
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