I really don’t know much about cars. I’m somewhat ashamed of this. My dad owned a construction company (and his dad before him), and they knew a lot about cars. They were the kind of guys that could fix anything. My dad used to buy the oldest, cheapest dump trucks available and then find a way to get them running for whatever upcoming job he needed them for. The company had its own in house mechanic, but my dad ended up doing his share of mechanic work in a pinch.
One thing I truly regret in life is not learning more of the things my dad knew. I don’t think I’m unique in this regard. I know lots of guys whose dads know a lot more about things like that than they do. In some ways, I didn’t try to learn enough about what he knew because I assumed that he’d be around to do those things.
There are some other things, besides working on cars, that I think I’m actually pretty good at. I’m a pretty decent consumer. I’m pretty good at not making impulse purchases, I’m good at trying to learn things from people now (having learned from my own early mistakes), and I believe I’m good with money.
So while I probably couldn’t fix your car if it were broke (besides a jump, tire change, or oil change), I think I can give you some decent advice about how to buy one. I also have the benefit of hindsight, having just bought a car last November. Here are some of the things I feel like I picked up along the way:
1. Financing – If you can help it, you should avoid ever borrowing money to buy a car. It’s just not something that makes financial sense. It’s important to know the difference between an asset and a liability. Cars are liabilities that depreciate quickly. Anytime you buy a car you’re buying something that’s going to be worth less than what you paid for it in the very near future. You’re paying interest on something that you’ll never see your money on.
So how to handle this dilemma? I think the best way, if you don’t have gobs of cash lying around, is to have a little foresight. Decide what your approximate price range is on a car you intend to buy, then calculate what your payment will be at market interest rates on consumer goods. Then pay yourself that payment each month (or more if you can) into an interest bearing account. Don’t buy the car until you’ve made the payments. Then, instead of paying interest on your purchase, you’ll be earning interest on the money you’re saving. Of course, if you’re car breaks down and you can’t wait, you might have to break this resolve. Still, if you start saving for your next car in a “car fund,” you shouldn’t have to use much (or any) credit on your next automobile purchase.
If you do have to use credit (if you have a car that runs, you don’t), it’s usually better not to finance with a dealership. Focus on getting the lowest interest rate possible. If you belong to a credit union start there. Take the time to shop around.
2. Research – One of the most important tools you have at your disposal is your ability to research. I would suggest Consumer Reports as a starting point. Use their reliability ratings to determine what the major or minor problems have been for a particular make, model and year of car. I love Consumer Reports in general, but the car reliability ranking is some of the best work they do.
A couple of other tools that wouldn’t hurt to consult are the Kelly Blue Book values (for an approximate value for what a car should sell for in a particular condition), and Carfax reports (or other vehicle history report), if you’re planning on buying a used car.
3. You don’t have to buy from a dealer. There are reasons to buy from a dealer. If it’s a relative or family friend, maybe that’s who you should buy from for relationship purposes. If it’s someone that regularly patronizes your business, maybe it’s important to reciprocate to preserve your business arrangement. Buying for a dealer can have some other advantages as well, such as warranties (which have value of their own).
If you are going to buy from a dealer, shop online first. These prices are often close to the lowest you can get from a dealer. This is because these are prices that are designed to get you into the door. I would print out the price and take it into the dealership. Make this the new starting point. Sales people will hate this, because it takes a lot of their rope away. When I was shopping for a car, my wife and I found a price a dealer had posted on eBay. We went to the dealership and negotiated a bit on price. They ended up giving us what they told us was their rock bottom price. We told them we thought we saw it for cheaper than that online, and they told us we were mistaken. We went home and checked and we were right. Their “rock bottom” price was about $900 than the internet price. We didn’t end up buying from a dealer, but if you’re going to visit a dealership, print that thing out and surprise them with it sometime during the negotiation.
All things being equal, you can probably get a better deal buying from an individual. The individual has much lower overhead – they don’t lease land for their dealership, don’t pay a commission to salespeople, a support staff, etc. On top of that, they might have another significant reason or motivation to sell. And on top of that, they might price their goods inefficiently. A private seller can still get more money selling it to you at a cheaper price than a dealer.
Those are my tips. We bought our car from a private seller we found on Craigslist. It was (still is) a 2004 Toyota Camry with one previous owner (two total) and just under 50,000 miles on it. The Bluebook value was listed at $14,800. We bought it for exactly $11,000. We found almost the same car at a dealership for a lot more. If you have tips on car buying or car buying experiences you’d like to share, please let me know by email or in the comments. Thanks for reading.
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“If you do have to use credit (if you have a car that runs, you don’t)”
I’m glad you made that distinction, otherwise your plan up to that point wasn’t quite reasonable. Planning and saving for some years in advance while you deal without a car isn’t exactly the best plan.
Otherwise, good tips. I’d also say “make the biggest down payment you can” (naturally).
The idea of asset vs liability is something I would rethink, though. A car is certainly not a monetary investment, but when looking at it in terms of value, factors such as convenience (no more waiting for the bus or calling cabs), comfort (stuffy bus vs driving around with the window down), and utility should be included.
I do hope you don’t try and argue to a judge or an accountant that a car is not an asset. The loan is the liability; the vehicle is the asset. If there is no loan on the car, the car may be a poor investment, but as long as it has value, it is an asset.