Smart Car Buying

Maximizing Savings

Our country is so infatuated with buying cars, suvs, trucks, motorcycles amongst other consumerists items.  Buying a vehicle is one of the most depreciating assets that you can have though. So the less cars (vehicles) you can buy in your lifetime the more money you will have saved up over the long haul.  To many people buy new cars every couple years, they lease cars, they finance cars when they shouldn’t be, they over insure cars and buy all the gimmicks the car salesman and their team sell them even without knowing what they are buying.  The magic number that I try to shoot for is to own a car for at least 10 years and even strive to keep it for 15 years!  I know that may seem crazy to some but having it less is just throwing money out the window.  

Cars- Buying New

Ok so my number is at least 10 years for buying a brand new car.  The way I buy a new car is under two conditions.  That I have the cash for the car without hurting my emergency fund and know that I am going to keep that car until it dies (ie 15 years).  I will NOT be buying in the near future again.  The second way is if I can get 0% financing and again I will be having this car for many years to come.  The reason why I say 0% financing is because instead of paying $24,000 for a car right out of pocket; I can pay the $400 monthly payment over the next five years and keep the rest of the money invested earning more money, while still paying the face value of the car.  Do the 0% financing or maybe slightly higher than that and investing the money instead is playing what is known as opportunity cost.  Now the vast majority of people will not keep a car that long so what I opt for those is to buy a car used.

Cars- Why Buy Used

Buying a car used (about 3 years old or more) has many perks.  By year 3 the car has depreciated in value the most it will ever over the lifetime of a car.  The average rate of depreciation for a car that costs $24,000 in the first year is about $5,520.  In the first 3 years in depreciates about $10,648.  So in essence by buying a car that is 3 years old you are almost getting it at half the price and by buying smart you should be able to keep that car for at least another 10 years.

How to Buy Used:

  1. Cash on hand. I will say again make sure you have enough cash without depleting your emergency fund.  If you don’t have enough right now, that's ok.  Create a savings plan to get it.  Stash away a little bit every month until you have enough. Automate your savings.

  1. Know exactly what car you want. Don’t just say I want a car.  Be specific about the make, model, etc.  Do your research to make sure that it is a car that is proven based upon past history to be reliable, safe, etc.  This way you can look out for the best deals.  Toyotas and Hondas both tend to last a long time and tend to hold their value longer.  

  1. Test Drive.  Make sure you drive the car to make sure you like it before buying.  Drive it in town and on the highway.

  1. Find a trusted mechanic to look at the car before buying.  They will provide an unbiased answer on how the car looks and what if anything needs to be fixed before you decide to purchase from a dealership or a 3rd party (private party) seller.

  1. Don’t be in a hurry.  Look to buy from private party instead of a dealership.  You will get a better deal by not paying the dealership costs.

  1. Insurance. How much in insurance is the car going to costs.  They vary widely so be wise and look into it before buying.

  1. Research.  Go to or to find out what the car is worth.  This way you are prepared to negotiate.  Make sure you are fair though or else no one will listen to you.

  1. Warranty- If buying from a dealership are they giving you some kind of warranty and if so what is it?  Buying from a private party won’t get you a warranty so if a warranty makes you sleep better at night might want to avoid a private party then.

  1. History. Get access to the car's history to see if there have been any accidents or malfunctions with the car you should know about. 

  1. Walk.  Make sure you are willing to walk.  This goes for whether you are buying from a private party or a dealership.  You need to go in knowing that you can walk if it comes to that.  

If you absolutely will not buy used for whatever reason.  Make sure your credit rating is high (760 or above) so you get the best interest rate possible and can even qualify for 0% if they are offering it.  Know your credit score beforehand by checking it at places for free and Always remember that a car is just something to get you from one point to another.  Make sure to keep the car for at least ten years and shoot for 15 years before buying again.  Remember the fewer you buy in your lifetime the wealthier you will be.  Plus who likes the headaches of having to buy a car every few years.  I know I don’t.  I dread having to buy a car and talk to a salesman.  

Do your research (should do hours of research before ever stepping on a car lot).  Is the car reliable? Does the value of the car hold up over time? Are they proven to last a long time? Are they offering 0%? What is car worth? 

Do a test drive.

Do negotiate price. Be willing to walk. Compare at multiple dealerships (can be done online).

Do know your trade-in value if you have one.

Car buying mistakes - Watch this short video

Don’t reveal what you can afford to pay. (stay away from the monthly payment mentality)

Don’t reveal if you have a trade-in or not until they make you their best offer.

Don’t become attached to a car (car salesman will pick up on that).  

Don’t buy the add-ons.

Don’t buy the extended warranty.

Try your best to keep emotions out of the car buying process as much as possible.  Another question to ask is do you need that type of vehicle or will a different one work.  For example, I see to many people buy a truck because they see it as the “manly” thing to do and yet they never or very rarely haul anything with it.  A car that has better gas mileage, cost way less, and cheaper in insurance would have been a wise choice.  Be the person who doesn’t always follow the crowd.  You will be way further ahead in life with this type of mentality.