I’m Buying a Car… Help!
Posted by Jill on June 7, 2011
So…I’ve officially relocated to Texas! I’ve mentioned several times that I didn’t own a car in DC. It was a great way to reduce my expenses, contribute to environmental conservation efforts and get in a bit of daily exercise. On the east coast, public transportation is a way of life…in Texas, we drive. And like so many other things in this great state, when it comes to vehicles bigger is apparently better! I’m lucky to be able to carpool with my dad for a few days (weeks?), but it is just a matter of time until I have to make the biggest purchase of my young life: a car. I’ve made sure to peruse some of the car buying tips around the web, but I’m always willing to seek more personalized feedback – so I’m turning to you!
5 Questions I Have Before Buying a Car
- What kind of car? As I said earlier, many people here drive big cars. When I’m in a little car on the highway, it can be hard to see what’s going on in front of me. I’m contemplating a small SUV – something with 5 seats is small enough to still get relatively good gas mileage. But with the cost of gas, “relatively good” might not be good enough. And in addition to the cost of gas, I have to consider the indirect costs of car ownership, including insurance and parking – all things I didn’t have to worry about while living in DC. So I’m trying to be smart while also getting something that will work for me. My current front runner is the Hyundai Tucson, though I’m also really interested in the (more expensive) Volkswagen Tiguan. My more sensible side is still looking into sedans though - a Jetta or Honda Civic is at the top of this list.
- How much to spend? This is the first really big purchase I’ve ever made. I hope to have this car for at least 5-7 years, if not longer. I’m willing to pay a little extra to make sure I get something that I like, is safe, gets good gas mileage, will retain value, and will last for many years and thousands of miles with relatively few repairs. At the same time, there is obviously a limit to both what I can afford and what I am willing to spend. And again, when thinking about the added costs to my overall transportation budget, the amount I can spend on a car definitely has an upper limit.
- New or used? This is the big outstanding question. If I do used, I want something with no more than about 30,000 miles. The problem is that cars with 30,000 miles are not much cheaper than brand new cars – and if I’m going to buy used I want a big discount! New cars obviously come with hefty price tags – but they also hopefully will have fewer maintenance costs in the short-term. Some people swear by used cars, while others will only buy new. Since I’ve never owned a car of any kind, I’m not sure yet how I feel for sure. I’ve been looking at mostly new, but keeping my eye out for the right deal on a used vehicle.
- Cash or finance? Again, this is something that people have varying opinions on. The cheaper the vehicle is, obviously the more likely I would choose to (and be able to) pay cash. But I do want to make sure I don’t completely wipe out my liquid savings. I know that at the very least I want to put down a fairly sizable percentage as a down payment – but if I get 0% or even 2.49% financing, that money could probably be better used elsewhere. If I do finance, I don’t want to make payments for more than 36 months – but I also don’t want my payment to be too high. I definitely have the most conflicting feelings surrounding this category – I don’t want to incur more debt than necessary, but I don’t want to use all my cash either. I’m most curious to hear what people have to say on this question!
- Where to get it? Of course many of these questions are interdependent. If I buy new, I’ll obviously buy from a dealership. But if I buy used, I could do a dealership, a used car seller like Carmax, or a private seller through Craigslist or even the newspaper. Private sellers come with more risks – but also often with lower prices.
I have five main questions, and not enough (or too many!) answers…what do you recommend?
Here is some help from some one who has purchased many cars in their day (and never went upside down !!)
1) What type of car is personal to you. Hyundai is nice cars which are a bit spartan but they are cheap, reliable, and have great warranty’s. I would say if you are looking small SUV, look at the Toyota RAV 4 or Honda CRV. You don’t need the V6 engines, as you want the better mileage, and they have enough pep to get you on Texas highway on ramps (I had fun in my car when I lived in Dallas). What every you do, making a decision on a car solely based on gas mileage is something that will make you sad. If you look at two cars, and like one better (aesthetics, feel, etc.) and it gets a couple MPG worse, bite the bullet and get the one you like. My brother said it best, “When you are driving, get something you like, as every time you drive and you hate the car, you are just miserable and don’t worry about the MPG.” He was driving a full size pickup truck around town at the time and loved every minute of it.
2) Figure out how much you drive, or will drive (Miles), Divide by MPG and multiple by gas price. Add monthly payment, and insurance and plates. That should be your monthly payment. Example. 600 miles a month driven/20 MPG = 30 Gallons * $5 gives you a monthly gas bill of $150 bucks. Insurance is $600 a year and plates are $240 a year (gotta love Indiana). Add $10 a month for fluid maintenance (oil changes, tire rotations) if you look for coupons. Your monthly costs are $230 a month just to drive your car. Add the payments and you have a number. When ever I purchase or lease a car – I put down at least 1/3 the price of the vehicle. So if it is a $30k car, I pay $10 down. This can be from trade or from cash in the bank.
3) Maintenance is your issue. I agree, if you buy a used car, low mileage, it is almost better to buy new (cheaper) and you have a factory bumper to bumper warranty for several years. This limits your repair costs. A good used vehicle can work for you .. but you really have to wonder if the deal is too good to be true. I just purchased a 1995 S10 pickup for a second car .. 59,000 miles. Got it for $4k. This looks great and it is something my son can drive whenever he gets his license. One more quick thought .. with the rebates, most car companies are looking to give away cars (especially in August to November time frame) as the new model year comes in – and the old ones are still on the lots.
4) Personal choice. Full cash, Finance, or lease. If you pay full cash, it is yours, and no payments, neat an tidy. If you finance, you pay the price over time. If you get a low enough APR, you can make money in the stock market on the money you have not paid yet. If the money is sitting in a bank account getting 0.1% interest, pay it off for the peace of mind. Leases are fun if you can work them right. If you drive less than XYZ miles, you can lease it for cheap (you did put down a lot on the car right ?) and then after 2 or 3 years, you can determine if you want to purchase the car outright. I did this, my lease was $100 a month for 3 years. I purchased the car at the end of the lease on a 2 year loan for 0% (new bank customer discount) and had the cash waiting for me as I saved it up and earned money in the markets. Again – it is taking me 5 years to pay it off .. but a low interest rates, and why not. The residual value of the vehicle was 15k and the market value was 19k – so it was a good thing at that point to purchase that car. 5 more payments and that puppy is mine 🙂
5) Personal preference is any seller worth their salt, would let you take it to a mechanic. Since you are back home newly, ask your dad about a mechanic he trusts, and take any car there for them to look over if you buy used. Not all dealerships are the same. Ask locals where they like to buy and go there.
How to negotiate. Once you set on a car, get a deal in writing, tell them you are going to go show this deal around, and walk away. Go to a competitor and take the deal with you. Ask them for their best deal and have the one you already got in your pocket. There are two things you negotiate. Your Trade-in (if you have one, which it sounds like you don’t), and the price of the vehicle with what ever options. Compare apples to apples. Work the dealers to beat each other’s prices.
A second thing that you can do (and I love this) is to get the invoice pricing on cars. Find a person that is a costco member, and through their car buying program, you can find not only the MSRP, but the invoice price of any car and option. This means you know what the dealer payed to Hyundai for that Tuscon you like, and every option. If you want to be respected after you are pushing hard in negotiation, break out the list and tell them you know the invoice price of this vehicle is xyz. You will give them the destination charge (Usually $600 buck) and $250 above invoice and be firm (unless they are giving you a lower offer from the first step in the previous paragraph). They will usually fold and take the deal as they know you have them and they cannot get above that.
Never finance at the dealer, walk in with your financing already thought out. Are you paying cash? Are you getting a loan? Get the loan and have a check made to the dealer for $XXX and pay the rest (remember the 1/3 rule) out of your account. This way when the final price is negotiated, you can handle it and walk out without dealing with the bait and switch that sometimes occurs at dealers in the financing rooms.
Good luck Darlin .. I wish you happy driving tales for the future.
That was so detailed and helpful! Thanks. I like the idea of finding the invoice price – I am a Costco member myself so I can do that easily. I have already done some of your recommendations but will definitely implement the rest!
Jill
I buy slightly used for the best deal. Your under 30k is a bit high. I like to stick around 15-20k. The vehicle will still have a few years warranty. Whatever vehicle you consider make sure you use CarFax or CarProof to check its history. Any reputable dealer will often supply this with the vehicle. Check out the Black Book value on-line as well. Look for vehicles that hold their value over time.
Be wary of “Zero” financing schemes. The dealer just builds the financing into the price. Negotiate the best cash price up front (don’t mention financing at all) and then see if the dealer will finance this amount over 36, 48, 60 equal payments. Not likely.
Buying off the street privately may get you a better price (or not if they suspect you are inexperienced) however it comes with a lot of risks. There is no dealer to go back to if there are issues or misrepresentations. There could be a rolled back odometer etc. There are lots of people (called curbers) who sell vehicles from their home under the pretense that they are selling their own private vehicle. In reality they are wholesaling cars as a business. The CarFax or CarProof report may catch some of these folks. If you go the private route, and find a vehicle that really looks promising, make sure to take the vehicle to a licenced mechanic for a thorough inspection. It will be worth the money spent if it turns out to be unsafe.
Do your research for all the factors you mentioned, fuel economy etc and also check out crash testing reports.
Good luck
Thanks Shaune! I am curious if you are really able to find good deals on cars with 15-20k miles – the ones I find with that mileage seem to be very close to new prices.
Jill, I will address your point number 4. I believe it is best to use cash to buy cars. For the frugal shopper it just doesn’t make sense to me to take a loan out for a depreciating asset. Sure you can get 0% financing which sounds like a good deal. But with cash you have far more negotiating power. If a car is $20K with 0% APR, you certainly wouldn’t expect to pay any more than $19K in cash for the same car.
Now, by paying cash you might not get the car you want. I know my first car (that I bought on my own) was a beat up Ford Escort. I wanted a nicer car but couldn’t afford one. So, I recommend saving like crazy and then buying the best car you can afford. It feels good to drive it off the lot knowing you really do own the car. Then start saving for your next car as soon as you can.
Thanks! One of the things I should mention is that I have to drive about 180mi round trip a couple times a week for work, and will also drive about 500mi round trip once or twice a month – so I need something that is in pretty good condition and can handle those trips without breaking down on me! If I was just doing city driving I would be much more open to older, higher mileage used.
I HIGHLY recommend the Toyota Rav4. Consumer Reports again rates it the top SUV in its class as well as the most affordable SUV to buy, in terms of initial cost, reliability of brand and model, fuel mileage, and other factors. It’s been one of the top small SUVs for years, so a used one would likely be a good investment if you’re looking to save some $$. I personally took out a 5-year loan, because the interest rate was the same for 5, 4, and 3 years, but I paid it off in 2. VERY satisfying. 🙂
Thanks! That is definitely something I have looked at.
You can start with Nissan Rogue. It’s a very popular compact SUV with good gas mileages. Depends on the packages you prefer, it will range from $20,000 to $29,000. From there, you can go up to Toyota’s RAV4, VW’s Tiguan or even fancier Audi, Acura or Lexus. You are looking for $35,000 + in this range. Or you can save money on Korean manufacture like Hyundai Santa Fe or Kia Sportage. You probably can get a basoc Kia Sportage SUV at 15K. It’s not as good as Japanes car but it’s not too shabby either.
Thanks! A Lexus SUV is my secret dream car 🙂 But it’s a bit out of my reach at this point. I have definitely looked into the Rogue, RAV4 and Tiguan. The Tiguan would be my fav except that it gets terrible mileage compared to some others.
See my post below…it’s NOT out of your reach if you are willing to buy one at least five years old! 🙂
I only have a sec, so I wanted to comment on your question about new vs used. As a frugal person, I can’t stomach the immediate and sometimes drastic depreciation on new cars within the first couple years. But beyond that, I always buy used cars that are past the point of rapid depreciation (at least two years old in most cases) and that are on the nicer side and have good track records. Four years ago, I bought a 2001 Toyota Land Cruiser that had nearly 100,000 miles on it. Brand new, they cost upwards of $60,000. I got this one in great shape loaded with options (sunroof, leather, 6cd changer, etc.) for $24,000. We have since paid it off and it still runs great (knock on wood). We have to do periodic fairly expensive maintenance, but the overall cost is well less than a car payment (I’d say around $1,800 per year when you consider tires also).
Obviously, a Land Cruiser isn’t the most economical vehicle to drive around, but I have personal reasons for wanting to drive a large vehicle (namely, being hit 6+ times in the past 10 years). I can only think of one reason to buy new or even fairly new when you can get an awesome vehicle meant to last 200,000+ miles for much much less with all the bells and whistles included – and that would be that you are on a steady budget and need to be able to have a car under warranty at all times so you don’t have unexpected repair bills.
Just my two cents. Can’t wait to hear what you decide to do and your reasoning for it.
I should note that the list price for the Land Cruiser was NOT $24,000. LOL I think it was more like $27,000, but I’m a pretty stiff negotiatior. 🙂 I think we could have gotten it for less, but my husband got tired of listening to me haggle and shook the dealer’s hand behind my back! hahahahaha
i think in an inflationery environment, u should see if you can get a real cheap loan, true inflation is near 7%
Jill
I just bought a 2010 Chrysler Town & Country mini-van with 21k for $15k under new.
It was a former rental vehicle.
Shaune
@Lena – I would like you to rethink your view on depreciation of a new car. Depreciation is only realized when you sell the vehicle. If you own a vehicle until the wheels fall off and get almost salvage value of $3k for it, what are you really worried about? The only reason people worry about depreciation is if they are going to flip the car prior to deal of the vehicle. As with any purchase, you have to determine what you will get from enjoyment of the vehicle as well. If you buy a new car with a good warranty, the first several years are maintenance free, and then you get the same vehicle you paid 50% the price for double the time.
I am not saying your circumstances are not right to feel that way, but every purchase is different. I am looking at this from a financial perspective.
Sentence two … *prior to the death of the car
Good point, Big-D! I’ve been in so many wrecks that weren’t my fault, I am not confident I can keep any car until it dies. And when you get hit and the car is totalled, you get fair market value. Perhaps that will be the same as your loan payoff, perhaps not. I don’t know enuf about insurance to say. But at any rate, I personally don’t like the idea of buying anything that depreciates so rapidly. Taking depreciation out of the equation, I would still rather buy used because I can get lots of options that I otherwise can’t afford (or don’t want to afford) with the brand new version.
I suppose my rationale works when you like luxury, but don’t want to pay a premium for it. So only use my advice if have expensive tastes. 🙂
yea used for me especially now as there is so much value out there..
I suggest you ask a reliable mechanic. They know what cars they may work on more often and which cars have expensive parts.
i think all of the newish cars are very good now. get it checked out and then look after it and no matter what car you have, youre laughing..
If you want something fast, will give you great MPG, and cheap, I’d suggest a motorcycle. Of course, it’s risky to ride one.