I remember the day well.
My first car purchase. All grown up and living on my own, I didn’t know what I didn’t know and I fell for every sincere sounding bit of advice the dealer told me.
He had my best interest in mind, right? No, he wanted to make a great commission and this trusting young 20-something gave it to him. I made that mistake TWICE before I became a car shark myself.
Now, I am the girl you want along to negotiate on the best deal ever. (Yes, I have learned the art of negotiation on just about everything.)
Buying a car can be daunting, especially when you want to save money. Heading into the process armed with this arsenal of tips puts you in the drivers seat. If you are in the market for a car, want to save money, and make a solid purchase with no regrets, these are some of the best tips I’ve learned along the way.
Define Your Budget and Stick To it!
When I graduated from college, my heart won out once again with a car purchase – the dealer’s test drive vehicle. Many assured me this was a great deal and while that may have been true, my youth pastor’s salary had no business buying it. While I figured the monthly loan amount into my budget, it gave me no wiggle room to save or build up an emergency fund. It took me years to understand that investing in a new car with depreciating value is not how to create margin in ones budget. This was the last car purchase I ever made on a loan. I never wanted to feel that monthly stress again due to a vehicle. It’s been over twenty years since I bought that car and it was by far the nicest car I ever drove, but I’ve never regretted the decision to sell it and get out of car debt.
Before you start browsing, set your budget and stick to it. Don’t allow your feelings to be swayed by all the new bells and whistles because trust me, those heated seats are amazing.
No Brainer: Buy Used
Someone has to buy new cars. I have a few good friends who “needs” the newest model every other year, yet I always hear their financial complaints. The best way to save a substantial amount of money on a car is purchasing it used. Even buying one that’s one year old will save you thousands. Once a car has been driven off the lot, it depreciates in value. In fact, a new car loses 11% of its value the moment you drive it off the lot, with the first year offering the steepest drop in value, upwards of 20-30%. If you want to save the most money on a car purchase, set your goal on finding a vehicle that is at a minimum of 1 – 2 years old.
Research the Vehicle History
Any time you purchased used, this is most critical step. Don’t consider the purchase of a used car until the VIN (Vehicle Identification Number) has been checked and cleared. If you have time, order a car title history report from the National Motor Vehicle Title Information System, which shows the full history of a vehicle. You can find out if it was in an accident, a flood, or even if the odometer has been tampered with. If either of these reports come back negative, discontinue with that car. It’s as simple as that.
Be the Authority
As I mentioned in my post on art of negotiation , knowledge is power. Sellers can sniff out insecure buyers and they will want to use that to their benefit. Before you walk in the door, do your research. Come in as an authority on what you are looking for in terms of prices. Research prices online first, so you have a ball park of what’s a good deal. Research the Kelley’s Blue Book Guide to know the retail price of used cars. You want to purchase for less than that price. The goal is to purchase the vehicle for as close to whole sale value as possible. Come in with a notepad and let them see that you are referencing your research. Refer to other sellers and what they are offering in terms of other similar makes and models, so the seller knows you mean business. Do not share how much you want to spend and what your budget is because you have now handed the seller all your leverage.
Understand all the options for where to buy used vehicles.
The majority of used cars are purchased through dealers. Obviously, the inventory is much larger, so you have more vehicles from which to choose. The process is simpler, but most of the time, buyers will always spend more for that convenience.
Again, knowledge is power. Research the dealership and know its reputation. Ask for referral from friends and from those recommendations use their trustworthy salesmen. Look into the manufacturer, dealer incentives and rebates. Make sure to inform the salesmen that you are just gleaning information today with no intention of purchasing until you have visited three other dealers. Timing is critical. Since most sales man work on commission and quotes, they will be much more willing to negotiate at the end of the month, especially if they are close to making their next goal.
You must put yourself in control of this sale because salesmen are skilled at impulse purchases. .
Pros of a dealer – It’s a much simpler purchasing process. You can be in and out of a dealer with your new car in hours. They many offer a history report free of charge and offer some sort of warranty or guarantee. Some offer a multi-point check of the vehicle’s systems to see if there are any outstanding issues, but know that you must get this guarantee in writing. Most have a service department or service partner that can take care of issues, as well as financing options. While all these benefits make the process much simpler, you will pay extra for this.
Cons of a dealer – hidden charges occur. They are salesmen who make their salary on the highest price possible. You will never be quite sure of the deal you are getting, but they certainly will attempt to upsell and offer additional warranties, but this is never cost effective. Warranties are where they make their extra money. The last time my parents purchased from a dealership, the seller said that their warranty was not optional. That is never true. My parents walked away and as soon as they stepped out the door, the seller quickly “changed” his mind. You must be willing to walk away.
Pros – More room for negotiation. Depending on how motivated the seller, you can purchase a vehicle at whole sale value. Remember my first nice car? I just wanted to get out from under the loan and sold it for a loss. The purchaser got a steal. If someone is relocating, they will be under a time crunch and also very motivated. My husband purchased his last two cars through the newspaper. One was purchased from an estate where the two sons needed to unload their mom’s practically brand new car. It was five years old, but only had 30, 000 miles on it. It had been serviced regularly and they were able to show us how religiously she got it tuned up and the oil changed – every 3K miles like clock work. This was one of our best finds ever and two years later, we could still sell it for what we paid.
Another option for a private purchase is buying from companies who lease vehicles for their employees. When the lease has ended, they typically turn them back to the dealer for new cars, but we’ve purchased two cars directly from the companies before they turned them in. It was great because we bought them at wholesale value. They had high miles, so the vehicle had fully depreciated, but they were highway miles, so the vehicles were in great condition.
Cons – while a dealer will make every attempt to make you happy, a private seller may not have the same motivation.Previous owners may not always be totally honest about the vehicle, so there’s a higher risk involved. This is where asking questions is very important and relying on your first impression of the seller. I am a good gauge of character and know if someone is taking me for a ride. With no guarantees on the vehicle, you must take your time to ask the right questions and inspect it very well. If you at all feel concern, have it checked by your mechanic. While test driving, listen carefully for any odd sounds and ask, ask, ask away.
This is where the most risk occurs, but also your best values. This is where car dealers purchase the cars they will eventually sell. We’ve been fortunate with two excellent vehicle purchases from auto auctions. Both times, we were not in immediate need of a vehicle, so we had a few months to browse the auctions. We took our time to make sure they had what we were looking for in terms of make and model and we had a little bit of flexibility in our budget. When two Honda Odysseys came up for auction, we decided to go with the van with less miles. My husband went ahead of time, inspected the vehicle with a friend who knows cars, and did a quick search of the vehicle history before beginning the bidding process.
Often times, you can get what you pay for in as-is condition. There are usually no warranties, no money-back guarantee or repair options.
Pros – potential to find a great deal, but not if you are in a hurry. You need to take your time. You may still be able to run a vehicle history report if you can get the VIN number before the actual auction. You may be able to find some vehicles that you cannot find anywhere else.
Cons – the speed and “excitement” of auctions may cause you to spend more money than you originally budgeted. Again, know your budget and stick to it. Research is critical. Some auctions are online only, so you don’t get the chance to walk around and inspect the vehicle. I’d be more hesitant with that, but you do have the opportunity for some great buys.
Cost savings associated with auto insurance that comes with purchasing a used car vs. a new car
In our experience, another reasons we don’t want to drive new cars is the much larger insurance premium. We factor that into our purchase and talk to our insurance agent before we make the new purchase.
I asked our Allstate insurance expert about the cost savings.
“Generally, used cars cost less to insurance than a new car. However, certain safety equipment, engine size, model, version, driving record, etc. can affect the cost of the various auto coverages that make up the premium of the policy. It’s best to discuss the vehicle you’re thinking of purchasing with your insurance agent before you purchase so you are informed on the insurance costs you will be facing.” (Yep, that’s exactly what we do.)
Purchasing a used car affects insurance coverage for teenage drivers dramatically.
With five children and three teen drivers, our teens drive old cars. Purchasing a used car has the most positive impact on insurance premiums for teen drivers. Designating a younger driver as the principal driver of an older car may affect the cost you pay. However, please note that this will not eliminate them from coverage needs on other vehicles in the household. All teens need to be paired with a car, so it makes sense to align them with one that needs less coverage (in general, older cars are worth less than newer ones). Again, it’s best to speak with your insurance agent or reach out to Allstate to see what makes sense as this thinking may not apply in all instances.
Any parents, no matter the age of your child, needs to read “Teen Driving, Their Safety and Paying for it all.” In doing research for this article, I was highly convicted and it has dramatically changed my driving habits.
Driving Used Is The New Black
When I think back to the fact that the nicest car I owned was straight out of college, you may think I’m sad about that fact. The reality is that driving used cars over the years has allowed our family to save thousands and thousands of dollars. Driving used cars has enabled us to be in the strongest financial situation we have ever been in and I really tie it into eliminating the need to “Keep Up with the Jones.”
During our time of unemployment, our Hunk O’ Junk taught me some critical life lessons. Read about it in “It Just Doesn’t Matter What You Think” post. It will encourage all of you as you work towards financial freedom.
Hopefully, this article gives you a better working knowledge of steps to take before you purchase a new vehicle.
I’d love to hear your experience.
What are some of the best tips you’ve found when buying a new (or new to you) vehicle?
Thanks to the Allstate Influencer Program for sponsoring this post. As the nation’s largest publicly held insurance company, Allstate is dedicated not only to protecting what matters most—but to guiding people to live the Good Life, every day. While this post was sponsored by Allstate, all opinions, including those about my car purchase mistakes and steals are mine.