What’s better than driving off into the sunset in your new whip? Driving off knowing you got a killer deal, of course! In this section, I’ll show you how, in just a few smart moves, you can save thousands on your car purchase.
Whether it’s your first time buying a car or your fiftieth, always begin the car buying process by creating a budget. A good rule of thumb? The car’s sticker price should be at or below 20% of your annual pre-tax income.
Consider how much you can afford before what kind of car you want. From a financial point-of-view, the less you spend on a car, the more money you have leftover for everything else. Because it’s important to remember that the price of a car doesn’t end at its sticker price; you’re also on the hook for licensing, registration fees, taxes, fuel, financing, depreciation, routine maintenance, surprise maintenance, parking, and more. Multiply a car’s sticker price by ~120% and you’ll have a better idea of its true cost to you.
Vehicles are not an investment; they’re a rapidly depreciating asset. It’s an emotional thrill to buy a new car, but buying used is, in 98% of cases, far better value.
If you do decide to buy used or lease, remember that a good car salesman will steer you towards the most expensive options. Know your number first so you don’t overspend later.
New, used, or CPO is an age-old debate in the car-buying world. 98% of the time buying gently used is the best option, but check out this piece to see if you qualify for the 2% of cases where buying new might make sense.
The reason why buying used is right 98% of the time is because new cars depreciate faster than an open carton of milk. Even the most popular new cars will lose 10% of their value as soon as you drive them off the lot and up to 40% of their value after 12 months, according to Carfax.
Besides, if you buy a historically reliable car from Mazda, Toyota, or Hyundai, it’ll still feel new at 15,000 miles, only it’ll cost a whopping 20%-30% less.
In short, no.
A certified pre-owned car is just a used car that’s passed some sort of inspection by the manufacturer or dealer and includes an extended warranty. They cost, on average, around $1,500 – $1,600 more than their used equivalents.
Shoppers value CPO cars because they trust them more; nobody wants a lemon (read: clunker), so we’re willing to pay quite a premium for peace of mind.
But the value for CPO cars simply isn’t there. The first half of the CPO value proposition, the two-year factory extended warranty, is worth $600 at most (but more on warranties later).
The second half of the CPO value proposition is that CPO cars are supposedly of higher quality and last longer. That’s because they’ve passed “a 161-point quality inspection,” according to… the people selling you the vehicle.
Yeah, that’s a conflict of interest, and dealer-made “quality inspections” are problematic on many levels. They’re prone to human error, fluctuating standards, and many sellers deliberately overlook known design flaws. So a seller’s “quality inspection” is worth about as much as a crocheted facemask during a pandemic.
Unless a CPO car is listed as just $200 more than its used equivalents, you’re probably better off ignoring CPO listings entirely.
I’m bringing up pre-purchase inspections early in this guide because PPIs are the most overlooked-yet-crucial step of the car-buying process. In my opinion, pre-purchase inspections should forever sit in the pantheon of essential money decisions alongside “open a Roth IRA account” and “match your employer’s 401k contributions.”
A pre-purchase inspection is when you pay an independent mechanic ~$150 to thoroughly inspect a vehicle before you buy it. They’ll test everything – all four corners of the suspension, every knob and button, every inch of the frame, and more.
A PPI is crucial because even a perfect-looking car (especially one labeled CPO) can be hiding damage that’s extremely expensive to repair, or worse, unsafe.
Although PPIs are cheap and are strongly recommended by the Federal Trade Commission and the Bar Association, many young car buyers don’t get them either because they didn’t know to ask, felt awkward asking, or placed too much trust in the car.
The internet’s full of car pricing information, so take advantage. At the very least, get competing price quotes.
If you can, always negotiate your price via phone or email. If you’re ever uncomfortable, simply stand up and walk out. They can’t hold you there.
Do your test driving first. Leave the dealership. Call back the next day and negotiate a price over the phone, or better yet, follow this trick the car dealers hate to secure a rock bottom price. The dealer will hate you, but you’ll get the best price possible.
Short on time or patience, and just want the best deal ASAP? Consider a buying club service like TrueCar to find your car for you. TrueCar is a company that lets you shop and price your car online and matches you with a local partner dealer to deliver the car.
Once you select the car you want, TrueCar’s price is guaranteed so there are no surprises upon delivery.
If you’re buying a car at a dealership, focus on one thing at a time. And don’t tell the salespeople too much. Remember — this is a kind of game. And if you’re playing cards, you don’t hold them up and say, “Hey, everybody, look — I have a pair of queens,” right?
So at the dealership, Reed and Van Alst both say, the first step is to start with the price of the vehicle you are buying. The salesperson at the dealership will often want to know if you’re planning to trade in another car and whether you’re also looking to get a loan through the dealership. Reed says don’t answer those questions! That makes the game too complicated, and you’re playing against pros. If you negotiate a really good purchase price on the car, they might jack up the interest rate to make extra money on you that way or lowball you on your trade-in. They can juggle all those factors in their head at once. You don’t want to. Keep it simple. One thing at a time.
Once you settle on a price, then you can talk about a trade-in if you have one. But Reed and Van Alst say to do your homework there too. A little research online can tell you what your trade is worth in ballpark terms. Reed suggests looking at the free pricing guides at Edmunds.com, Kelley Blue Book and NADA. On Autotrader, you can also see what people in your area are asking for your car model. And he says, “You can get an actual offer from Carvana.com and also by taking the car to a CarMax, where they will write you a check on the spot.”
So he and Van Alst say don’t be afraid to walk away or buy the car at a good price without the trade-in if you feel the dealership is lowballing you on your old car. You have plenty of other good options these days.
With car concierges, club car-buying programs and other services, car shoppers don’t have to negotiate on price and can sometimes skip the dealership entirely.
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If you’ve ever dreaded going to the car dealership, you’re not alone. That’s why services exist that help people buy a car without ever setting foot on a lot.
Once you decide on a car model, car-buying services use certified representatives to do all the searching and haggling for you. And online car shops enable you to buy from your living room couch.
“People hire representation when they’re not an expert in that field … and car buying today is complex,” said Oren Weintraub, president of car-buying concierge service AuthorityAuto.com. “You negotiate price, interest rates or lease rates, the bank fees, and once you get all that done, you’re not finished. … A lot of people are just not prepared to effectively negotiate a car deal for themselves.”
If you want an expert’s help with finding, negotiating and purchasing a new or used car — or you want someone to do those things for you entirely — consider one of the following.
What they do: Auto concierges learn about a shopper’s vehicle needs and preferences then do the legwork. That includes searching dealership inventories, haggling and negotiating extended warranty contracts. Concierges will even have the car delivered to your home or office so you can sign the sales contract.
Car-buying concierge is a highly specialized service that only a few companies currently offer. AuthorityAuto and CarBargains are two.
Payment: Concierges typically charge an upfront flat fee or sometimes a percentage of the amount they save you on the vehicle purchase. This fee depends on the car they’re tasked with finding.
What they do: Companies such as American Express, Costco and AAA have their own auto-buying programs. Some credit unions, such as Navy Federal, also offer them.
Members input their ideal car model and features online, then the company’s representatives search for a match within their certified dealership network. These approved dealerships offer low, prearranged pricing in exchange for the company’s referrals. Once your representative has found an option, he or she will arrange for you to visit the dealership. You can take a test drive and sign a contract if you think it’s the right car for you.
Payment: There might be a small fee for this service, but it’s often free with membership.
What they do: Brokers are often former car salespeople, well-versed in the tactics of dealerships. They can operate individually or as part of a large company with multiple agents.
You can hire a broker to search car lots, haggle and buy your ideal car for the best price. You can even hire one to negotiate on your behalf for a car you’ve already found.
Payment: Some brokers charge a small fee or none at all, but they receive an undisclosed commission from the dealership. Buyers should be aware this raises the possibility that some brokers could be incentivized to settle for a higher price or only visit dealerships with which he or she has a good relationship.