How to buy a Car?

Our country is so infatuated with buying cars, SUVs, trucks, motorcycles amongst other consumerists items.  Buying a car (vehicle) is one of the most depreciating assets that you can have.  The fewer cars (vehicles) you buy in your lifetime the more money you keep over the long haul.  Too many people buy new cars every couple years, lease cars, finance cars, over insure cars and buy all the gimmicks the car salesman tells them to.  All this without ever truly knowing how much the “actual” cost is. So, how do you buy a car?  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

The only way I buy a new car is under two strict conditions.  First, I have the cash for the car and know that I am going to keep that car for a long time time (10-15 years).  I will NOT be buying in the near future again.  The second way is if I can get 0% financing. I say 0% financing 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.  I keep the rest of the money invested earning more money, while still paying the face value of the car.  Why do the 0% financing or maybe slightly higher than that?  Investing the money instead is playing what is known as opportunity cost.   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.  Also, 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.
  2. 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.
  3. Test Drive.  Make sure you drive the car to make sure you like it before buying.  Drive it in town and on the highway.
  4. 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.
  5. Don’t be in a hurry.  Look to buy from a private party instead of a dealership.  You will get a better deal by not paying the dealership costs.
  6. Insurance. How much in insurance is the car going to costs?  They vary widely so be wise and look into it before buying.
  7. 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.
  8. 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.
  9. History. Get access to the car’s history to see if there have been any accidents or malfunctions in the car you should know about.
  10. 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.

What if I don’t want to buy used?

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.

What Should You Do

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 the 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 mistakesWatch this short video

What Shouldn’t You Do

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.  Do you need that type of vehicle or will a different one work?  For example, I see too 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.