This week we break down the car buying process to give you some helpful tips when purchasing or leasing a car. Over the years we have developed a system for helping clients buy cars. So, we have decided to give you a behind the scenes peak at the Money-Guy’s best practices for car purchases.
Finding the right car for you
Buying a car is like Cinderella and the glass slipper; you have to find the car that fits your wants, needs and styles. The first step is to define what the car is going accomplish for you, so, Brian came up with these automobile personalities:
- The Money Master: Drives a car for at least 10 years, someone who might like to have more features or a newer car but likes not having a car payment even more.
- The George Jefferson: Is the type of person that prefers to trade their car in every two to three years to keep up with the latest and greatest or as a social indicator.
- The Drive the Wheels Off: Someone who is putting tons of miles a year on the car and it is most practical for them to keep their cars as long as possible.
Three components to buying a car:
- Ownership: The difference between purchasing a car and leasing. Just remember, when leasing, your payments do not build equity.
- Depreciation: The downside of purchasing a car. The old saying is, “A new car loses 20-30% of its value the minute you drive it off the lot.”
- Interest: The cost of borrowing money when buying a car. The lower the interest rate, the less you pay extra over the life of the auto loan.
Buying New:
Buying new makes the most sense for “The Money Master” personality.
- Know exactly what you want.
- Build the car online from the manufacturer’s website and then go test drive it.
- Do not negotiate in person.
- Negotiate over the phone to eliminate the theater (pictures of the family, uncomfortable pauses, etc…).
- Get an understanding of the market.
- Research process
- Edmunds.com – Check out the forum: “Prices paid and buying experience.” Take note of what part of the country the cars are selling cheapest for. Use those zip codes when doing online searches to find the cheapest deals.
- Consumer Reports – After researching the car on Edmunds we like to go to Consumer Reports to price the car exactly the way you want. This gives the opportunity to compare the prices locally against the prices of the zip codes you found during your research. Once you find the lowest price use it as the starting point of your negotiations.
- Inventory
- Go to the websites of your local dealerships and shop their inventory for comparison shopping, find the cheapest dealership around you and start your negotiations.
- Negotiating
- Do not go there in person to negotiate, call them up or negotiate online with the online sales representative. It is much easier to negotiate on the phone or online.
Buying used:
The easiest way to lower the negative impact that car buying has on your cash flow. It makes sense to buy used if you fall into the “Drive the Wheels Off” category.
Leasing:
Leasing is basically a long-term rental. When you lease, the car company and dealership have to “guess” what the value of the car will be when you return your long-term rental. If they put a high value on the return you are better off because the rent will be lower. It makes sense to lease certain luxury brands that do not offer large discounts on purchases or if you fit into the “George Jefferson” personality.
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The SINGLE BEST thing you can do to get a good deal on a car (new, used or lease) is to NOT need to buy or lease a car at that moment. If you wait until your current car is on its last legs (or dead) and you need something to get to work on Monday, you are going to get eaten alive because you have no negotiating power. If you can just walk away, go home in the car you drove there and wait for the deal you want, you put all the negotiating power back in your hands. That is the flip side of squeezing every last dime out of the purchase process. Do NOT try to squeeze every last dime out of your current car so that you are in a bad negotiating position for a new one. If you wait too long and let it get to the point where you need to do the deal that day, all the savings of running the current car into the ground is going to get wiped away in the lack of a deal on the new one.
The last 2 cars I bought, I got about 17% off the sticker price. One place eventually refused to sell us the car at that price. We negotiated the whole deal, then we went out to look at the actual car. It had a big scratch on the hood! They said, “No problem, we’ll take that into the body shop and buff it right out.” Three rounds of buffing and me saying “I can still see it. I’m not buying a brand new car with a giant scratch on the hood.” I finally said, “Look, I don’t need this car today. Why don’t you just get me one from another dealer and I’ll come back and pick it up?” They refused, gave us back the title and keys to our trade and sent us home. Either they were just very lazy and didn’t want to do any more work for the sale, or we squeezed them so hard that there was no money in the deal to get it from someone else.
The most recent car we bought, we also got about 17% off the sticker (less than the TrueCar price in our area). Unfortunately, we had a similar problem in that there was something wrong with the actual car they wanted to sell us. We had them get a different one from another dealer and it had 1-2 other features that we ended up getting for free since it would have been extra work for them to remove them. So that ended up working out pretty well.
Brian is right about removing the emotion for the deal. I couldn’t care less about your kids, your story or you as a person. I’m willing to sit in your office all day to get the deal I want. And when you know I don’t have to do this today and I can just go home in car I have, most people will quickly realize they should put a final number on the table so we can either agree and get this done or realize we’re not going to agree and stop wasting everyone’s time. I fell like I am a very good negotiator (probably because I’m pretty cold and unemotional) but lately I’ve gotten to the point of putting out my final offer very early and if they aren’t interested I’ll just leave. As long as I know my offer is reasonable, I know I can find someone to sell it to me at that price.