I was explaining my personal car buying strategy to someone recently and decided to write a post about it, in case it is helpful to someone. For many people the purchase of a new car can be one of their most expensive investments, behind purchasing a home of course (but it shouldn’t be). Thanks to technology, the car buying process is much easier today than ever before. Below are some tips that may help you along the way to purchasing the car of your dreams at a great price.
TIP #1: Resist the urge and DO NOT BUY BRAND NEW
This is the most important rule of the game. You never buy a brand new car. A car may be a necessity, but it can also be an asset or a liability. Technically a car that you own is an asset, because it is of value. But, if it’s worth $20,000 and you owe $22,000, it’s more a liability because you owe money on it and do not own it outright. It becomes your asset when you own the title free and clear. Cars are depreciating assets, which are normally not great investments! There are ways to make good money buying cars, but I’ll leave that for another post. Buying a gently used car will save you thousands of dollars in sticker price and will soften the blow from depreciating value. A good car will depreciate nearly 50% of it’s value within 3 years of it’s purchase. Some cars will depreciate even faster than that. However, typically the depreciation rate slows down and levels off between 3-5 years, so that is the time frame that you want to target for your next car.
Tip #2: Do Your Research. NEVER walk blindly onto a car lot!!!
Technology has provided us with limitless tools, so use them to your advantage. Decide what models you like, and compare the years and models. Pay attention to whether or not the body style changed after a certain year; if so, the old body style will be cheaper because typically the newer style is more desirable. Sometimes, you may still like the older style better. Check out car safety, efficiency, and overall ratings on websites like ConsumerReports.org, CarandDriver.com, and USNews.RankingsandReviews.com. This will help you narrow down the best vehicle(s) for you. Decide which colors you prefer as well. Believe it or not, the color of the vehicle will definitely impact its price. I’ve found that gold or tan colors are least expensive, followed by blue. Green, grey, and silver are a bit more costly. Red can be expensive, depending on the type of car. White and black (especially black) are highly desired colors and typically are priced higher. When you get to the car searching stage, you’ll notice this trend. (This is a good thing if you find yourself selling a black car).
Tip #3: Find your Car using Autotrader.com, Cars.com, or Craigslist (Yes Craigslist)
Now that you’ve identified the exact car you want, start searching for it using these websites. My personal favorite is Autotrader.com, but sometimes I’ll check Craigslist for any steals in the area. Autotrader and Cars.com are great resources to use because most car dealerships (and private sellers) list their cars online now to help boost store traffic. So, you can essentially browse cars and their asking prices from the comfort of your own home without any hassles. If you really want to be gangster about it, you can even do the negotiating over the phone and have the dealership deliver the vehicle to you (I don’t go that far). Sometimes, you can find a desperate seller on Craigslist and get a steal of a price. This is especially true for a lower priced car; it’s also easy to negotiate with a desperate Craigslist seller. The downside to Craigslist is that you may need to have your purchase money in cash. Here is my searching strategy for Autotrader.com:
You should already have an idea of your ideal car’s target price range from using one of the research websites above. Two of my favorite sites to find out your car’s value are Kelley Blue Book and Edmunds.com. This is an important step (especially if you have a trade-in) because you’ll walk in knowing exactly what to expect for an offer on your car from the dealership, and you can use this knowledge to negotiate to your advantage. If they continue to low ball you, keep the car and sell it yourself on Craigslist or Autotrader. You typically will receive more money as a private seller than you would from a dealer trade-in anyway.
Do an advanced search on Autotrader and select all of your car specifics (Make, Model, Mileage, etc). Autotrader allows you to search a radius from 25 miles, over 500, or any distance. Decide what distance you’re willing to travel for your car. Often, being willing to drive to a smaller town an hour or two away can result in huge price savings. To test your price point, select a 25 mile radius and put in a price that you know is a bit too high. Observe how many vehicles return in your search (let’s say 100+); sort the results to show you the most expensive first, and see which models or features they have compared to the cheaper ones. You may have to decide which options are most important to you. Next, sort the results to show you the cheapest items first and take note of the cheapest models in your area. Take note of the cheapest price in your area and do a new search with that cheap price (or lower) with a 500 mile radius. Keep lowering your price until you’re down to about 10-20 vehicles in a 500 mile radius. That tells you that this price range is very low, as only a small number are available at this price in a wide radius.
Now, take your super low price and lower your radius down to the distance you’re willing to travel. Mine is typically about 200-300 miles, but I’ve actually gotten lucky so far and have never had to go more than 50 miles. Try your price in your smaller radius. If no luck, raise it in small increments. Eventually, you’ll find the perfect price point where you have 5-7 cars that perfectly match your needs within your radius. I used this method and found the lowest advertised price for a Black Honda Accord in metro Atlanta. Then, I traveled to this dealership and used that as my starting point for negotiations. It was already the lowest priced car in town, and well below the market value that I researched. I used this strategy to purchase a fully loaded, top of the line Black Honda Accord that was 4 years old (at the time) for $12k. With all taxes and accessories (Gap Insurance, etc) I was off the lot for $13k flat. This particular car retailed brand new for well over $30k, today it would actually be $35k brand new. In my case, this represented an $18,000 savings for a car with only 65k miles.
Tip #4: FINAL TIP: Bring your own Financing
This part may be hard for some buyers as you need to have somewhat decent credit to do this. However, many times a dealership will bend over and offer you a good price on a vehicle while planning to make their money on you through an outrageous interest rate if you finance with them. To bypass this, walk in the door with your own financing already squared away (but don’t tell them this up-front, keep this a secret). You can tell them you plan to finance with them, and you can even let them run your credit to see what you qualify for. There’s an off chance they may have a lower interest rate than the one you’ve already been approved for. Also, having your credit run multiple times by different people for the same purpose – such as buying a car or a house – will not lower your score any more. The credit impact of having one car dealership run your credit or five dealerships run your credit would be the same, given it’s within the same time period.
I’ve found that credit unions are easiest to work with, and often offer better financing loans than big monster mega banks. If your job doesn’t offer one or if you don’t qualify to join one, some are open to anyone regardless of your status. Try to research free credit unions in your area. My credit union even has a car searching division that will help you locate your ideal vehicle. Once your credit union has pre-approved you for a purchase amount and a model year and mileage range that your car can be in, the purchase process is actually pretty easy. No stressing over the finance manager and your monthly payment; all of that is worked out before you even step on the lot. You can decide how many months to finance and your payment without worrying about dealership gimmicks. Once you have your car and have agreed on the purchase price with the salesman, you can pull out your pre-approval documents and walk away like a champ. Hopefully there is something you can pull from this and you’ll never walk blindly onto a car lot again.