An important money concept to consider is exercising care when buying new vehicles.
Our car companies have been really good at convincing us that we need a new car every couple of years. On top of that, we have become infatuated with not only having the latest model, but also having all of the new gizmos and high-tech features in our cars.
We dress up our cars with rims, TVs, DVD players, video game consoles, you name it. Having nice things is fine, but it needs to fit into the budget. We cannot let our eyes become too jaded that we cannot see the big picture. Here are a few tips to save money on your next car.
The sales process
Buying a car is really just a matter of perspective. When many of us go to a car lot, we briefly look at the sticker price, and then we start planning our negotiation skills for “the man behind the glass.” Isn’t it funny that we never talk directly with the finance team? We always deal with the salesperson in the middle.
So, we pick a vehicle and go into the office so that we can go through the drill that leads to our first offer. The man behind the glass then scribbles all over our offer, adding his terms, as well as the monthly payment. Our salesperson comes back minutes later with a monthly payment that’s as high as our mortgage payment. We then go back and forth several times until both sides feel that they are comfortable with the terms.
However, just because the car dealership makes you feel like they’ve given in to make their customer happy, that could not be further from the truth. Most financed cars are purchased with a dealer advantage because they are able to make us lose our focus. Car salespeople are pretty good at their jobs. They are able to make an awful situation look like a bed of roses. The bad part about it is that so many of us bite the bait without fully understanding what we are getting into.
Beware during the negotiation
When we walk into that office to start negotiating, they take our minds off of the sticker price and onto the monthly payment. They know that our main concern is whether or not we can make the payment each month. When the first offer comes back, the monthly payment is usually high because the financing term is short. It may only be a three or four year loan. If the payment is too high, they stretch out the term, sometimes to six or seven years.
While this may make your monthly payment more affordable, it almost doubles the price of the car. For example, if we were buying a car that costs $20,000, and we were being financed at 10% interest, a three-year loan would have a monthly payment of $646. If we asked for a smaller monthly payment, the dealership may come back with a six-year loan with a monthly payment of $371. While it looks like we are saving almost $300 a month, it adds over $3,000 to the total price of the car.
We should never finance a vehicle for a long term. Since many of us have no plans of keeping a car for six years, we shouldn’t finance it for that long. In actuality, we should aim at keeping our vehicle for 3 or 4 years longer than the outstanding loan.
Pay yourself
By keeping our vehicle beyond the life of the loan, we are able to continue to make that monthly car payment to ourselves. If we save that money in an interest-bearing account for several years, we can have a substantial amount of money available for a good down payment on the next car. If we are able to save a little longer, we may have enough money to purchase the next car for cash. Either way, we walk into the dealership with stronger negotiating power.
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