How to Buy Your Next Car - The Smart Way!
Buying a vehicle will be a part of most people’s lives. Getting around to go to work, buy groceries, take your kids to sports, and to get around is a way of life. Understanding the smart way to purchase a vehicle will help your finances greatly in the long run! Public transit is available in most built up areas although the convenience of our own vehicle is the best option. Your vehicle is a liability, meaning it depreciates and loses you money over time. Other than collectors or rare models, you will sell your vehicle for much less than you initially paid for it.
Getting a vehicle to commute to and from work is necessary to pay the bills and survive. Today’s post is on how to buy your next car – the smart way. This means what to buy, where to buy it, and how to keep the most money in your pocket! Leasing and financing vehicles may seem cheaper month to month then paying cash but what is the best way to save the most?
Everyone loves having the newest vehicles, with all the latest technology, looks, and power available. Not to mention the status and feeling that comes along with it. The truth is a vehicle depending on make, model, and location will lose anywhere between 30-40% of its value in the first year! Buying new means, you will not only be paying the highest amount for your vehicle, with dealer fees, taxes, and price, but the vehicle depreciates quickly within that first year.
The first 5-years is when a car loses most of its value, dropping nearly 60%. Therefore, buying a slightly used car anywhere from 3-5 years old will save you thousands and thousands of dollars. Not only will most of these vehicles be in mint shape, but the reliability will be great as well. If you are looking for something new, consider shopping the previous model or style rather than the latest one out.
Most dealers offer certified pre-owned vehicles. These are cars that are slightly used which have been certified by the original manufacturer which meet and exceed a long list of safety specs. Buying something like this can ensure peace of mind and security like buying something new. If you are not looking for something newer consider something 10-15 years old. Companies like Honda or Toyota are known for long-term reliability with their vehicles. Have a look around on the roads and you will see what is super popular and still on the road.
Leasing may be a smart idea if you are a business owner and can write off some of the lease, otherwise leasing is the most expensive way to “own” a car. When you lease a vehicle, you are basically renting it from a dealer. Not only do you pay interest on the amount (usually a small amount on new cars – around 0-3%) but you don’t own any part of the vehicle. You are paying rent for the car and once the lease is done in 2-4 years you give it back. The main reason why people tend to lease vehicles is because it is the lowest monthly payments. Their monthly payments can get them a nicer model or a newer car when they lease it.
Financing a vehicle is a way to pay for the total costs of a vehicle over a set term. This term is usually longer (to lower monthly payments) like 5-7 years. The dealer still charges interest on financing a vehicle as you are borrowing the money from a bank or lender. I financed a slightly used vehicle when I was younger. I couldn’t afford to buy anything with cash and needed to commute to work immediately. I ended up paying 6.99% interest on a $20 000 vehicle. Costing me an additional $1400 in interest alone. The one benefit of financing is once you pay off the vehicle you own it. Once you do decide to sell, upgrade, or change cars you will get a chunk of cash for it (although a lot less than you paid).
Paying cash is the all-time way to save the most on a vehicle. Paying cash allows you to pay the full cost of the vehicle upfront. You have full ownership and will only need to cover maintenance, gas, and insurance costs (which can still add up quickly). Paying cash will not necessarily give you more leverage with the purchase (I’ve paid cash for my last 2 vehicles now), but it does clear any upfront costs you have to pay. There are no interest payments and no monthly vehicle payments which allow you to save more money each month.
Negotiating with any sales will result in paying less and getting more. The stated price with vehicles is ALWAYS negotiable. Whether it be from getting a cheaper price, more options, add-ons, free maintenance, tires, or waiving any dealer fees. These prices and items can always make there way into the total cost of what you are paying for. Negotiating can be stressful and uncomfortable. Therefore, you must practice and know what you are going to say before you enter the dealer. If you don’t have a plan and a final exact price of what you will pay you are ultimately playing in their hands. The dealers have strategies, quotas, and the upper hand if you don’t come prepared. Purchasing a vehicle used from a private seller will likely be cheaper and easier to negotiate down the price. Although, dealers give you more security and some warranty items in case what you got was a lemon (for the most part). Also when going to a dealer you can be building a good relationship with someone, if you want to take your vehicle there for servicing and maintenance.
Before you narrow down exactly what you want, look at the entire market. What is out there that is similar, model, make, km’s, everything. You want options to bring them to the dealers. Always say you are going to multiple dealers that day and not just one of them. If you do not say the options you have, they will be reeling you in. Tell them the car they have isn’t the exact one for you (even if it is), the km’s are too high, you don’t like black, it doesn’t have enough options, it’s had an accident. Whatever you can do to say your not happy with, this way they will want to give you a deal to make the sale. Shop around to various dealers and talk to multiple salespeople to feel them out and listen to what they say.
Use our 3 tips - buy used, pay cash, and negotiate to get you the best deal on your next vehicle. A car payment can be a large chunk out of your overall monthly income. Saving more of your money and paying NO interest should be the goal. If you enjoyed our post be sure to check back next Monday for a new post! In December our newest book Optimal Wealth will be launching, it is a easy to read, engaging book designed to help you break the paycheck to paycheck cycle. If this interests you we have some valuable information that can help transform your relationship with your finances.
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