This post was originally written at the start of 2009, but has been lost on my PC until now, so I thought I’d share with you now.
My wife and I just bought a new minivan, and I thought I’d share some of the lessons I learned along the way.
Get your financial house in order before you even think about buying a car.
I realize that this is not always possible, but it is ideal, so if you know you’ll need a new car in the next few years, start planning now! Make sure you pay down as much existing debt as you can, and free up as much extra cash as you can. If you can save enough money to buy a car outright, then make sure you are setting enough aside each month to meet that goal. Otherwise, figure out how much you can afford in monthly payments.
Make sure your credit is squeaky clean, unless you’re buying outright with cash.
Ok, you should probably keep your credit score as high as possible anyway, but especially if you are going to finance any amount on a car. Knowing your credit score can give you an edge when rate shopping. My last car loan was for 10%! That was about 10 years ago. I was young and foolish and didn’t give a thought to my credit score – and I paid for it. I was determined not to make the same mistake twice, and spent 3 years getting my score up from 650 to 820 and it has paid off.
Line up financing outside the dealer, at least to get another opinion if not a better deal.
Every dealer will finance a loan. For some dealers, it’s the main way they make money. Many deal with local banks and credit unions, and tack on anywhere up to an extra percentage point or two. Cut out the middle man and go straight to the bank. This is what I did, and the dealer I eventually went with used the same credit union I went through, but it would have been 5.875 % instead of the 4.99% I got by going straight to the credit union myself!
Do the math to see if cashback or ultra low interest (0-1%) is the better deal.
Car makers and dealers are offering incentives like never before, but that doesn’t mean it’s a good deal. For example, when we were looking for minivans we saw many offers up to $7,000 off or 0% financing. The catch was that this was only on 2009 or brand new 2008 models. That would have meant we would still spend as much as $4,000 more than on a used 2008 after the cashback! I also ran the numbers on the financing and discovered that at 4.99% even on a 5 year loan, it would have been better to take the cash back because the total interest saved by going with a 0% loan was around $2,300. Bankrate offers a handy calculator for determining this. http://www.bankrate.com/brm/calc/rebatecalc.asp
Shop around for the best price.
Duh, right? Everybody knows to do this, but I’m surprised at how few use the Internet for their searching. We used Auto trader (through Kelley Blue Book) and found half a dozen dealers with models in our price range. The great thing about this is that dealers often offer the best deals over the Internet because they save money on advertising and getting the buyer into the lot in the first place. Low overhead means less markup, when it’s coupled with competition.
Visit Kelley Blue Book and Edmund’s for fair prices
Know what the fair price is before the salesman spins his yarn. This is not only valuable during the negotiation phase, but it can help you tell which dealers are trying to take you for a ride. You can research this and more at http://www.kbb.com and http://www.edmunds.com/
Sometimes you really are getting a good deal, especially in bad economic times.
My wife and I spent a couple days searching the web and Kelley Blue Book before we contacted a dealer. We actually contacted 6 and had them compete for our business through auto trader. We knew the fair asking price and we knew the tricks that dealers use to get consumers to pay more. We went out to the dealers for test drives, prepared to do battle. In the end, we went with the first dealer we met with because they offered the best deal. We couldn’t believe that it was as good a deal as it seemed and tried haggling the price down, only to have the car we were originally interested in get sold out form under us! So, we had to settle for our second choice, which was still the best deal around and only 4,000 mile more than our 1st choice.
In the end, we got a 2008 Dodge Grand Caravan with 24,000 miles on it for $10,000 less than the invoice price on a new 2008.
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