Tips for Buying a Vehicle

So, your badass 2003 Toyota Carolla with 250K miles broke down again and this time mechanic says the cost of repairs exceeds the value of the car… Translation: Your car is totaled. 😭 RIP ol’ reliable!

Transportation is typically the 2nd largest fixed cost we all face. It’s going to be important in this moment to not make any rash decisions. Take your time with this process, don’t be afraid to utilize public transportation and/or ride share apps while you figure this part out. Get this right and you’ll have more freedom $ to spend on what you love for the long haul. Get this wrong, and… well… how much do you like rice & beans again? 🤪

We all know that paying cash for a vehicle is preferred, but sometimes catastrophe strikes at the worst time. This is why I cannot stress enough that everyone who is currently driving a vehicle must start a “car fund” in their bucket savings strategy. If ol’ reliable bit the dust before you were able to reach the target in the car fund, reach into the emergency savings for now and make it a priority to build both funds back up. No emergency savings either? Uggghhhhhhhh. I’m sorry you are in this position, but I do hope this is a wakeup call to adjust your savings strategy moving forward.

Let’s explore some different ways to approach this monster task of purchasing a vehicle.

The Money Guy Show popularized this tactic to help prospective vehicle purchasers to stay within their budget while shopping. I personally like this strategy for those that find themselves in a real pinch and definitely need a car for necessities. Again, it’s always best to pay cash for a depreciating product, but this guideline helps identify how much car you can actually afford.

To stay within the 20/3/8 Rule one must:

• Put 20% down
• Finance for 3 years or less
• Keep car payment at 8% or less of gross income

For example, if someone makes $90k salary their maximum annual car payment is $7,200 (or $600 per month). If this person puts 20% down and plans to finance for 36 months and a 5% interest rate, we are looking at vehicles (tax, tag, out the door) around $25k at the absolute maximum. The interest rate being offered may drastically impact the amount of car you can afford, but for now it’s best to get an idea of the $ range.

It’s really important to keep in mind here that the person in this example might still not be able to afford a car payment of $600 per month. If their current fixed costs are too high because of other factors, they’ll want to shop vehicles at a significantly lower cost (at least for now). Play around with different auto loan calculators to get a good idea of what you can afford and be conservative!

Do not step one foot in a car dealership till you have the financing figured out, don’t even pick up the phone to call them! Instead, reach out to local banks and credit unions to see what you can be pre-approved for. Sometimes the big-name banks will offer a better rate, so don’t rule them out, but traditionally speaking credit unions will offer the best APR %. If your credit is frozen, don’t forget to thaw it temporarily before getting quotes.

If your credit is in poor shape, the rates being offered might be higher than expected. Plug these numbers into the auto loan calculator you have been utilizing to see if your monthly payments will still be within the 20/3/8 rule or better. If not, it might be time to reestablish your max spend on this vehicle.

Now the fun really begins! Determine some of the “must haves” in your next vehicle. This could be safety related, size related, or otherwise. Maybe you “must have” a minivan to pick up all your kids at their moms’ house. Maybe you “must have” a rear-view camera to help with parking (shouldn’t be difficult to find a 2015 car or newer 🤪). My personal “must have” is some sort of Bluetooth capability, so I can listen to music and podcasts for free 😁 (again, not a hard one to find). Try not to let the “like to have” take over when searching.

Check out Consumer Reports and local dealership websites to get an idea of what you may be looking for. Check out KBB.com to see exactly what the value of a particular vehicle may be. If you can get your hands on the VIN number check to see if there has been any accidents or damage to this vehicle in the past. You can also use this to see if there are any current liens on the vehicle with the DMV when purchasing from a private seller (highly recommended).

Don’t get your heart set on any one particular car just yet. All we are doing here is getting a good idea of what we are looking for. Keep in mind, certain makes and models will be cheaper and easier to maintain. Personally, I’ve spent a ton of time doing research in the past and my next vehicle will be made by either Toyota or Honda. Do with that what you will. 😉

Now is also a great time to reach out to your car insurance company. Explain that you are looking to see what the premiums would be on a particular make/model of a vehicle. Feel free to reach out to multiple companies, but for right now we are trying to gage how much the insurance is going to go up. Chances are likely it’s going to cost more to insure the newer vehicle than good ol’ reliable. 🤪

Whether buying with cash or financing, my personal preference is to always buy from a human being. The term “used car salesman” gets thrown around a lot, and (at least in my experience) is mostly justified. Salespeople at dealerships are trained on schemes and tricks that attack your emotions, which often lead to rash decisions. Instead of having an all-out brawl with a trained professional, I prefer to have a rational conversation with a local individual and create a win-win for both parties.

Websites like Cars.com, Autotrader, Craigslist, and even Facebook Marketplace have vehicles for sale by owner all the time. Utilize all of them when looking for your diamond in the rough; check out Consumer Reports and KBB.com to look for the vehicle’s value as well as any possible recalls on the year/make/model you happen to be looking at. If you are not in a rush to buy something soon, set up alerts to notify you when the make/model you are looking for hits the market in your area.

For those who need to finance, you’ll want to get private-party auto loan. There will be more hoops to jump through, but the process actually helps with the legal process of putting the vehicle’s title in your name. For those paying cash, you’ll want to get the VIN number of the vehicle. You can check the history of the vehicle (accidents, maintenance, etc.) using any number of online resources (I trust KBB.com); and you’ll want to use it to check with the DMV of any current liens on the vehicle. If this seller isn’t someone you know personally, I would avoid buying any vehicle that isn’t free and clear. Legally it can be done, but the process is cumbersome and time consuming.

After checking the vehicle’s history report, it’s time to schedule a test drive with the seller. Have them meet you with the vehicle at your mechanic to check for any obvious issues that might come up in the near future. You’ll also want to do your own inspection; check for cosmetic dings, interior wear & tear, tire quality, dashboard lights, or anything that you weren’t already aware of. When driving the car around with the seller, ask them about their experience with the vehicle and why they are selling it. You will want to also focus on the performance of the engine, blinker, headlights/high beams, break performance, etc. while this is going on.

If the mechanic gave you the green light, and everything else feels good about this transaction, it’s time to close the deal. If you are going in with a cash offer, you might want to try to negotiate a slightly cheaper price than originally discussed. No need to get into an all-out brawl here, but you’ll never know unless you ask. If the mechanic is warning you about upcoming maintenance issues, ask the mechanic for a rough estimate of price, and negotiate the original price of the vehicle with the seller based off this new info. It’s possible they didn’t know about it either, no need to get visceral if this happens. If it’s a major issue, it’s ok to walk away from the deal entirely. Let this be someone else’s headache.

Steps when buying from a private seller:

• Arrange private-party auto loan pre-approval if needed
• Research websites for sale-by-owner vehicles, determine which is best for you
• Schedule test drive with the seller, get the VIN to check history of the vehicle
• Have mechanic check the vehicle, do your own inspection & test drive
• Negotiate final price
• Close the deal or don’t be afraid to walk away

Are you sure you want to do this to yourself? 😬

Alright, but don’t say I didn’t warn ya! Like I said earlier, car salespeople have a bad rap, and most of it is deserved. It’s really important to realize that you are dealing with a trained professional who is trying to get the most $ out of you they possibly can. They are going to appear to be your best friend, they are not! This is a business transaction, likely the 2nd largest purchase in your life.

Sound like I’m being a bit harsh? Maybe it’s the New Yorker coming out in me, but these dealerships are out to get you. The entire process of buying from a dealership is designed to burn you out and make rash decisions that you wouldn’t make with a clear mind. Most people I know have made choices they regretted (including myself if you can’t tell) when under the heat of this transaction. The most important thing here is to keep cool, keep polite, stand your ground, and don’t be afraid to walk away.

Alright, good ol’ Uncle Bill is done ranting, let’s get into the best process. After determining financing and which vehicle you are looking for, you’ll want to decide at the top if you want the manufacturer’s extended warranty. You never want a 3rd party warranty on a vehicle; check out this post on extended warranties. Manufacturer’s warranty offerings are clearly displayed on the manufacturer’s website and will include what is covered. The exact price is going to be negotiated later on at the dealership, but it’s good to know now if a particular extended warranty is something you desire.

Next, look online at all the certified dealerships of the make/model of the vehicle you are looking for within a 100+ mile radius. Some people go much further than 100 miles and will fly to a dealership in order to get the best price and make it a fun road trip back home. I haven’t done this personally, but I like this idea a lot. You might stumble onto some used car dealerships (not certified) in your area, avoid these unless you want to treat it like you are buying from a private seller (utilize the steps above if this is the case).

Now, it’s time to reach out via email (preferably) or phone to each of these dealerships. They need to know exactly what you are looking for (make/model, options, color, etc.) and invite them to bid for your business along with the 15+ other dealerships you are reaching out to. Many of them are going to want you to come in to “talk” about it. That’s fine, you’ll take your business elsewhere, we don’t need to “talk” about anything just yet. You’ll need the quote emailed to you in writing. Reach out to enough dealerships, and at least some of them will comply.

Take the lowest quote and bring it to some of the dealerships near you to see if they can do better. Do not tell anyone that you have financing figured out already. If they offer to “match” the quote they are wasting your time, walk out and see if they chase you down with a better offer. You’re likely going to talk to a sales manager, then their manager, then that manager’s manager. Don’t let them coax you into something you didn’t already decide on purchasing, you are here to get the lowest possible price on the predetermined vehicle of your choice. If they can’t offer that, then it’s no longer a good use of your time, and move on to the next.

While negotiating the price of the vehicle, dealerships are going to have certain “fees” associated with the purchase. ALL of these fees can go away, or they can reduce the cost of the vehicle to make up for the cost of the fee. Stand your ground on this, they are going to make it sound like SOP. Maybe it is for them, but for you it’s unacceptable. Make sure you have pinpointed the exact price of what the offer is; tax, tag, fees, and all. If all looks good to you, they will have you speak with the finance manager of the dealership.

Until now you haven’t told a soul that you have finances figured out. Hear what the finance manager has to say about the rate they can offer on a 36-month loan. It might be better than what you were pre-approved for. If not, show him/her what you were approved for and if they can’t match, you’ll stick with the original financing plan. At this point they might try to tack on fees for not financing with them. That’s fine, it’s not too late to walk away from this entire situation. Don’t forget, they still want your business, most of the time they will figure out one way or another to make it work. If not, it’s time to go to the next dealership. At no point in this process should you agree to put some kind of deposit down, at least until you are ready to sign on the dotted line.

Steps when buying from a dealership:

• Arrange financing if not paying cash
• Determine the vehicle/manufacturer’s warranty you are looking for
• Reach out to certified dealerships within 100+ mile radius to get quotes
• Take the lowest quote to local dealerships and negotiate final price
• Stand your ground and be ready to walk away a lot
• See if financing with the dealership has better rates
• Stand your ground and be ready to walk away again
• Close the deal or repeat the process with the next dealership
• Don’t be afraid to negotiate with a dealership way out of town over the phone

As previously discussed, transportation is typically the 2nd highest fixed cost for most people. Negotiating the price of your next vehicle is key here but also keep in mind that insurance rates are likely going to jump on you with a newer vehicle. Know your budget, and don’t overreach with this high-cost depreciating product. A car is not an investment.

The real trickery of dealing with any dealership happens in the office of the finance manager. They might throw all kinds of bells and whistles in an attempt to make a rash decision. Personally, on my latest car purchase, I decided to buy a manufacturer’s warranty in that office when I hadn’t previously decided to do so. Turned out I bought a 3rd party warranty because I didn’t comb through the details enough before signing the dotted line. The guy straight up lied to me. So… do I have a bone to pick with dealerships? Yes. 😂 Unfortunately so do a lot of people.

Most of us would be better suited buying direct from a private seller. Even if you don’t have the cash, you can set up a private-party auto loan ahead of time. For those who have already hit financial independence, and are looking to buy a brand-new car, a certified dealership is really the only route to go. I hope the advice above was helpful, and the money saved goes towards more value in your life! 😁

Stay classy Solos! ✌️