Purchasing a Vehicle is a Big Deal with Lasting Financial Implications

Shopping for a new vehicle can feel a bit daunting, and rightfully so, due to how expensive new and used vehicles are. The financial implications can last several years. First-time car buyers, and even seasoned veterans such as I, can find themselves overpaying for a vehicle due to a variety of factors such as financing, new vehicle markup, the true value of the vehicle when previously owned, and overbuying based on wants over needs, extended warranties and more.

I recently made my seventh automobile purchase a few months back and I was pleased with the outcome. It ended up being the first new vehicle that I paid cash for and was able to get every checkbox marked off as far as what I wanted in the car. Having cash up front was helpful and gave me an advantage as far as negotiating the final price of the vehicle with the sales associate, although the cash upfront didn’t provide me the knockdown in price that I was hoping for, it was still enough to make me happy with my choice.

Cash is still king when it comes to getting a deal on a vehicle purchase, however, you are more likely to find better deals in the used car market rather than in new purchases.

I’m not including a specific formula for how to get the absolute best deal possible on a vehicle purchase. First, I’m not entirely sure a specific formula exists, and second, there are simply too many options and different outcomes available. Instead, I’m including some things you’ll want to consider so that you can get the most from the car buying experience and ultimately provide you with a good car buying experience in which you aren’t taken advantage of financially and that provides a good monetary value in return.

What Do You Want in a Vehicle?

I recommend having a solid idea of what features you want in a vehicle first. Make a list of what you want and be sure to include three columns for the following items:

1. Need it: Items that are essential to your vehicle purchase. Perhaps you need a front-wheel or 4-wheel drive unit due to where you live? Maybe a vehicle with a larger fuel tank is important due to your lengthy commutes? A large family would likely need more seating capacity than a smaller one.

2. Want it: These items aren’t essential and wouldn’t preclude you from making a purchase if the price was right. Regardless of practicality, the items listed here can act as a wish list of things you wouldn’t mind but don’t need. Items like heated seats or steering wheels, premium sound systems, specialized paint schemes, and many more add-ons to numerous to count. Think of the wants column as items you could see yourself using but wouldn’t impact the ability for you to commute to where you need to.

3. Unnecessary / Don’t Want: These would be features that would prevent you from making a purchase. List the add-on items you know you don’t want or wouldn’t appreciate in this column. You can purposefully exclude them from your search and likely still have a wide array of vehicles to choose from.

Give some thought to how your needs could change over time. Selling a vehicle can be an expensive process in terms of what you get out of your vehicle and what you put into it. If you have to repeat the process due to changing needs, you can typically count on losing money. I recommend finding the right vehicle and sticking with it for as long as you reasonably do.

Should You Buy New or Used? It’s Research Time!

Another important step in the car buying process is whether you are going to buy a new or used vehicle, though it’s a choice that might not be made until you’re ready to make your offer or decide on making the purchase. This choice is usually dictated by how much you’re able to comfortably spend to receive the items on your need and possibly wants section from your checklist.

You’ll be able to compare prices between new and used versions of the type of vehicle you’re looking for and come to an understanding of what specific makes and models would fit in your price range.

The internet has come a long way and dealership sites typically have a wide array of filters that allow you to dial in on specifically what you’re looking for. I’d recommend doing this on multiple local or regional sites to ensure you’re getting a full picture of how the auto market in your area is priced.

When deciding between buying a new or used vehicle, as we discussed, the decision will usually come down to overall cost. However, just because you can afford new doesn’t mean that there is a used vehicle that would make much more sense for you to purchase.

A few key points to remember is that typically a major price depreciation occurs the moment you drive your vehicle off the lot and make it your own. I’ve seen a rise in vehicles that have maintained their sticker price well due to supply issues such as chip shortages or total vehicles available during the COVID-19 pandemic. It’s likely that as supplies continue to increase, and dealer inventories free up, the depreciation will resume to typical pre-pandemic behavior.

If you decide to buy a used vehicle it could’ve had performance issues that caused the owner to sell it. You can purchase a background report on the vehicle through a website such as Carfax.com. These reports aren’t cheap and will cost you about $30 per vehicle at the time of writing this, however, they can provide extremely valuable information such as whether it has been flood-damaged, or in a wreck. It’s possible the vehicle had even been salvaged after being totaled or that it was used as a taxi or rental car. Perhaps the vehicle’s odometer was discovered to have been rolled back.

The cost of the background report can quickly pay for itself, even if it prevents you from making a purchase, due to possibly saving you thousands of dollars and countless headaches.

If you’re looking at a dealership to make a purchase from, be sure to check if they provide free background reports on the vehicles in their lot. Many dealers provide these reports to maintain transparency with the vehicles they sell. If you’re considering making a purchase from a private seller you can ask them to back up their vehicle with a background report, or you can make the purchase to provide yourself with additional peace of mind.

Should You Trade Your Old Vehicle In or Sell It Yourself?

I’ve traded in vehicles that I knew I would get more money from had I chosen to sell on my own. For me, it was a matter of convenience, and I can attest that the dealerships lowballed their offers.

Here are a couple of reasons that I’ve been given for low-ball trade-in purchase offers from dealers:

• It’s going to take some repairs to sell it and we’ll have to eat that cost.

• We don’t have a demand for that model.

• We’re doing you a favor by offering any trade-in, since our inventory is too high, and it’ll just sit on the lot.

If you’re looking for the best possible offer, I recommend selling your used vehicle on your own. There are plenty of sites where you can list your vehicle for sale, and you can do plenty of research on what your vehicle is valued at before listing it. If it doesn’t sell you can always walk the price back until you find potential buyer interest.

I chose to go with the easy way out and it cost me money. Though to be fair, I got my use out of my previous vehicles and felt content letting them go at the lower prices. If your decision is based on convenience and perhaps the vehicle you are getting rid of carries an extremely low value, then you can consider trading it in with a dealer without worrying about losing out on too much money.

Now that you’ve made your choice and have determined what you want to do with your old vehicle, it’s time to make the purchase!

How to Pay for Your New Car

Financing Through the Dealership, a Bank, or Another Lender

As mentioned before, paying in cash is a fantastic way to save money, but it’s not practical for everyone. You can avoid thousands of dollars in interest charges, as well as not having to make a monthly payment for 5 years or more.

Your down payment matters and you should consider applying for a comfortable but sizeable down payment if you can do so. This is where selling your previous vehicle on your own, rather than trading it in can help, especially if you don’t have money saved, or have consumer debt like credit cards or loans you need to pay off.

Auto financers have gradually increased the length of time they will allow monthly payments to be made, going from the traditional 60-month financing plan to payment plans of 72 months or more. This means you are fully committed to the vehicle, and if not, you’ll need to be prepared to lose money on an exchange or loan buy-out. You’ll likely be upside down (meaning you owe more on the vehicle than it’s worth) for a considerable length of the loan.

Your credit rating will likely determine how the loan process goes. Typically, the better the score, the better the terms. However, it’s not always the case. Even though it’s no secret that dealerships have gained notoriety for taking advantage of individuals with bad credit scores, you will find people with great credit find themselves in unfavorable loans because they didn’t either fully review or understand the terms of their loan or they didn’t seek non-dealership loan sourcing. I recommend that before having the lender run your credit that you have them share their financing terms with you. These will likely be in a range, but if you know your credit rating you should have a good idea of what you’ll qualify for.

Don’t be afraid to acquire your own financing terms. If you have a good credit score, you can potentially find a credit union or other banking institution that will provide you with the loan directly.

Remember, the monthly payment is only one piece of the puzzle. If you receive a high-interest rate you’ll likely pay more than the vehicle is worth.

To Lease or Not To Lease

Rather than getting a vehicle to own, you can look at leasing one instead. You are essentially borrowing a car instead of buying it for a set period, usually anywhere from three to five years. When you complete the terms of the lease, you can potentially return the vehicle to the dealership and find a new vehicle to lease, purchase the vehicle at its current value, or even rent it on a month-to-month basis.

You’ll likely be required to keep detailed track of any service-related items, like oil changes or repairs and the lender will most likely have you perform these tasks at the dealership. Dealership repairs and oil changes can be considerably more expensive than through other shops, however, dealerships are also known for providing quality work, especially due to the relationship they typically hold with their carmakers. Theoretically, the trade-off here would be quality work for more money spent, but this isn’t always the case.

Mileage matters. Ultimately the benefits of a lease could be that they require little money up-front and can be a good option for keeping you in newer model vehicles. A lease can become a problem if you drive more than the mileage allowance accounts for, and it can become quite expensive the more you go over.

Lease terms can vary, so you’ll want to make sure you clearly understand them and are comfortable knowing that you can meet the terms without causing unnecessary expenses.

Negotiate the Price Before Signing the Deal

If you don’t attempt to negotiate the price down, you can be assured that you’ll be paying the highest price possible. You’ll likely be netting the dealership higher than expected profits and will make their sales associates day.

Negotiating doesn’t mean going in with unreasonable demands and wearing them down to some sort of compromise. The best price negotiating will come from working at lowering the invoice price (dealer’s cost) instead of the manufacturer’s suggested retail price (MSRP). Also, check for any manufacturer rebates and subtract those from the invoice price. That will give you a realistic dealer’s cost. A rule of thumb is to offer them up to five percent more than the dealer’s cost. If they don’t accept it and come back with a higher amount you need to be prepared to walk away. One clear method for not being taken advantage of is to have a clear line-in-the-sand approach when it comes to how much you’re willing to pay. Be sure you are looking at the totality of the cost and not just what the monthly payments are worked out to.

Ensuring You Got The Best Deal on Your Car or Truck Purchase

Ultimately, how you feel about your purchase and your overall satisfaction with the financial terms you’ve acquired or money saved will be the real indicator of if you got a keeper or not. Even though I was kidding about others being envious, the fact is that while the total dollars you will have put in on the vehicle matters, if you aren’t happy with your purchase and it doesn’t make you grin from ear to ear at least the first few weeks you drive it then the money you saved will mean little.

My Final Thoughts on How the Get the Best Deal on a New or Used Vehicle

Paying off credit card debt or other unsecured debt is the single best piece of advice I can provide you with to help ensure the financial aspects of purchasing a new or used vehicle goes smoothly and equitably for you.

It’s advice I wish I’d put to work on previous vehicle purchases. There are good dealers and there are bad dealers, and of course, you need to be vigilant when choosing who to work with. The thing is a bad credit score will box you out from loans or purchasing options that are the most favorable to have. Then, the bad vehicle terms you’re stuck with can snowball into further financial problems. Sometimes the best move you can make is to wait it out and make your car purchase when your situation is improved. I realize that isn’t possible for everyone, but it can make a world of difference in the short and long-term financial implications of buying a new or used vehicle.