How to Get the Best Deal on Your Next Car
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Want to score the best deal on your next car? Use these tips and strategies to get your finances squared away so you can negotiate a fantastic deal!
Recently I was a part of a Stacking Benjamins roundtable where we discussed how to not mess up saving for (or financing) your car.
Besides Joe and myself, personal finance author and speaker Jason Vitug and USAA's Rene Horne were a part of it.
If you haven't listened to it, go ahead and download it. There are some wonderful stories and tips shared between all of us.
I'll highlight what we've learned over the years that have helped us get some great deals on our cars.
Getting the Best Deal on Your Next Car
The typical way people buy a car is through financing it.
Right now the average car payment is $479/month, tying up about $5,700 each year. If you're a couple with two car loan, you're looking at a significant part of your cash flow locked up into your cars.
Too many people have found out the hard way that one snag with work or a health issue makes that ‘affordable' car turn into a financial mess.
Fortunately, that's not the only way you can buy your next car.
Want to know the secret to getting a great deal on your next car while still having flexibility with your budget?
Skip the car loan and buy your car with cash.
Buying a Car with Cash
It may sound crazy, but after we paid off the Jetta off, we made the switch to buying our cars outright.
That was years ago and honestly, we love it!
So how do you start? Let me show you a system that will give you two leverage at every stage.
- Know your numbers inside and out. You should run your own numbers and see how much car you can afford on your budget. Even though you're not taking a payment, you do need to start and contribute to your car fund.
- Start your car fund. Cash for cars requires a system for savings. We've found that opening up a dedicated saving account just for cars set up mentally to sock away that money. Don't know how much to save? Start with 15% of your take home.
- Do your homework on your car. While you're building up your car fund, it's time to become a guru on the best car for you. Make sure you know exactly what you need from your next car and which models would be the best fit for you. When we were looking for a family car we had three models we were looking for. That allowed us to not hooked onto one specific car while still knowing we were settling. Looking for some of the best cars maintenance wise? Here's a great starting place.
- Don't rush. When you have the cash to buy your car, you have more leverage than you think. If you decide to buy from the dealer, don't get hooked into the car payment math. Instead, negotiate off the total price. You can get even better deals from private sellers. We found our Accord from a Craigslist ad. Knowing we could buy it outright gave us the confidence to be able to walk away. Want more tips and details about snagging a deal? Check out how we bought our car off of Craigslist.
How to Get the Best Deal (with a Car Loan)
While I'm a fan of paying cash for cars and skipping the whole car loan, I know some couples are not ready to make the leap.
I still want you to come out ahead with your purchase, so here are some specific tips that will allow you to get a good deal on your car and minimize your loan.
- Know your numbers inside and out. If you're getting a loan, you need to know your credit score. Why? Because lenders will use this to determine your loan's interest rate. The higher your score, the lower rate you should get. You should also run your own numbers and see how much car you can afford. As a rule of thumb, your transportation costs (including gas, insurance, and maintenance) should be no more than 15% (less is better!) of your take-home pay.
- Finance your next car through your credit union or local bank. Give yourself bargaining power by visiting your credit union or community bank before heading to the car lot. Dealerships love to offer you loans as they can tweak and finesse those numbers into an ‘affordable' monthly payment. The truth is you can get a bad loan if you rely on the dealership.
- Shorter car loans > longer car loans. The average car loan is around 60 months (5 years). Considering that a car loses about 60-70% of its value in that time frame, there's a good chance you'll be upside down on your car loan for quite awhile, meaning you're stuck if things go south. You'll also be paying a lot more with interest. Do yourself a favor and pay off that car loan as quickly as possible.
- Do your homework on your car. Yep, you still need to make sure you know exactly what you need from your next car and which models would be the best fit for you.
- Massive down payment is your best friend. Even before you sign those papers and get tied into a payment, you need to start stashing that cash. Since you ran the numbers, you know how much you can afford on a monthly basis. Take that amount and start transferring that into your savings. You'll be building up your down payment and test driving (see what I did there?) how the loan will affect your budget.
Thoughts on Snagging the Best Car Deal
I shared what's worked for us, I'd love to hear from you. What tips and stories do you have on snagging a great deal on your car?
Great advice! I would re-emphasize that, for those who need loans, credit unions can definitely offer the best rates. Some years ago, I was able to snag a 1.5% loan through a credit union that no bank was offering. And, most of the time, becoming a member of a credit union is much easier than it looks!