Do you get nervous when it’s time to buy a car? Do you dread going into the dealership because you fear being attacked the way roadkill is devoured by vultures? This has long been a common complaint for people in the market for a new-to-them car.  Better yet, this used to be a common feeling — not so long ago.

The advent of the internet has dramatically changed the car buying experience. Customers can now approach buying a car with information and knowledge about both the car itself and the car buying process. That shift is allowing people to buy better quality vehicles at much lower prices.

Car dealers both love and hate this.

They love it because they no longer need to spend as much time with customers as they used to in order to sell a car.  In fact, now it’s not uncommon for buyers to walk into a dealership and already have a pre-approved deal that they made with the internet sales department.  

Surprisingly, the place where a lot of customers still struggle is not in haggling on the cost of the car, but rather the best way to pay for it.  Should they lease a car?  Should they buy a car?  Can they afford to buy the car they want or should they look at a quality used car or a certified pre-owned vehicle?

With all of those questions looming, how does one navigate a vehicle purchase in this new day of car buying?  Even though the dealership experience is much more palatable than it used to be, you still must have a plan for your car buying experience.

So, where do you begin?

Research

The first thing I recommend that you do is Research.  In the past, you researched a car purchase by going to the dealership on a Sunday afternoon to look at cars on the parking lot. You got to check out the window sticker, if you were looking at new cars, or a “posted price” in funny looking numbers on the windshield of a used car.

Armed with that information, you could then cross reference that with what you saw in an issue of Car and Driver (or whatever car magazine you read at the time).  You went looking for cars in this manner to avoid the car salesman that would “attack” you once you hit the lot. You kicked tires, looked at the available colors, and then if something spoke to you then you would go back to the dealer the next week after work.

Fortunately, you do not need to do that anymore thanks to the internet. Now, you can sit at home on your couch and “kick the tires” of any type of car you want. Websites like edmunds.com, carcomplaints.com, CarGurus, and Kelly Blue Book have all made it possible to learn every detail about the cars that you are interested in buying right from your living room.  In the near future you may be able to use virtual technology to test drive the vehicle from the comfort of your own home.

Budget

After you’ve researched your “next car”, it’s time to determine your Budget. Do you buy new?  Do you lease? Or is a slightly used car the best route to go? The old way of doing things would say that you get the best car you can and stretch out your budget.  You would do this by leasing a vehicle, unless you like to keep cars for a long time.

Leasing a car will always get you into a nicer car for a smaller monthly payment than buying a comparable new one.  But, is it the right thing to do? The answer is that it depends on your situation.  

If you make a good living, want a new vehicle every few years, AND can afford it, then leasing may be for you.  But if you keep your cars for a long time or at some point want to eliminate the debt of ownership, then buying a slightly used car is probably the best choice for you.  

The optimal situation for buying a higher quality used car is a three-year-old model that has just been turned in from a lease. You likely get a car that is very similar to the current model year, but at a lower price. If the vehicle is deemed to be a Certified Pre-Owned vehicle, then those come with extended warranties and service throw-in’s like oil changes and tire rotations for no additional charge.  This really makes the purchase a much better deal.   

Remember, when setting your budget make sure that you factor in all considerations. Monthly payment or one-time cash outlay, the structure of your insurance coverages, and anticipated maintenance costs.  Having done your research, this information should be readily available.

If you work with a financial planner get them involved in the process. They will be able to help you plan for your expenditure and explain how it will affect your overall budget. In addition, they may possibly have connections with car dealers and insurance agents to help you leverage a lower overall price.

Get to the Dealership

Up to this point you’ve done your research, established your budget and determined how you want to pay for the car. The next step is to pursue the car.  In the past, you would go into the dealer and they would then ask the most popular question, “How much can you afford to spend each month?”  From there they would tailor a deal with the sole intention of selling you a car.

It might not be the right car for you, but it fits the amount that you gave them.  People don’t do this anymore.  Armed with information from Edmunds, etc. people know what they want, how much it will cost, and how much the monthly payment will be long before heading into the dealership.  By starting your car buying shopping trip long before you actually need a car, you have time to arm yourself with information.  

This is information that you can use to get a good deal on a car. This is where negotiation comes in.   Being armed with information allows you to better negotiate with the car dealer and it also allows you to be able to wait longer for promotions and specials from the manufacturers.

Car dealerships are still in the business of moving product to make room for new models coming in.  To do this, they often have room to negotiate and will come down from the sticker price (even more than normal) to do so. In fact, it’s not uncommon for dealers to drop prices to  as low as $500 – $1000 above the Dealer Invoice right before a new model year is coming out. This is why knowing what the dealer paid for the car when doing your research will pay off for you.  

That being said, the dealership is also running a business and has to make a profit in order to keep their doors open. If you try to get the car for dealer invoice and aren’t willing to come up in price, then the dealer will need to make money from other sources such as financing, aftermarket add-on’s, or a reduction in trade in value.  

While you always have the right to walk away from a deal if you don’t think it’s right for you, remember the main rule of car buying negotiations.  Don’t be a jerk! Being nice will always yield better results than not being rude. Ask the dealer for other things to be thrown into the deal.   

One client I work with just recently purchased a new car and was able to negotiate free oil changes for the entire time they own that car.  That is worth a lot of money!!

Buying Used

If the car is used, then the dealer has more leeway to negotiate with you.  Here is why.  When a dealer takes a car in on trade in or buys a car for resale from either an auction or from another buyer they pay a wholesale price or give a trade in value.  These reduced values are much more than the spread between a new car invoice and what you pay so the dealer will likely have more room to move when making the deal.

Speaking of trade in’s these are a give and take.  Remember, for the dealer and for you it is an overall deal.  Usually, if you get more for your trade in the dealer will not be as willing to come down on the price.  

Preferably you should try to sell your old car yourself.  If you have kept your car in great shape (more on this later) then selling the car yourself will give you much more value than if you trade the vehicle in or you sell it to a dealer.

Insurance  

It is recommended that you not only research the cost of the vehicle, but the cost to insure the vehicle as well.  In the not-so-distant past, people would buy a car then call their insurance agent to get it insured.  When the price of the insurance was more than they figured, they would reduce important coverages, such as liability, to make sure their insurance bill fits their budgets.  Now, it is recommended that you get insurance quotes upfront before you buy your car.  

Notice that I said quotes — as in more than one!!  

This way you can know how much you will be paying for the car before you buy it and by obtaining more than one quote you will be able to get the best deal that is available to you. Keep in mind that each insurance company will evaluate and price risk differently so the rates that you see when shopping should be different based on the levels of insurance that you shop.

In all, buying a car can be a stressful experience, but with a little time and research, people should be able to get a fair deal for a new (to them) car.

Maintenance

One thing that most people do not think about when factoring in the cost of ownership is the maintenance costs.  Routine maintenance and car care varies greatly with each type of car that you could own.  

Overall maintenance costs for a used vehicle may be a lot more than for a new vehicle because of age, warranties, etc. Often manufacturers have different standards for oil changes.  OEM (Original Equipment) parts like tires will vary from car to car, so tire rotations are more important on some cars than for others.

Proper care and maintenance will lower your costs of ownership over time on most cars. This should be part of your research and must be considered as part of the big picture cost of ownership.  

Remember, car buying should not be a stressful experience if you do your homework. Working with a financial planner can definitely be a great benefit to help define your cash flows and what kind of car fits into your budget. This is just one of many services that we provide to our clients at Olympia Ridge – Personal Financial Advisers.  Let us know if you need help in this area.

Olympia Ridge, LLC is an Investment Adviser registered with the State of Michigan. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. We may, from time to time, have a position in the securities mentioned and may execute transactions that may not be consistent with this communication’s conclusions. Please contact us at (248) 385-2334 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions.

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