Buying a Car: Part One

I am nearly finished with my book about Family Finances. One of my recent chapters explores purchasing automobiles. Here is one of three parts from that chapter.

Reality Check
Let’s face it, if you are not a good negotiator, buying a car is like rough-housing with your big brother. You don’t have much of a chance. They know everything you know and a lot more. There are all sorts of ways they can take advantage of your ignorance. That does not mean that all dealers are crooks, but if your dealer does happen to be a scam artist, at least you should know how to recognize it. To begin with, I would like to discuss the shopping experience with you.

General Practices
Regardless of whether you expect to buy a new car or a used one, here are a few things you should consider.

• Try to approach the transaction from a logical perspective rather than an emotional one. If you fall in love with a stereo or with leather seats, you may end up buying a lot more car than you need; and, that is Flushing precious dollars down the drain.

• Sales tax on a vehicle is usually determined based on where you take possession. Call your local city and state agencies to determine what the sales tax will be if you elect to have a vehicle delivered to your home or at your workplace. This can be higher or lower than what it will be if you take possession at the dealership. A two-percent savings on a $25,000 vehicle is $500. That is certainly worth a half-hour or so of your time.

• Many urban areas require regular emission tests or similar requirements. But, if you have a second home in some other out-lying area with less severe requirements, you may be better off to get the vehicle from a dealer in that area and take possession there and get license plates there. Thereafter you may be able to avoid the time, expense and aggravation of those emission procedures. They might also have lower taxes and lower dealer overhead which could mean a lower price for you.

• If you determine that you will take possession at a dealership, it can easily be worth your time to call around to find out which nearby dealers are in areas that have lower sales taxes, especially if you live in a large community that has lots of dealerships. For example, I live in the Metro-Denver area. Boulder and Lakewood have high sales taxes, but Greeley and Brighton are much lower. Would you drive an hour away to a cross-town dealership to save $500 in sales taxes? You can bet I would.

• If you expect to obtain financing, get your FICO Credit Score from at least one credit bureau. The cost is under $20 and it does not affect you credit rating (Actually there is a more accurate credit report for buying cars, called Auto Enhanced Credit score, but the public cannot currently get copies of those) Then contact your own bank or credit union and an on-line bank such as MyAutoLoan.com to find out what rate they will charge you for a loan based on that score. Also inquire about any and all closing and financing costs they might charge. This will help you get the very best interest rates. That interest savings can mean several hundred dollars EVERY YEAR until you pay off your car.

• I recommend you sell your car yourself or donate it before going to the dealership because dealers make their greatest profit from their trade-in programs. I do not see a need to Flush all of that money away. However I realize that some people find the entire selling process to be so unpleasant they would rather take a loss than jump through the necessary hoops of taking calls, meeting strangers, etc. Other times we don’t want to stick a private party with that old lemon we have been driving, so the dealer offers an acceptable way out.

• If you insist on trading in a vehicle, do some research to discover its wholesale value. You can get a good idea at kbb.com. Don’t forget to factor in the mileage and extras, such as air-conditioning. If you do complete a transaction, it will be a lot easier to keep the numbers clear if you think in terms of trading your vehicle at wholesale for their vehicle at wholesale, and then add a “reasonable” profit ($1,000) for the dealer on the one he is selling.

• The transaction is more likely to go your way if the dealer is more motivated than you are. So, one of the worst things you can tell them is, “My old car died, and I have to get something right away.” Therefore, if you do not have a vehicle that you can drive for a couple weeks, while you shop, try to borrow a car from a friend so that you do not put unnecessary pressure on yourself.

• When the salesman probes for some basic information, let him know you are serious about buying; but, make it clear that you do not have to buy today. They know that people like that usually buy within a couple weeks and do not ordinarily come back. This motivates the salesman and dealership to lower their price as much as necessary, rather than let you slip away.

Stay tuned. Dealer tricks coming up.

comments welcomed

Feel free to visit my other blog, currently discussing immigration issues