I went car shopping recently for the first time in over ten years. Talk about sticker shock! Dang, when did cars get so expensive?
I’m a very firm believer in running cars into the ground, but my beloved Nissan Murano has over 230,000 miles (and a replaced tranny) so it is time to start shopping for new vehicle.
I have a decent amount of money to put down, two vehicles to trade in and great credit, so in theory I’m fine purchasing my dream vehicle which is a Toyota 4Runner.
After a bit of back and forth with the dealership, they were willing to let us walk out the door with a total price of $35,000 (this didn’t include my down payment).
For a fully loaded brand new 4×4 vehicle I knew this was a pretty good deal.
I turned it down.
The problem is the monthly payment.
Did you know that as of January 2019, the average monthly car loan payment is $551 over 69 months?
That is a lot of money and a long time to be paying for a vehicle.
One of the biggest mistakes I see people make is purchasing a vehicle based on their monthly payment rather than the overall cost of their vehicle.
One of the very first questions the finance manager asked us was how much we could afford to pay monthly. The finance dealers’ job is to get as close to that number as possible regardless of how long it will take you to pay off the vehicle.
One of the easiest ways to get the “right monthly payment amount” is to extend the term of a loan.
Car loans used to be 2-3 year notes, now it is common to have 6-10 year car loans.
When you are purchasing a new vehicle always follow these 4 basic steps to make sure you don’t get in over your head:
4 Steps To Save Money When Purchasing A New Vehicle
1. Run all your numbers before you ever enter a dealership.
Before you start car shopping you need to take a detailed look at your financial situation. Review your spending carefully and then determine a reasonable car payment you can easily afford.
And I do mean easily afford. Just because you have making good money now doesn’t mean that something won’t happen with the economy in 3-4 years.
If possible, set aside your estimated car payment for 4-6 months before purchasing your car. Not only does this help you add to your down payment, but it will help you make sure you can actually afford the monthly payment.
Your goal at this point is to not only set a reasonable monthly payment, but also give yourself an overall budget on the price of the car.
You want to know exactly how much money you are willing to spend before you ever enter a dealership.
2. Research, Research, Research!
When purchasing a new vehicle research is your best friend. Don’t assume that your “nice” car salesman has your best interest at heart. As much as he may like you, he is getting commission on the sale and wants your money!
If you know prices before you go in then you will always be a better advocate for yourself.
3. Shop around for financing and get preapproved
Don’t assume that the dealership is going to give you the best financing deals. I’ve found that regular banks (and especially Credit Unions) will often meet or exceed the car dealership deals.
Keep in mind that in most dealership, the moneymaker is now the financing department, not the actual sales department.
We tried to negotiate a cash deal and were told that they didn’t offer any incentives for cash payment. The salesman flat out told us that they don’t make money on cash deals.
This means that they are making lots of money off you every time you finance a vehicle. Your job is to find the best financing deal long before you ever enter a dealership.
4. Save, Save, Save
The number one thing you can do to get a good deal at a dealership is save as much money as possible before purchasing a new vehicle.
No, it won’t always get you a better deal, but the more money you have saved, the less you have to finance.
Ideally, you’ll purchase a vehicle in cash, but the ideal situation doesn’t always happen, so start saving your money now.
Don’t Get Taken Advantage Of On Your Next Car Purchase
Purchasing a new vehicle is never fun. It is always more expensive then expected and if you aren’t careful you can walk away with a car loan you can’t really afford.
Next time you go in to purchase a new vehicle use these four simple tips to help you find the best deal possible and save money in the process. .