Save on Buying a Car: Four Steps to a Bargain on Wheels

Here's a piece from finance guru David Bach on how to save money when buying a car. He lists four steps in the process but before he gets to it, he covers some sobering financial facts about the cost of a new car:

New cars depreciate by 25 percent in the first year, according to Bank Rate Monitor. That means a $20,000 car costs you $5,000 in depreciation during year one. If you finance the car for six years at the currently typical interest rate of 6.69%, that car will cost you about $6,900 in depreciation and interest alone in the first year, not including the car payments. That's not including fuel, maintenance, and insurance!

As such, his advice is as follows:

Don't rush out and buy a new car. Do your research, and buy a good used car.

Here are his four steps to doing this:

1. Find the money.
2. Shop smart and do your research.
3. Look at some actual vehicles.
4. Cut a deal.

I've written quite a bit about car shopping and saving on cars (see links to the bottom) and I fully understand the "buy used" concept and the cost of depreciation on a new car. However, we still prefer to buy new and drive it into the ground before we get another one. Here's our thinking:

1. With a new car, you're fairly guaranteed 50,000 miles or so without any major problems. We place a high value on Consumer Reports and their reliability ratings and buy cars accordingly. We also take good care of our cars. As such, we have little costs other than routine maintenance before 50,000 miles. With used cars, you know the car's best miles are already behind it and you will have higher maintenance costs.

2. There's lots of time and effort associated with buying a used car. To get a good, used car, you need to 1) know a bit about cars (to make sure it's in good condition) and 2) be willing (and able) to take the time to look at a lot of cars (to find a good one). I know relatively little about car condition from simply looking at one and my time is fairly valuable. I don't have hours upon hours to search for a great car, nor the knowledge to be able to identify one when I see it.

3. We always get great deals on our new vehicles. We save up over the preceding years and pay in cash (and paying all in cash is a great negotiating tool). We then shop at the right time of the month (when they're desperate to make their numbers) and do most of it (other than the test drive, of course) via the web. We set up a bidding process between several dealerships where the prices go lower and lower and lower. They eventually drop out until only one is left. Doing this, I purchased both of our two most recent vehicles for a couple hundred dollars above their true net cost -- the cost they have when usually unknown items like dealer holdback's are figured in. Based on what the average people were paying (I got those numbers from edmunds.com), we saved $1,000 or so.

For more thoughts on buying and saving on cars, here are some past posts from Free Money Finance:

• Money Saving Tip: Keep Your Car Maintained

• Money Saving Tip: Save on Car Insurance

• Money Saving Tip: When to Buy a Car

• Money Saving Tip: Keep Your Car in Top Shape

• Saving on a Car Purchase, Buy Used

• Good, Better, Best Money-Saving Ideas: Car Buying

• How to Save $10,000 on Your Next Car

• Saving Money on Your Car

• More Car Saving Tips

• Money Savings Tips: Save on Car Expenses

• Top 10 Car-Buying Mistakes

• Ten Ways to Protect Yourself from Used-Car Sales Tactics

• Buying Cars, Millionaire Style

• Buying Cars, Millionaire Style, Part 2

Comments

[Kirk]

One way to be a quality used car is to purchase from rental agencies and lessors. The truth is a lot of low mileage used cars on lots come from these sources.

For instance, Enterprise has car sales lots all over the country where they sell off-fleet cars. At least with a rental car you know the oil has been changed and you can generally get a car at less than KBB.

(Full Disclosure: I am not an uninterested party but I don't get a commission for selling cars)

[FMF]

Kirk --

Not a bad idea but...

Have you ever driven a rental car? Would you want to buy a car that's been driven that way? ;-)

[Ezra]

How do you set up the bidding process with dealers? Selecting several and then emailing all the most recent (lowest) bid?

[FMF]

I identified them from web searches (dealers in my area), gave them exact specifications I wanted, then let the bidding begin. When someone came in with a high bid, I shot them an email back saying something like, "I need you to do better than that." If they could, they'd give me a better price and get back into the game. If they couldn't, they were eliminated.

[Kirk]

I guess my suggestion was more for those that advocate to buy used. If you buy a low mileage used car, where do you think it comes from? Would you rather buy a rental car that a company does put it's name on or one it doesn't?

[FMF]

This is why we always buy new. I don't have the will (or knowledge) to determine what is a decent used car and what isn't.