On our popular podcast The Money Millhouse, we recently interviewed Rod Griffin on an episode about the kind of credit score associated with buying a car. He said that this time of the year is one of the car buying seasons because dealerships are getting new models and are even more motivated to unload last year’s inventory.
Even though you may have a goal to eventually drive your cars for free , you can still be informed about credit scores in relationship to buying used or new cars.
Let me start by asking you the question we ask our audiences when we speak on a Heroes at Home tour: How do you lose around $8000 in 8 seconds?
Did you get the answer yet?
The answer is: you drive your brand new car off the lot.
Yes, the average new vehicle will depreciate $8000 in the first year. Since most folks finance that new vehicle, it’s more like losing $10,000 in 8 seconds!
So WHY oh WHY do you continue to buy NEW?
Some folks answer, “for the warranty.” But if you bought the vehicle a year old, you could do two things to make up for that 12 months of warranty you lose over buying new:
- Warranty Purchase – you could purchase an extended warranty, which (depending on the car you drive) is only $800 to $1500 per year. This is WAY LESS than the 8K–10K you are losing by buying new. Plus warranties are negotiable. When I had to renew the warranty on my Mercedes 280SLK, the dealership gave me their best price. Then I called USAA, telling them the best quote I got and they beat the price by $800. Plus, instead of the $200 deductible I had with the other quote, the USAA deductible was $0! I used that warranty at my local Mercedes dealership (world’s best service department) and paid $0 deducible and got the same excellent service that I normally get.
- CPO or Certified Previously Owned – If you get a vehicle with a CPO on it, then part of the deal is that the dealership extends the warranty a year and this is a full manufacturer’s warranty. Plus, there are more stringent inspection standards and additional roadside assistance. Once, I had a shady salesperson who told me the car was CPO, “All our cars are CPO” she said, but she never presented me with CPO paperwork to sign at the deal’s closing. You guessed it, the vehicle was NOT CPO and she lied. Be sure you get CPO paperwork if you are told it is a genuine CPO. It costs the dealership anywhere from $800 to $2500 to CPO your vehicle, depending on the year, make and model. You HAVE TO sign CPO paperwork that is dated from BEFORE the date you buy the car or it’s not valid. Remember that asking a dealer to make a vehicle CPO is part of the negotiating process and this will increase the value of the deal anywhere from $1000 to $2500.
A couple years ago, I was on my way to Disneyland to meet another author friend and a careless driver made an unprotected left hand turn right into my vehicle (about 5 feet off the bumper). I had NO TIME to react or even take my foot off the brake. The fact that Mercedes are so well built and the fact God sent his angels to protect me are the only reasons I walked away from this terrible crash with only a few cuts and bruises.
This accident put me back in the market for a vehicle. So this time I decided to try USAA’s car buying service. Since we had an extra car at home, I could take my time to find the best deal. The car buying service told me the price, the discount, gave me free access to a CarFax report, showed me a chart of similar cars purchased in my area to indicate an average, good, or great deal, and more. I compared the prices I saw on the site to Kelley Blue Book and did all my research. Then I followed the same three steps we teach in our Heroes at Home Financial Events.
Step One: Negotiate Price First
Negotiate the price of the car at a dealership apart from the value of the trade-in. Tell the salesperson you want to determine the price of the car without the trade-in. The reason you want to do this is because salespeople will often give you far more for your trade than you expected—thus hooking you on the deal. However, this higher-value-for-the-trade-in shtick can be part of the technique they use to get you to purchase the car. If a higher value is given to the trade, then they will give a lower discount on the price of the vehicle, because all the discounting went into the value of the trade.
Step Two: Negotiate the Value of the Trade-In
Now that you’ve determined the price of the car, ask what the dealer will give you for your trade-in. Most likely, you will get more for your car if you sell it yourself. A little elbow grease and some top-notch detailing can net you hundreds of dollars more than a dealer can give you, if you can find a buyer. Some people (like military families) don’t always have the time to sell their car because of moving schedules and so forth. So if you are going to try to trade in your car, look up the value of your existing car at Kelley Blue Book or Edmunds, then print the page (or screen shot it), and bring it with you to the car lot to negotiate the price. Bottom line: try your best to gather enough facts beforehand so that you make a wise decision.
Step Three: Secure Your Own Financing
The F&I (finance and insurance office) is where the lion’s share of a dealership’s profit is made. In this office, you will have to navigate interest rates, payments, terms, additional services, and warranties. Unless you put miles on your car for business or you are purchasing a car that will cost a lot to repair (and you intend to keep it longer than the warranty lasts), extended warranties are usually not a good value. When it comes to vehicle financing, you can generally do better on interest by selecting your own creditor unless the manufacturer is offering a lower APR. Keep in mind that the .99% APR offers only go to the top 10% of those who are the FICO score elite, chances are good that you will not qualify. The credit life insurance that dealers offer is more expensive than raising your regular insurance premium by twenty thousand dollars to cover this expense. And don’t forget to research the price of insurance on your new car so you can afford both the payment and the insurance.
By following my own advice, I talked to my sales representative and I was able to:
- Negotiate the best price on the vehicle.
- Get the USAA discount added to the deal.
- Get a car that had less than 3K miles on it.
- Get CPO added to my vehicle.
- Drive a vehicle that is now under warranty until 2022.
- Get a like-new car that had only been in service officially for a mere three months.
- Save $9K off the brand-new-plus-CPO price.
- Pay cash for my car (stay tuned for next week’s blog on how to pay cash for cars).
- Get the year, make, model and color of the car I wanted.
- Walk away feeling good about the deal and the value I got.
When are you in the market to get a vehicle, which of these tips will you follow to get the best deal?