The Car Buying Process: Don’t Get Taken for a Ride
Presented By: Gregorio Alcantar M.S. ‘06
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4 Steps to the Car Buying Process
BUDGETING
NEGOTIATING
PICKING A CAR
MAINTENANCE
BUDGETING
• Before you start shopping for a car, determine how much you can afford to spend.
• Usually begins by reviewing your budget • Budget - a plan on where your money is going
Car Payment $$
Guidelines
● You should not have a car payment
that can take up more than 20% of
your discretionary income after
paying your regular expenses
● $2000 discretionary income = $400
car payment
BUDGETING How much can you afford? (Be real!)
• Research is important because it gives you bargaining power
• Pick a good car (i.e. reliable) - NOT shiny, or with bells and whistles
• Review reliable sites for information
KBB.com
PICKING A CAR Research
PICKING A CAR
How much car do you need? • Type: Compact, Sedan, Sport,
Truck, 2-door, 4-door • Will you drive it much (e.g., living
close to campus-walk) • Car Features: Apple’s Carplay,
heated seats, Power Windows
Identify your Needs vs. Wants • Prioritize (you may need to
trade off some of the wants for a lower price
• Select 3 or 4 choices that meet your needs and research the features of each car
• Make a pros and cons list • Compare your choices and weigh which one is the best option for you. • Any car you evaluate MUST fit within your budget (STORY about guy
who couldn’t sleep)
Lease vs. New vs. Used
LEASE NEW USED
• Agreement w/ dealer to use property (the car) for specified time and mo. payment
• Don’t own car, only renting • Car available for purchase at
end of lease term (at expected value at end of lease term)
• People can afford to lease expensive cars than they would be able to finance
• Advantage: No down payment, no trade-in to worry, new car for few years, BUT you own NOTHING and pay penalties for excess mileage, wear and tear
• More expensive
• Loses value when driven off lot
• Less maintenance and thus save a lot on repairs
• OWN vehicle
• No smog checks for 7 years
• Can save you money
• Likely to need more repairs
• Bought at actual value current for car
• Keeps Warranty (if within 3 years/36000 miles
**Don’t assume you have to buy a used car - if right new car, right price, and keep for a long time -
save hundreds in long run
PICKING A CAR
• TEST DRIVE the car of your choice to see if the car lives up to your standards • Is it comfortable? • Does it drive smoothly? • How fast does it stop?
• Don’t window shop - try it on!
• Take your time - don’t be in a hurry when shopping for this purchase!
• Tip: It helps to leave your wallet
in the car (bring license only)
PICKING A CAR
• Not Enough Cross-Shopping • SETTLING for What is on the Lot • Skipping the Test Drive • Buying More Car than you Need
Common Mistakes when Picking a Car
• Decide what price you think is fair before you make an offer for a car.
• Kelley Blue Book publishes a pricing guide for all models and all years.
• By looking up the model and year of the car you are considering, you can find an estimated fair price for it.
NEGOTIATING Determine a Fair Price
Preapproval is the process of getting a new or used car
loan pre-arranged through your bank or credit union.
NEGOTIATING
• Buying Unnecessary Add-Ons • (e.g. alarm, sound system, floor mats,
seat covers, nav) • Focusing on the Monthly Payment • Saying up front that you want to pay
Cash • Being Clueless about Financing • Negotiating Down from the Sticker
Price • Fumbling on the Trade-In
NEGOTIATING Common Mistakes when Negotiating
• The sticker price on a car, or
manufacturer’s suggested retail price
(MSRP) is the price shown on the tag
in the car’s window.
• A fair price for a new car usually lies
somewhere between the sticker price
and the price the dealer paid for it
(the invoice price).
NEGOTIATING Determine a Fair Price
• According to the Automobile Association of America (AAA), the dealer’s
invoice is approximately 90% of sticker for compact and subcompact vehicles,
84-87% of sticker for luxury vehicles.
• A fair price is likely to be 3-6% over the invoice price.
MSRP
STICKER PRICE
NEGOTIATING
MSRP: Manufacturer Suggested Retail Price Sticker Price: Price shown on the window Dealer Invoice: The price the dealership pays Fair Price : The price you want to pay 3-6% under Sticker Price
**Sticker Price = 100%+taxes You pay = 94-97% Dealer paid = 90%
NEGOTIATING Terms
NEGOTIATING Negotiating the Price
• Statements like, “This is the only car I want,” or “This is just what I
am looking for,” weakens your bargaining position.
• Don’t reveal emotions
• Make your initial offer lower than your top price, and then be
prepared to negotiate
• A car-buying service allows you to choose the vehicle features you
want, and the service will locate it, negotiate the price, and
arrange for the delivery (for a fee).
Don’t want to Negotiate, go through other means
to purchase car
Also… try to ask for some freebies!
NEGOTIATING
Financial Institutions
• Banks, credit unions and
even insurance companies
offer car loans for 36, 48,
60, or 72 months
• Longer terms mean lower
monthly payments, but
higher total interest paid
because you are using the
money for a longer period
of time
Car Dealers • Most new car dealers offer financing
• On particular models during particular
times of the year they may offer better terms than others
• GMAC (General Motors Acceptance Corporation) is an example of a finance company that makes loans on cars through dealerships
• Most other manufacturers offer similar programs
• You would make your payments to the finance company, not to the dealer
NEGOTIATING Financing Your Car
a.k.a. TOTAL COST OF OWNERSHIP (TCO)
• The owner’s manual will tell you what
services your car needs and how often.
• Typically, you change the oil every few
thousand miles, have a major engine tune-
up every 20,000 to 30,000 miles, and
perform other maintenance at scheduled
intervals.
MAINTENANCE
• You should plan for unscheduled repairs, like flat tires, broken belts, and
leaky hoses that can be costly.
Maintenance and Repairs
Fuel
• The cost of gasoline depends on the fuel efficiency of your car’s engine and
number of miles that you drive.
• Larger vehicles and more powerful engines require more fuel.
Cost of Operating a Car MAINTENANCE
Depreciation
• A decline in the value of property due to normal wear and tear.
• As a car ages, the number of miles driven increases, the physical condition begins to deteriorate, and mechanical difficulties arise.
• Also, styles and consumer tastes change over time.
• All these factors usually cause cars to lose market value.
• Not all cars depreciate– very old vehicles in excellent condition or with
high resale value
• Depreciation is the single greatest cost of owning a car- the cost of
gasoline is second.
• A car will retain more of its value over time if it is well-maintained and
has fewer miles on it at the time of sale.
Cost of Operating a Car MAINTENANCE
• You must pay title fees and sales taxes only at the time you buy the car. (e.g. $25,000 at 9% sales tax = $27250 (2250)
• However, you must pay a tag fee each year and pay for emissions testing in some states every few years.
• All states charge a fee to register a car title- the legal document that establishes ownership.
• A car title lists the legal owner (usually the lending institution) and the registered owner (you)
Registration, Title & Sales Tax MAINTENANCE
1. Reliability - It does not break down often; will last at
least 10 years
2. A Car You Love - you enjoy getting the car and driving it
3. Resale Value - after 7 years, car still worth at least ½ of
its drive off price
4. Insurance - affordable (new more expensive than used)
7 Signs You Bought a Good Car
5. Fuel Efficiency - must I say more
6. The Down Payment - you placed a large down payment (saves on interest)
7. Interest Rate - a low and affordable interest rate means hundreds of dollars
in saving over the car loan
The Key to Car Purchasing Success...
...is to know what you need, have done
the research, and don’t budge but be reasonable at the negotiating table
★ Sethi, R. (2009). I will teach you to be rich. New York: Workman Publishing.
★ Gamm, S. (2013). More money, please: The financial secrets you never
learned in school. New York: Penguin Group.
★ de Paula, M. 10 common car buying mistakes. Retrieved from
http://editorial.autos.msn.com/listarticle.aspx?cp-documentid=1171403
Resources
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