How to Pay Less for the Car You Want |
People are judgemental creatures. Meet someone for the first time and chances are they'll look you up and down and in an instant, decide where you sit on their own personal pecking order. Don't smirk – you do it too.
It happens in the office, at school pickup, and on the golf course. It's visible at PTA meetings, the weekend football match and the annual Christmas barbeque.
It's the clothes you wear, the brands you cover yourself with, and of course, the car you drive.
Years ago, I was a victim to this nonsense, too, and I've written about the futility of keeping up with the Joneses on this blog before.
But even if you've seen the light and reigned in your spending habits, it is still possible to enjoy nice things while spending a lot less money. One area where you can do this to great effect is with your car.
I'm a believer in buying fewer things but better things. That's why I have one good pair of dress shoes, one good pen and one good watch. Instead of buying cheap shitty socks that need replacing every year, I buy really good Drymax ones that last years (and feel better to wear).
It's the same with cars. Except with these, I get a lot more creative.
I used to sell cars years ago (Honda, Mercedes-Benz and pre-owned cars), and I'm still involved in the retail automotive market, so I've worked the other side of the fence for decades.
So here's a simple set of rules you might consider next time you buy a set of wheels.
1 Buy one that's at least four years old.
Buy a pre-owned vehicle of at least four years' vintage (it will have had most of its depreciation hit already), and make sure it has a complete service history, stamped in the service book.
2 Don't finance it.
Like it or not, 99% of new cars depreciate – in most cases, their value falls off a cliff as soon as you drive them away from the dealership. Don't ever finance an item that drops in value. You'll still get all the depreciation and running cost deductions whether you finance it or not.
Depreciating HALF the purchase price (or much less), is still tonnes better than having a loan and claiming the repayments on your taxes. One of the subtle (and often overlooked) traps here, is that when you finance a car, you'll usually spend right up to the maximum monthly payment you can afford.
That's boiled frog syndrome. Death by 60 repayments.
3 If possible, buy a last-in-series model.
Many first-release models come with bugs and design flaws – especially if they're a completely new model. By purchasing a last-in-series model, most or all of the car's design bugs will have been addressed.
4 Don't be afraid to low-ball.
If a dealer can see that you're a) ready to buy today, and b) prepared to walk away, they'll jump through every hoop they have to do a deal with you.
5 Walk away.
The surest way to test point four is to make your offer with the promise of a $1,000 deposit if they agree. Then if they vacillate, get up from your chair, shake the salesperson's hand and head for the door.
You don't need this particular car, and you don't need it TODAY.
If they let you leave, your offer was simply too low. But chances are, they'll counter with a nice low offer before you even reach the door. How flexible you are from this point on is up to you. But if you do negotiate, offer diminishing increments each time – and odd amounts, too.
For example, say you've offered $30,650 on a $37,900 car, and before you've reached the door, the salesperson offers $33,500. Don't counter with $31,500. Do something like this: $31,190 > $31,575 > $31,780 > $31,890.
Notice how each increase was incrementally smaller than the last? We went up by $540 > $385 > $205 > $110. Doing it this way tells the dealer they're almost out of options. If they don't agree soon, there will be no deal.
6 Don't trade in your old vehicle.
No matter how much a dealer offers you for your shit-heap, you'll always get more for it privately. If your trade-in is worth $10k on the open retail market and they offer you $13k, that extra money is coming straight off the margin of the car you're buying.
Remember, they need to leave a margin on your trade-in for detailing, minor (or major) rectifications, warranty, and of course, profit. In real terms, they have to offer you less for it than it sells for out in the retail marketplace.
Clean up your car and sell it privately. Then go shopping for your next car.
7 Try to buy just before the EOFY.
The end of the financial year pushes dealers to convert floor stock to cash. This is a very good time to buy.
8 Look after it.
Take care of your car and hang onto it till it dies or it costs too much to keep it going – whichever comes first. Ignore ‘new shiny' syndrome and pocket the savings. They build up over time.
9 Contra is king.
If possible, try to do a contra deal with the seller, where you exchange services for both the acquisition and maintenance costs. I recognise this is usually not possible, but if you have something valuable to offer like Web design, social media marketing, PR, ad management or accounting services, this can be a real boon.
I've acquired two cars this way, and I maintain all three cars through a contra arrangement.
10 Keep it off the house.
Over the least 15 years or so, people have gone crazy with putting stuff ‘on the house', meaning they use the equity in their home to buy things like holidays, toys and of course, cars.
I'm not a fan of this practice for one simple reason. While the interest rates on mortgages are far cheaper than a lease, a CHP or personal loan, the fact is, most people get lazy and let the loan run indefinitely.
What this means is, they end up financing a depreciating asset for 10, 15, or even 30 years! That's dumb.
If you're going to tap into your home's equity, use it to buy an appreciating asset like an investment property, not a depreciating one like a car.
We currently own four cars, and their combined original purchase value was close to $475k. Their total cost to us was $80k. I gave one of them to my dad a few years ago (a Mercedes-Benz E430 that was $170k new – for which I paid $35k), so now we have three.
One was a full contra deal/gift (originally worth $130k), so it cost nothing in real terms, and the other two cost a total of $45k (with a combined original value of $175k).
The wonderful thing about acquiring cars this way is I get to enjoy a great car that someone originally paid silly money for, yet costs me peanuts to own.
Take our latest purchase, for example. My wife's first car (a little A-Class Mercedes) cost the original owner $37k. We bought it for $2k. Sadly, my daughter crashed it on her maiden drive, so we had to replace it. A one-owner Mercedes-Benz B180 came up through a client of mine, and we snagged it for $5k. It cost the original owner $45k.
Cars will keep you broke if you're not careful, and a cavalier approach to car ownership is why many people stay broke.
I'm sure there are other smart ways to buy cars, but this approach has worked wonders for us. Try it out next time, then invest the savings and get on with the other parts of your life.
My philosophy is, if you're gonna go broke, make sure you have a really good reason. And throwing away money on cars every four years isn't one of them.
While we're on the subject of saving money, I've written a book on killing debt. It's only nine bucks, and I promise it'll pay for itself thousands of time over. If you have debts, you need this book. Get it and thank me later.A cavalier approach to car ownership is the reason why many people stay broke. Click To Tweet
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Disclaimer & Disclosure: I'm not a psychologist, and I'm not a financial advisor's elbow. This material doesn't constitute financial advice but rather a collection of personal opinions, based on my own experiences. Some of the links on my site are affiliate links, which means that if you make a purchase, I will earn a small commission. This commission comes at no additional cost to you. I provide links to services or products I have used and liked or researched and recommend. Please do not spend any money on these products unless you believe they will be beneficial to you