Over the past couple years my wife and I have been discussing and thinking about purchasing our next car.
My car has 220,000 miles on it and isn’t in great shape. The air conditioner has been out for about four years now, warning lights come on when I drive it for a long time in cold weather (don’t ask), and I never know when the next problem will arise.
There are blogs that dissect all the different aspects of buying a car, but for some (most?) life is busy. While I certainly think you should spend some time looking into the process, I also think it makes sense to be realistic.
Most people don’t spend hours and hours planning on buying a car. Today I’ll break down the five steps I think are important in the car-buying process. Hopefully this shows how the car buying process can be something easy and – dare I say – enjoyable?
1) Decide What Brand and Type of Car You Want
I think before even deciding on a budget you should decide what type of car you want. The price tag for a new vehicle can vary greatly depending on the brand and type of car. For example, my wife and I are really interested in Ford SUVs, but getting one with low mileage was considerably more expensive than getting a Ford car, like the Fusion, with comparable mileage.
We decided on the Ford Escape for a variety of reasons. First of all we like the Ford brand and the vehicles they’ve produced the past few years. Second we want a car that has more space. Finally we want a car that is good for winter driving as the winters in Minnesota are brutal.
2) Decide on a Budget
If you’re like us and you want an SUV, you will need to have a bigger budget than if you are looking for a car. With that being said, other things factor into cost such as year produced and drive train. If you want a “luxury” brand you will need to have a higher budget as well.
Of course I haven’t mentioned the biggest factor when it comes to setting a budget: your own financial situation. Things like how much cash you can put down and how much of a monthly payment you are willing to make are things that each individual will have to decide themselves. It might make sense to get a less expensive car this time around and save money for a nicer car next time.
3) Secure Financing
The last car I purchased I paid for in cash. I paid $5k for a 2001 Saturn with approximately 109,000 miles on it. At that time I had few expenses besides my rent and college-related expenses. The car has worked well and it’s definitely been nice not having a loan the past six years.
I want my next car to be reliable and I’m opting for a newer model. Instead of withdrawing a ton of cash from my bank account I plan on putting about $5,000 down an financing the rest. If you are planning on taking out a loan like I am you will want to run some calculations of how much your monthly payment will be based on different loan amounts. Securing a loan online or at a local bank instead of getting financing at the dealership may give you a lower interest rate.
4) Look for Cars Online
Now it’s time for the fun! While you likely already have been looking at cars online and have a general idea of what make/model and mileage you are looking for, now it’s time to find cars that you may actually decide to buy.
What I like about shopping for cars online is that you don’t have to waste much time. You can use filters to know exactly what cars fitting your criteria are on the market. On websites like cars.com you can even sometimes instant message with the dealers. Even if they aren’t online to chat you can easily set up a test drive.
5) Make the Purchase
If you’ve found a few good candidates online and set up test drives, you are already close to completing the car-buying process before you even set food on a dealer’s lot. Think about it: you already have financing secured, you are aware of what comparable vehicles are selling for, and you even have a lot of detail on the specific car you have your eye on before you ever see it.
Making the final purchase is a big decision, no doubt, but if you did your prep work you will be making an informed decision. It also can never hurt to ask for some money off the sticker price, especially if you have listings of comparable cars that are going for lower prices. Make sure to never be afraid to walk away; there will always be multiple cars on the market that fit your criteria and there’s no reason to rush into a purchase when you can find a car elsewhere.
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We haven’t completed the car buying process quite yet but this is the general steps I will take. Car buying can be complicated, but at it’s core it’s all about your wants/needs, finances, and what is available on the market. Best of luck in your car search!
Are you getting a car sometime soon? How much time and effort have you put into it?
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Photo by Brett Levin
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I have always (and will always) paid cash for any cars I have bought. I’m not again 0% financing, but to get this you need to buy a brand new car. However, the idea of the loss of value as soon as you drive the new car away makes me feel a little poorly!
Therefore, for step 3, “securing financing” means making sure there is enough cash in my bank to buy the car!
moneystepper I think it makes sense to finance if you can get a low interest rate. I’ve seen 3% and lower for used cars (though some are obviously higher than this). I’d rather take that money and invest it rather than pay cash for something I can instead use leveraged debt for. To each their own, though, and I totally can understand why someone would want to pay cash.
I would totally agree with that with financing at under 3% (or maybe under 2%). However, I’ve never seen that in the UK, other than from used car showrooms which have inflated prices compared to personal sellers or used car sales companies not offering financing. Am I looking in the wrong places?
DC @ Young Adult Money moneystepper David: do you currently have the funds in cash to pay for the car, or would you need to sell investments to cover the full cost of the vehicle? Also, is there a particular interest rate at which, above that point, you would not aim for leverage?
We went another route and simply paid cash, but I can see the logic of using leverage, depending on the rate.
I think the biggest step of all of these is determining the budget. The last three cars I have purchased/leased, I determined my end budget and it made the negotiations easy because if the car dealer didn’t meet our number, then we couldn’t buy the car. They met our number every time and in one case, it was $100 less per month than where the dealer started.
blonde_finance Wow $100 less per month is HUGE! I plan on going car shopping with a budget in mind and won’t pay a dollar more than that. With that being said, you have to be willing to walk away because there will always be a minimum the dealership isn’t willing to go below.
DC @ Young Adult Money blonde_finance Actually that is not necessarily the case. One of my client’s was a car dealership and they typically make most of their money on impulse buys (people who don’t have budgets, are emotional and overpay) plus they get other incentives from the manufacturer just to hit “total” sales so sometimes it makes sense for them to take a “loss” on one sale to get that month end bonus. Which reminds me, shop at the end of the month when they are trying to hit sales targets with the manufacturer.
blonde_finance DC @ Young Adult Money Really good to know! I will definitely look at the end of the month.
I just got a car in Miami! Wanted a Toyota but they were expensive so I got a Huyndai Tucson. It was at an auction so pretty fun too.
RFIndependence Hold up, you are in Miami?? Please tell me you are blogging about this very soon!
Great tips, DC. One of my BFFs has an Escape and absolutely loves it. I would agree about checking around for financing too. When we bought our last car, we immediately thought we should go with our credit union, but had the finance gal at the dealership check around, just in case. She got us a rate that was a half a percent lower. It all adds up!
Laurie TheFrugalFarmer that’s awesome you were able to get a lower rate! I plan on shopping around for financing before going to the dealership and hopefully locking in a low-rate loan before even test driving anything.
My wife and I bought a new van recently…..from the time we walked into the dealership asking to test drive one on the lot, to the time it was in our garage was less than 24 hours. When my wife says it’s “go time,” it’s freaking “GO TIME.”
DebtChronicles Haha 24 hours is pretty quick! No time to waste!
My aunt and uncle were looking at Fords last week, and for the Escape they were quoted something like $5k down, and a $499 monthly payment. I thought that was insane, but I think they were looking at the fancy packages and they only want to lease. While I am hoping my car lasts another five years, by that time I’d like to look at maybe 2010 Honda’s or Toyota’s. I agree that looking online first is a lot easier!
JourneytoSaving Yeah it definitely sounds like they are looking at brand-new Escapes versus the 2-3 year-old ones I have my eye on. Honda and Toyota make some really solid cars.