I’ve been reading a lot of fancified productivity and frugality blogs lately, and almost all of them suggest the same thing when it comes to buying a car.
More specifically, but a used, unpopular vehicle that you know all the KBB values of in an unpopular color, so you have optimal leverage to negotiate down the price. Have no brand loyalty, and ideally purchase a domestic car instead of an import (this part I disagree with entirely, but whatever), because the maintenance costs will be lower. Don’t get the extended warranty, be ready to walk away at any point, buy before your current car is broken so you have the advantage.
I went out initially looking for a used car, intending to follow most of these guidelines, but I had a series of setbacks along the way, which led me to buying new instead. Here’s my math on it.
I went out with a budget of $10,000-12,000, and the constraints of a car that was newer than 7 years old, had less than 100,000 miles on the clock, got good gas mileage (no trucks with 8mpg, something in the 25+ range as EPA rated), and felt fun to drive (I like cars, and I like to drive briskly on occasion). I didn’t care what color it was as long as it wasn’t lavender, and had four doors (avoid sports car insurance premiums or anything crazy like that).
I did research constantly on the internet. I found models and brands I was interested in, found out that lot inventory for used cars on the internet is much more accurate than for new. I found cars I wanted to look at and went out to look at them. I went out ten times to used car lots, six separate trips, spending 4-6 hours per trip looking.
By the end, I was ready to stab somebody in the fucking face, until I went to Ron Tonkin Nissan and talked to Jeff Williamson, who treated me like a human being, and seemed to know something about what the fuck they had on the lot. He talked to me about cars he owned, he talked to me about the things he liked about them, the things he didn’t. The big problem was that they had no used cars I was even partially interested in.
They had a couple of ginormous Toyota Tundras and Nissan XTerras that would have gotten horrid gas mileage. They had a Nissan 350ZX, brightass red, which would have taken another $100 a month at least in insurance. They had a Nissan somethingorother from about 1994 with 200,000 miles on the till. The 350ZX looked fun to drive, but failed every other test. The Somethingorother had been depreciated fully, it was a zero-value car, and they wanted $5000 for it. The trucks were, well, trucks.
Faced with giving my money to this guy versus giving it to the guy who treated me like shit for trying to buy a car at KBB value, it was an easy choice. Here were my justifications in no particular order.
- I felt good giving money to this guy.
- I liked the car.
- It fit all of my criteria.
- The sticker price (not the purchase price, more on this below) was only $2500 more than my stated budget for a used car.
- The cost of legal defense for attempted murder (through face stabbing) would far outweigh the $2500 premium.
- The car would extend the range of my job-seeking possibilities, making it easier for me to negotiate pay increases.
Here is the bad end of this.
- My purchase price ended up being significantly more than I wanted to pay. $17,000.
- I made the mistake of not haggling. This could likely have saved me $2000. (A “dealership interest fee”, basically a tax for buying a popular car that I could have pretty easily negotiated away, by starting to walk away instead of being in the “I’m buying this car today” mentality) This would have saved me $42 a month, or $2500 over the course of the loan.
- I got the extended warranty. This cost me $1500 (the only part I haggled on, down from $3500). It has saved me $400 (airbag replacement and wheel sensor replacement). This might end up on the positives list, but for now, it’s a negative.
- I am suffering the full value-depreciate of new car ownership.
- Because I am suffering the full value-depreciation of new car ownership, I had to pay for GAP insurance.
- I have to pay for full coverage insurance at $500 deductibles per my loan terms. This is another mixed account, as I believe in the importance of having uninsured/underinsured motorist coverage and more than pure liability, but I’d rather have the deductibles be at $1000 instead, and pump the $20-30 a month it would save me into my IRA.
- Because of my impatience, I was unable to qualify for a loan at the bank I work for, which would have saved me 2-2.5% interest. By itself, I could have saved $25 a month on my payment ($1500 over the course of the loan). Combined with negotiating out the $2000, it would save me $62, (not $42+$25 because of the reduced principal), or $3700 over the course of the loan.
This is still a net benefit, because the car I was relying upon as secondary transportation (primary being my bicycle) broke down just two months into new car ownership, plus a workplace reorganization caused me to have to go to an office 16 miles away instead of 8, and my days stretched from a consistent 8 hours to a fluctuating 8-14, making biking to work difficult. The car really saved my ass in the first quarter of the year, and my ability to perform those long days without being utterly pooped got me a small raise (very small, about $2500 a year) and a moderately significant bonus ($4000, almost half going straight to the tax man). This allowed me two things,
- It gave me enough money to get my eyes corrected with LASIK.
- It gave me the inspiration and fiscal “cushion” to purchase a house. (Which, despite a lot of rumbling right now about how great renting is, is a benefit.)
So, buying the car was a very important change in my lifestyle. I had spent much of the past 10 years afraid of credit (having been burned early with a $300 credit card turning into a $1500 collection). Now, I am still wary, but I am coming to credit on my own terms. I carry no outstanding credit card debt, all collections on my credit report are closed and paid, and the only things I am using credit to purchase are, in the long run, a net benefit to me, the car (because of the mobility, and the leisure, business, and personal options that mobility offers) and the house (because of the likely-but-admittedly-not-guaranteed value appreciation, tax benefit, and leisure, business, and personal options that it offers). Now that I’ve done the math on the whole thing, I’d have definitely walked away from the dealership interest fee and bought a less popular car if need be. And I would probably have waited for my credit rating to get up to the standards that would have let me get the lower interest rate, though in actuality, that would have left me pretty fucked when the Honda broke down, it doesn’t make it any less of a good idea. Stay tuned for later when I go over the crazy finances of buying a house! Whoa, all the fun.
I love my car dearly, but that doesn’t mean it’s not a good idea to do a full analysis of it from time to time.