7 Best Practices for Buying a Vehicle

It’s hard for me to think of a bigger way to waste money than buying a new car. For starters, vehicles immediately and almost permanently depreciate in value. Worse yet, by the time a salesperson has bamboozled us into buying something, we drive off the lot owing more than the vehicle is worth. This isn’t just a bad business practice, it’s problematic when it comes to insuring it, and getting any return on the “investment” is virtually impossible, even in the form of happiness. This especially goes for brand-new cars, but even when you think you’re doing the right thing and buying a used one, you’re probably getting screwed.

In a perfect world in which we were all sound consumers and personal-finance gurus, we’d be catching buses and trains, walking, or riding bikes. Public transportation is not available everywhere though, and for many of us, a vehicle (or two in some cases) is a necessary evil given the distances that must be traveled.

I have compiled 7 best practices to help those of you who absolutely need a vehicle to make the best decision and get the best deal. I want to make it clear that I’m not advocating taking this advice and running out to a dealer and buying a car. On the contrary, if you have a dependable vehicle (especially if it’s paid off) you need to drive that thing until the wheels fall off. Take care of it, clean it, change the oil, and do the proper maintenance checks and services. After all, every month you don’t have a car payment is essentially an opportunity to do something else with that money you’d otherwise be forking over to a bank every month. When the time comes where the wheels actually do come off your cost-effective ride, use these 7 best practices to get yourself the best deal you can get.

1.) Start early and determine your needs.

It’s a good idea to always take inventory of what you need from a vehicle. For example, if you are married with five kids, a vehicle probably needs to seat all seven of you safely in order for you to go anywhere as a family. Additionally, and I speak from experience, if you have five younger kids, you might decide that leather interior is a must given it’s easy-to-clean qualities. If you’re like me and live where the winters can be rough, you might need a rig with all-wheel-drive. There are many variables, and for this reason, it’s important to know what you have to have, want to have, and what you could live without. Perhaps you have a decent vehicle that’s paid off and approaching 250,000 miles. I don’t care what logo is plastered on the side of it, when you get that many miles on a car, it doesn’t hurt to at least start looking at what’s out there – my 2004 Ford Expedition was dependable, reliable, and served every purpose our family demanded. Yet, my love for that vehicle couldn’t save it from a scary rod-knock when it hit 240,000 miles. It had been paid off for years – one of the only reasons I could tolerate the high cost of fueling it. When it unexpectedly died, I was not prepared, and it complicated my vehicle search. I ended up buying a very fuel-efficient 2017 Ford Fusion, which I ended up regretting for two reasons. First of all, as soon as the Wisconsin winter hit, I got stuck two or three times in as many weeks trying to get up the hill to my house. I love the car…but I don’t love it in winter. Secondly,it only seats five. My wife and I have five kids…and she drives a van so we can all fit in her vehicle, but the van has been stuck a few times this winter too. Had I taken proper inventory of our needs, I would have just taken over the van as my daily-driver, and put her in an all-wheel-drive vehicle that was also more fuel efficient than our van. My experience is just one example of why you need to know what you want/need even before you start looking. Make a list and take inventory.

2.) Determine your budget.

Trick question: How much can you afford per month for a car? If you just answered anything over $0.00, you are going to fail when you show up to the dealership. When a salesperson approaches you at a car lot, one the first few questions he or she might ask is that very same question. “What are you looking to spend a month?” they ask. That is a trap. Never answer that question…never ever ever. Those salespeople can quickly convert your answer into a sticker price – one probably higher than you want to pay and/or higher than you should pay – and they know how to make it all work after that. For example, if you foolishly answer that question and say, “Well, I really don’t want to spend more than $250 a month.” – they can quickly calculate $250 multiplied by 12 months per year multiplied by 5 years is $15,000 – and they know if you buy one new enough they can stretch the financing out over 6 years, so they can try to sell you an $18,000 vehicle – and then when you get to the financing office and realize that you haven’t accounted for interested they can say, “Well, that only makes the monthly payment a little more, you can do that right? Who can’t come up with a few extra bucks every month?” Don’t set yourself up for failure. You should be more concerned with the overall price of the vehicle compared to what it’s worth, and if you’re financing, the interest rate and term. I remember when my dad was helping my buy a vehicle once, and he went to the car lots with me. A salesperson asked how much I was willing to spend a month. My dad, the best car-buyer in America, said without missing a beat, “$5.00 per month, unless you have any free ones in back.” My dad is so awesome. He taught me all this stuff. It might frustrate the salesperson when you don’t give up that magic number he or she is looking for – but just be polite and stick to your story. Declining to say what you’re willing to spend a month might result in the follow-up question, “Are you paying cash? Or are you actually financing?” Again, this is irrelevant. How you plan to pay has nothing to do with how much any car is worth or what you should pay pay for it. I would advise everyone to drive cars they could pay cash for – there are tons of vehicles you can get for a couple grand that would last a year or two. Remember, every month you don’t have a car payment is essentially money in the bank. However, if you are in the position in which you have to start looking, have a secret number in your head. If you don’t want to pay more than $250 a month, fine…but don’t let them know that…just know that you are looking for a vehicle $15,000 or less. That’s a good starting point.

3.) Search inventories.

The internet is so awesome. You can do 75% of your car shopping from your couch. Dealers have made it ever-so-easy to filter your search and find what they have. For example, you could search for vehicles with less than 50,000 miles, less than $15,000 in price, and enough room to seat five. In less than one hour, you can have a list of two or three cars at each lot you might be interested in. Narrowing your search down at home can save you quite a bit of time at the lots, and help prevent a salesperson from trying to steer you toward a vehicle that doesn’t meet your criteria. If one particular lot doesn’t have anything you’re interested in, don’t waste your time going there. If you are following the advice from the first best practice I listed, you should be in no hurry – meaning you have time to check daily or weekly on the internet and vet your choices on the weekends as you have time – but by no means would you want to buy a vehicle the same day you found it. Buyer’s remorse is a cruel reminder of how impulsive we can be. If you’ve ever purchased a vehicle, you probably know exactly what I’m talking about. 6 months after you purchase a car, the newness wears off, and you get your first door ding, and suddenly it’s not nearly as satisfying as when you first bought it. Then, you suddenly feel like you’re stuck with it, especially when you realize how many more years you’ll be making payments on it. Starting early allows you to search inventories over a long period of time, which can help you find the perfect car for you, or know which ones have been on the lot the longest (FYI: the longer a car sits on a lot, the better deal you can get on it).

4.) Determine NADA trade-in value.

This number is huge. It’s the most important number you need to know after reviewing inventory and starting a list of potential cars you might buy or be interested in buying. Most people somehow have become loyal to Kelly Blue Book. That’s fine – but NADA is better for two reasons. First of all, it’s what banks use to determine values when approving loans for vehicles. Secondly, because of the first reason, car lots use NADA to determine the top dollar they will spend on any one vehicle. For example, if one particular vehicle in excellent condition has an NADA trade-in value of $17,959 – you can safely assume that the dealer did not spend one penny more than that amount when it was purchased at auction. You need to know that, especially when you are looking at this vehicle and see a sticker price of $21,999. Getting the NADA trade-in value is easy. Google NADA (watch out for the ads, there are many sites pretending to be NADA, but you want the genuine article). Click here to see. Please note that you’ll want a very specific list of what features the car in question has and doesn’t have in order to get the most accurate data from NADA. Now, it’s fair for the dealer to sell the car for more money than it was bought for at auction – but we the consumers have to draw the line somewhere. If you are looking at a vehicle with an NADA trade-in value of $14,999 – you should expect to pay more than $14,999, but how much more is completely up to you. When you see that vehicle with a $19,999 sticker price you know they’re trying to make $5,000 off you. Your job is to talk them down as close to that $14,999 as possible. There are other factors that will play into this, but the main take-away here is know how to look up the NADA trade-in value to determine how much the vehicle is worth that you’re looking at.

5.) Decide if you’re trading-in, putting money down, both, or neither.

In this section, you will notice I refer to “the difference”. The difference is the price of the vehicle you’re buying, minus any trade in value or money down. For example, if you agree to pay $20,000 for a car, but you are trading in a car and getting $3,000 for it, and you are putting $1000 cash as a down payment – then 20-3 is 17…and 17-1 is 16…so the difference would be $16,000. The difference is the number you are financing (or paying cash for if you’re awesome). Knowing in advance what your intentions are can help you do this simple math to make pricing determinations. For example, if you look up the NADA trade-in value on your current vehicle and determine your car is worth $4,000, and you know you have $1,000 cash to put down, that’s $5,000 of spending power. So if you see a car you really like, and it’s got a $20,000 sticker price, you know right away you could finance it for $15,000…and the lower you haggle that sticker price, the better you’ll be doing. The power of your trade-in and/or down payment can’t be the factor that keeps you from being upside-down. Upside-down is another way of saying you owe more for your car than it’s worth. That’s a bad situation. First of all, if you total that vehicle, insurance will only give you what it’s worth. If you’re upside-down, then that insurance check won’t replace your car with one just like it. This could also cost you a higher insurance premium. Like I said before, the best way to be is debt-free when it comes to vehicles, but if you are in a situation that warrants a car payment, your goal should be to finance the lowest amount possible below what the car is actually worth. When my wife and I bought our van, it had a sticker price on it of nearly $22,000. It was worth, if I remember right, only about $17,500-$18,000. We were able to get the price down to $19,200. We got $3,500 for our trade, and we put $2,500 down. So although the price we negotiated was still roughly $1,200-$1,700 more than the vehicle was worth, our $6000 buying power lowered the difference to $13,200. So we financed the vehicle for way less than it was worth. This was a pretty good win for both sides I think. The only way we could have potentially done better was wait…

6.) Wait.

This is simple. Never be desperate, never be in a hurry, and never say yes to the first thing. It’s extremely common for the salespeople to get you in the finance office filling paperwork out for a car you just saw for the first time. Most of these folks receive commission, so cut them a little slack – this is how they put food on the table. However, do not let high-pressure tactics fore you into a deal you don’t want to do. Your most powerful hand you can play is the waiting game. For example, if a car has a sticker price of $22,999, and you immediately talk them down to $21,000 – there’s a reason. Perhaps it’s sat on the lot too long, or perhaps there’s a mechanical reason, or maybe they’re tactic is to cave a little right away and get you to say yes. Learn to say, “I need to think about it some more.” Don’t let anyone make you feel like a moron because you value the money you worked hard for. Let’s face it, most of us don’t spend enough time in a car to justify paying any more than its worth or a higher interest rate because we got in a hurry or allowed a salesperson to bully us into signing something. Just be honest – if they don’t respect your wishes to wait and think about it, that’s a sign. Move on. Remember, the longer a car is on the lot, the cheaper you can get it. Take advantage of that. If you are car-shopping early and without haste, you will have time to make really good deals on a vehicle you know has been there too long.

7.) Determine your bottom line.

It’s very fair for you to get the best deal possible. It’s not fair of you to waste a salesperson’s time if you have no intention of buying a car. Once you know your budget, and you know what the vehicle you’re interested in is worth, and you know what you have in buying power between trade-in and cash – you need to have a magic number in mind. By the time you’ve test-driven something a couple times and you know it checks all the boxes as far as your requirements go, you have to find that sweet spot where you know you’d be getting a good deal. This is where using the same dealer more than once can be helpful. If you have a good relationship with a salesperson, and he or she has sold you a vehicle before, they know you – and they know what you’re capable of and how much you know. So if you know your bottom line, you can but a lot of the crap out of the car-buying process. They either hit your number or they don’t, and if they don’t, then move on. Remember, whatever you buy will just be…”blah”…in six months, so don’t let the moment and the excitement override your discipline.

Reading this, knowing this, and committing as much to memory as possible will make car-buying way easier for you. Please share, subscribe, like, and share with your people. This is something we all need to know – education is the great equalizer after all. I hope you found this helpful.