A few years ago, my extended household saw the purchase of two new cars. The two purchases were very different in many ways, and I thought it might be worthwhile reviewing the experiences, with the hopes the comparison might be entertaining, and maybe educational.
Two weeks ago I wrote I about my step-son’s experience buying his first car on his own. He had a few difficulties, mostly related to his youth, lack of savings, and lack of credit history. My car purchasing experience offers a definite contrast.
The established buyer who hates to haggle
Buying a new car was a first for me.
My first car (used) was a gift from family. I drove that car until it died–seriously, I didn’t give it up until the day I tried to start it and smoke came out from under the hood. That car gave me 16 years of service, for which I am very grateful, lasting me through many years of school and training.
My second car was also used, paid for in cash–fulfilling one of my financial goals for my first year of attendinghood. I didn’t keep it quite as long as the first one. After eight years, the maintenance costs increased significantly, and I decided it was probably time to look for a replacement. I was able to purchase one of my parents’ old cars at a family rate, and kept that going for another 3 years.
By this time, I had been an attending for 11 years, and had been putting money away for a replacement car, about $3000 per year. I certainly had enough to buy something new, or even a used luxury car. My barrier wasn’t money, but finding the time to shop for a new-to-me car.
Finally, my spouse and I buckled down to find a car. We test drove several models, and decided we were getting a new (actually new!) car.
Preparing to buy a new car was a bit daunting. I had read plenty on the subject, and knew everyone advised bargaining over the price. However, that’s not my forte. Also, we were getting a less common car, which meant our leverage wasn’t great, as few dealers in the area actually carried it. There were only 4 available in the greater metropolitan area.Luckily, I had access to a buying service through my financial institution, which claims to negotiate the price for you. I hit the button on their website asking them for this service, and within a day had multiple emails and phone calls from the area dealerships. (I hadn’t quite realized my information would be given out like that.). The calls while I was seeing patients were quite annoying. But, when we walked into the dealership to buy our car, this saved us $900 over the offer put forward by the salesman.
The biggest win, however, was in figuring out how to pay for the car. At first, I was having issues: I had the money, but I couldn’t figure out how to give it to the dealership to get the car. They wouldn’t take a credit card (I’m still sad about all the missed credit card rewards); they wouldn’t take a personal check. I didn’t have enough free time to negotiate a purchase price, go to the bank, get a cashier’s check, and go back to the dealership all in one day. This was all made more urgent by wanting to get the car in time for a planned road trip to see family.
So–I looked into getting an auto loan. I turned again to my financial institution, and after a long time on hold (during which time I dealt with my clinic in-box), they were able to offer me a 3 year loan at 0.99%. No penalty for prepayment.
Thus armed, my spouse and I drove to the dealership, settled on a purchase price, and then had to talk about payment. The salesman offered a car loan at 4.25% (!!) We declined, citing our already secured rate of 0.99%.
The salesman excused himself to talk with his manager. After about 15 minutes, they were somehow able to offer 0% financing for 5 years, with nothing down. I was willing to switch to that offer (free money!).
In the end, we left with a brand new car, my first ever car payment, and a lot of money to put towards paying down the mortgage (whose rate is definitely much higher than 0%). Two years later, we still love the car, and the mortgage is much lower.
Some lessons I drew from this experience:
- If you don’t like haggling, there are services that will do it for you. I might have been able to save more myself, but I was happy to take the $900 my service got for me.
- Haggling doesn’t have to mean confrontation. It can be more like “hey, I’m good, I’ve got this all set up.” And then maybe you’ll get an better offer, or maybe you won’t.
- Preparation is key, whether you plan to haggle or not. Getting calls from dealerships wasn’t fun, but the car buying service saved me nearly one thousand dollars. I didn’t enjoy sitting on the phone to get approved for the auto loan (which I didn’t use), but it clearly was the incentive for the car dealership to offer such good terms on their loan.
- Preparation also means saving ahead of time for big purchases. Saving up a car fund gave me a good idea of what purchase price I could manage, and knowing I could pay off an auto loan at my discretion made me more comfortable in applying for one in the first place.
- Preparation also means taking enough time. Sitting on the phone to get the auto loan saved me plenty of money. However, if had had more time free, I could have arranged for a cashier’s check. (Though had I paid cash, I wouldn’t have had the opportunity to put that money to the mortgage…)
Thoughts? Comments? I know some people disapprove of car loans on principle…