Buying a New Car - Financing and Such

[tighr]

I also have an issue with down payments because oftentimes the money just goes to the vultures at the dealership.

This is false. The down payment, by definition, fundamentally goes to reducing the value of the loan.

The money didn't go to those vultures; you agreed to pay a price that was $3000 more than was necessary. Had you negotiated a price $3000 less you would still have given them your $1000 but you would have had a better deal on the car.

It wasn't until later that I realized some other Toyota dealerships offered the very same car for $3,000 less. Ouch. Had I gone to a different dealer, I probably wouldn't have ended up with the negative equity now.

As I posted earlier and Lindley posts above, you need to figure out what the invoice price of the car is before negotiating with the dealer. Never take their word for it based on a sticker written on a window; that price is negotiable. And never be afraid to play multiple dealers off each other. If Dealer A tells you they want X+$3000, tell them to eff off because Dealer B will give it to you for X. Dealer A will either tell you to eff off, or will give you a counter-offer.

 

[Gryffindorian]

Definitely use Edmunds.com or another site to get internet quotes from all the nearby dealers before doing anything.

Keep in mind, though: any time you buy a new car, you are going to have negative equity for a year or so. That's just how the depreciation and payoff curves work. I'm approaching the break-even point on my 2011 Accord now (0.9% financing), 1 year in, but I've made a few extra payments here and there to get there.

I contacted a local Honda dealer, and he told me about their special financing offers. He invited me to do a test drive this weekend. My older sister is also helping me shop around for good deals. Right now she's saying there are Toyota dealerships in outlying parts of the Bay Area, and one of them quoted her $24,000 out-the-door on a new Camry, including the negative equity.

 

[Gryffindorian]

As I posted earlier and Lindley posts above, you need to figure out what the invoice price of the car is before negotiating with the dealer. Never take their word for it based on a sticker written on a window; that price is negotiable. And never be afraid to play multiple dealers off each other. If Dealer A tells you they want X+$3000, tell them to eff off because Dealer B will give it to you for X. Dealer A will either tell you to eff off, or will give you a counter-offer.

It's not like I didn't try to negotiate the price, but I was short-sighted and felt rushed into buying a new vehicle. Dealer wouldn't agree on a lower price, either. I guess my negotiating skills weren't very good.

 

[Warp Coil]

As I posted earlier and Lindley posts above, you need to figure out what the invoice price of the car is before negotiating with the dealer. Never take their word for it based on a sticker written on a window; that price is negotiable. And never be afraid to play multiple dealers off each other. If Dealer A tells you they want X+$3000, tell them to eff off because Dealer B will give it to you for X. Dealer A will either tell you to eff off, or will give you a counter-offer.

It's not like I didn't try to negotiate the price, but I was short-sighted and felt rushed into buying a new vehicle. Dealer wouldn't agree on a lower price, either. I guess my negotiating skills weren't very good.

Do your research and get a price point in mind before going to the dealer. Edmunds is one of my favorite resources for this - it'll tell you a vehicle's MSRP, invoice as well as "true market value" (which is basically what other people in your area are paying for that car right now). If you are negotiating with a dealer over price, and they are trying to over-charge, I have one simple suggestion - walk. out. the. door. Dealers hate it. They don't want to lose the sale. The longer you sit in the dealership and play their game, the more frustrated you'll get. So just decline their offer and walk out. You'll be surprised how quickly the sales manger will change their tune.

 

[tafkats]

I appreciate your being diplomatic about your response, Kestra. But no, I don't think everyone is mistaken. I believe the majority of the posters have actually some sense without coming off as insulting or offensive. I know my situation better than anyone else, and if someone with a Depression-era financial sense presumes to tell me what I can or cannot do, I won't hesitate to call them out on it.

I think that's the first time I've heard Depression-era financial sense referred to as if it's a bad thing.

People who grew up during that era are on average far better at financial management than people who grew up in the last 20 or 30 years.

 

[Captain_Nick]

Come on guys. I am no expert on sociology but even I can see that Gryffindorian does not wish to be told why what he is wants to do is 'wrong'.

 

[Mr Awe]

Gryffindorian, I'm sorry if I came off a bit strong. I should probably take a page from Kestra's more diplomatic book! I still stand behind my comments though. But, let me phrase it this way.

I would personally say that I could afford a car if:

1) I had at least an 8 month emergency fund.
2) I was sufficiently funding my retirement accounts.
3) I was not borrowing from my retirement accounts.
4) I had no other larger outstanding debt, particularly on credit cards.
5) I had saved a large enough downpayment so that for a 36 month loan the monthly payment was small enough that I could pay.

If I satisfied all of those, then I'd begin to think that I could afford a new car. That's assuming that I had a stable job and there wasn't anything else going on that would change things.

That's just my take. I don't believe you need pay a car in full with cash. But, debt should be used responsibly. I assume you are aware of the recent financial crisis? That was due in part to people buying too much and saving too little. It's best to live a bit beneath your means so that you have reserves to hand life's surprises.

That's my philosophy, but do what you want. It's your life and your money. I'm not trying to judge you but just hoping to help you avoid what would be, in my book, a financial mistake.

Mr Awe

 

[Lindley]

I cannot emphasize enough: get internet quotes through edmunds.com or another website. Do NOT wait until you are at the dealership to get a quote. Not just one dealer either---request quotes from all nearby dealers. Every dealer will have the same invoice price, but they may have different incentives.

At the same time, don't start the conversation with the internet quote. If you do that, you are locking yourself into accepting it.

 

[Admiral Buzzkill]

I always get pre-approved financing at my credit union first, before we go look at cars.

I also am going to buy a new car pretty soon, and I am going to pick the new car through the internet, it is a little lower in price. I know what we want, a 2012 mustang, so I don't need to look at other cars.

This way, I am pre-approved and I spend as little time with the car vultures as possible.

Same, right down the line. Love my credit union. Looking at a 2013 Mustang convertible.

I leased my current car - 2000 Toyota Echo - using Carsdirect. I was basically broke at the time - five years later I paid off the balloon payment and owned it. If Toyota still made a reasonably priced convertible I might be looking at it.

 

[Mr Awe]

I cannot emphasize enough: get internet quotes through edmunds.com or another website. Do NOT wait until you are at the dealership to get a quote. Not just one dealer either---request quotes from all nearby dealers. Every dealer will have the same invoice price, but they may have different incentives.

At the same time, don't start the conversation with the internet quote. If you do that, you are locking yourself into accepting it.

It definitely pays to go in with all the information possible and the quotes and competing offers as you suggest!

Mr Awe

 

[RobertVA]

One vulnerability a lot of people don't recognize is this "upside down" situation with zero or low down payments for auto loans. If something serious like a collision effectively destroys the collateral the entire loan balance is immediately due and many insurance companies will only pay the recognized resale value of a used car for that model and year. You're may have to have to come up with remainder on short notice or take a hit on your credit record. With long loans (like 60 months) it takes years before a significant portion of each payment reduces your balance.

To add insult to injury, most people will still need to finance a replacement vehicle. I doubt anyone with adverse information on their credit report is going to qualify for those zero (or extremely low)down payment low interest auto loans the manufacturers and dealer groups.

 

[Lindley]

One vulnerability a lot of people don't recognize is this "upside down" situation with zero or low down payments for auto loans. If something serious like a collision effectively destroys the collateral the entire loan balance is immediately due and many insurance companies will only pay the recognized resale value of a used car for that model and year. You're may have to have to come up with remainder on short notice or take a hit on your credit record.

I got gap coverage for that very reason. Yes, it added a bit to the balance financed, but it would have paid off if I needed it. IMO, one of the add-ons they try to push which is really worth considering.

With long loans (like 60 months) it takes years before a significant portion of each payment reduces your balance.

With low enough interest rates that isn't the case. Mine is 0.9%, and the amount initially financed was around 32k. Only about $20 of each payment is interest. Some dealerships are offering 0% right now, in fact.

I actually almost didn't qualify for the 0.9%. My credit score was good enough, but I was one account short of having the 5 items on the report that they required. Fortunately, I had gotten my Masters degree less than 2 years earlier, so I qualified on that basis.-

 

[RoJoHen]

I am so happy I don't have to get emissions tests anymore. That was one of the more annoying things about living near Chicago.

In Illinois, they're letting really old cars off, as well as very new ones.

Not sure what "range" has to go in anymore. I remember my 2004 Jeep was due right around the time I traded it in on the 2010.

It's not a statewide thing. I'm still in Illinois, but we don't do emissions tests here. It varies by county.

 

[Gryffindorian]

Gryffindorian, I'm sorry if I came off a bit strong. I should probably take a page from Kestra's more diplomatic book! I still stand behind my comments though. But, let me phrase it this way.

I would personally say that I could afford a car if:

1) I had at least an 8 month emergency fund.
2) I was sufficiently funding my retirement accounts.
3) I was not borrowing from my retirement accounts.
4) I had no other larger outstanding debt, particularly on credit cards.
5) I had saved a large enough downpayment so that for a 36 month loan the monthly payment was small enough that I could pay.

If I satisfied all of those, then I'd begin to think that I could afford a new car. That's assuming that I had a stable job and there wasn't anything else going on that would change things.

That's just my take. I don't believe you need pay a car in full with cash. But, debt should be used responsibly. I assume you are aware of the recent financial crisis? That was due in part to people buying too much and saving too little. It's best to live a bit beneath your means so that you have reserves to hand life's surprises.

That's my philosophy, but do what you want. It's your life and your money. I'm not trying to judge you but just hoping to help you avoid what would be, in my book, a financial mistake.

Mr Awe

I can respect that. I'm pretty sure you realize that everyone's financial situation is different based on the person's income, spending habits, and savings. And while people are free to think or say whatever they like, it doesn't necessarily mean their assumptions are right about others' situation.

Lindley and Warp Coil, I'll check out Edmunds.com as well. Sounds like a good on-line resource.

 

[Captain Ice]

Consumer Reports also has a service that provides you with the invoice price and a listing of all available incentives for the individual model and trim line that you are interested in. They're also pretty good about finding the manufacturer's dealer incentives (money the manufacturer will pay the dealer for selling the car)

Also, have you considered looking for a 2010 or 2011 model of the vehicles that you are considering? At one or even two years old, you still have the balance of the factory warranty and you won't be upside down on the car for as long.

 

[Gryffindorian]

I've only bought a used car once (the 2001 VW Passat), and I doubt I'll ever do it again after the mechanical problems I had with it within three years. To me, you always the run the risk of having problems with a used vehicle, and the warranty may be limited.

 

[RoJoHen]

All of my cars (and all of my family's cars) have been used. We've never had any problems aside from normal wear and tear. Obviously you run some risks, but that's why used cars have history reports.

 

[Admiral Buzzkill]

I've owned a number of used cars - never had a bad one, but also have only owned two that I really enjoyed driving.

 

[RoJoHen]

^Would you have enjoyed them more if they were new? Or was it just that you didn't enjoy the model of car?

 

[Gryffindorian]

Who said anything about dipping into my retirement to buy a car? And yes, I borrow from my 401K when it's necessary, but not at this time. It's my money; it's my business how to spend it.

You're right, there's nothing wrong with borrowing from your retirement savings when necessary.

So...... did your roof collapse, or was your significant other being held hostage by militants of some kind? Unless of course you meant that you borrow from your retirement savings when you want to, in which case you probably need to rethink your priorities.

You've got it all wrong, buddy. I only borrow when I need to, like the time I NEEDED to go on vacation to Las Vegas!!! Someday, I'll NEED to go on a Caribbean cruise, so I may take out another $7,000.