Saturday, May 11, 2019

Buying A Car

When it comes to buying a vehicle you can buy new or used. “New cars lose a ton of value right?” Usually, but not always. “Used cars have too many issues, I’d rather feel secure in buying brand new or at least with warranty.” Warranties are financial products, the only reason they exist is that dealerships and manufacturers make a profit on them.

If you live in a major metropolitan area you probably have a lot of dealerships competing for your business. My brother gets what he calls “paper cars.” In 2015 I saw this in action, he bought a never driven, basically new 2014 Nissan Note for well under MSRP and Kelly Blue Book. He could have sold it the same day and probably made a $1,000-2,000 profit. The way this works is looking at the newspapers for one-off deals. You have to be at the dealership early and sometimes literally sit on the car until they open, but once they do, the car is yours. Dealerships do this to get people in the door. He used to sell cars so he knows the trick, dealerships out one in the paper, with VIN as required by law but once it sells, every person after will be talked to about other marvelous deals, just not that one.

Buying used has a few issues but unless you’re getting a new car in the method above or something similarly priced, it’s the way I’ll go forever.

A lot of people get car loans and are immediately upside down in them, meaning, they owe more than the car is worth. This is something to look out for, especially at car dealerships that do their own financing. If your credit score is low and you can’t get a car loan with less than 5% interest, don’t get a car loan.

If you don’t have a car right now, why do you need a car tomorrow? Save money until you can buy a 10 to 15-year-old, reliable car with 10,000 miles max per year it has been on the road. I bought a 2002 Toyota Sienna for $2500 with 100,000 miles on it in 2018. It was in great shape mechanically, but I wouldn’t be turning any heads doing ng down the street. If you want to be better with money, understand that what you want and what you need are usually two different things.

The reason your financed car may be a terrible use of money is that these dealers will give you a car worth $5,000, according to Kelly Blue Book, which is what a lot of banks use to determine if they can finance your car, for $7,000 or more. If this happens to you, you’ll be locked into something terrible.

When I was in banking I tried to help a woman refinance her vehicle that she was paying over 15% interest on. She owed $8,500 and the vehicle was worth $3,500. She had never heard of Kelly Blue Book and thought it was a good deal. It wasn’t a good deal, she got swindled. Unfortunately, there’s nothing to protect people in these situations. A deal’s a deal. The car lot will even tell you, “You have bad credit, we’ll start you at 15% and in 6 months you can go somewhere else and refinance down to 5% or 8% interest.” Unfortunately, this isn’t completely true. A bank can only lend 100-120% of what a car is worth, because the car is the collateral, so unless she planned on putting a $5,000 down payment on that loan, for a car only worth $3,500, she’s stuck in a bad loan until she pays it off or works something else out.