I know all the arguments for buying a used car. Most personal finance writers will tell you that buying a two year old car with low mileage is the best way to go. I agree with them but those two year old, low mileage, accident free vehicles are hard to find at a good price. I’m not encouraging you to go out and buy new. However, if you’re already leaning towards purchasing new, here are some ways you may be able to save money.
1. Drive standard
I simply don’t understand the arguments for paying extra for automatic. Standard is easy to learn, gives you more control of the car and is simply more fun. Ok, I take that back. There are some legitimate reasons for driving automatic including any issues with your right arm that makes it impossible to drive standard. Not knowing how isn’t a reason. There was a time I didn’t know how either. It took me a couple of hours to get the hang of it but once I did, there was no looking back. Automatic transmission on most new cars is $1000 + tax extra. Driving standard comes with significant savings.
2. Think small
If you have two kids or less and no pets, you may not need a van or an SUV, even if your kids play hockey. When we began looking for cars, we did the duffel bag test. We filled 4 duffel bags / hockey bags with down comforters and pillows and tested each trunk. If they fit in the trunk, the trunk was big enough. I was surprised at the number of small cars that have a good amount of trunk space. We also drove each one home on the test drive to make sure it would fit in our single car garage.
3. Mind the upgrades
You know the deal on this one. Think through the upgrades that are important to you before you step through the doors of a dealership. It’s the salesperson’s job to up sell. It’s up to you to decide exactly what you want.
4. Use Car Cost Canada
For $39.95 you get 5 reports which detail the wholesale price any new car. Knowledge is power when it comes to car buying. It still drives me absolutely crazy that car prices are negotiable. I can’t stand the fact that someone else with better negotiating skills paid less than I did. Knowing the wholesale price gives you powerful negotiating tools.
5. Find a family connection
In our case my husband’s brother’s wife works in upper management for a car company. She was able to arrange a huge discount for us through her benefits. She is allowed one PIN number a year for a family member. She had it faxed straight to the dealership and we were able to get car at significantly below dealer costs. If you are related to someone in the business, don’t be afraid to ask. It didn’t cost her anything and it saved us thousands.
6. Think long term
I’m all about the math. I can separate myself from the enticing smell of a new car and the way the car feels. I want to know how long it will last and what the average cost per year will be. I set up a handy Google spreadsheet and began calculating what our average cost was for our previous car; a two year old car with 45,000 km when we bought it. In the end we knew if we drove this one for a minimum of 8 years and paid cash for it, we’d be ahead.
If we want to have this car 8 to 10 years from now, it has to suit our future needs. We have two kids and no plans for more. In 8 years they’ll be 17 & 19. This may be the car they learn to drive. One of our requirements was a good amount of leg room in the back so that as they grew, the car would still fit our needs.
7. Ask for ‘bottom line’ numbers
Salespeople don’t seem to like this one. They want me to fall in love with the car so that as the numbers add up and extra costs are added on, I’m already sold. I just want the bottom line figure after all taxes, freight, mandatory extras and miscellaneous environmental taxes and sales taxes are included. We had narrowed the decision down to three cars and were basing our final decision on the bottom line price. Every dealer was reluctant to provide this information but each did when we simply explained why we wanted the numbers.
8. Pay cash
Drive your cars well past the time you pay them off. Continue paying yourself the car payment. By the time you need to replace the car, you’ll have enough saved up to pay cash. A car is not an investment. Paying cash for a depreciating asset will save you a pile of money over the long term.
9. Know what your trade-in is worth
You should know the blue book (or black book) value of your car before you go. Don’t mention your trade-in until all other negotiations are finished. Use the bottom line figure including the offered trade-in value when making your choice. Again, dealers were hesitant to do this but in all three places they quoted us what they would give us for a trade-in. If it’s no where near the blue book value, you may way to consider selling your trade in privately. The advantage to a trade-in if you can get a reasonable offer is that you’ll save that much in taxes off the final price of the car.
10. Call your insurance company before you make the choice
Again, I was surprised at the difference in quotes. I explained that we were looking at buying a car and wanted to know what the rates would be for each of our three choices. The differences were substantial and played a large part in the final decision.
I’m not encouraging you to go out and buy a new car. I also recognize not everyone can drive standard or has a family member in the industry. For those of you who are looking to buy a new car, the best thing you can do is to take the emotion out of it, do the math, look at the numbers and think practically. Your car doesn’t define who you are. Its role is to take you as safety as possible from point a to point b. If you look good getting there, all the better but looking good may not be worth the financial sacrifice.
Kathryn has been a staff writer for MDJ since January 2009. During the day she works in an office. In her off hours, she volunteers as a financial coach helping ordinary Canadians with the basics of money management. Kathryn, along with her husband and two children live in Ontario.