Buy used

There is a reason why I no longer purchase new cars. To demonstrate this let me tell you about the Mitsubishi Eclipse RS I purchased new in 2003. I paid zero interest (sounds great) and financed the car for 36 months. My monthly note was $513, so the total financed was $18,500. A couple of months after I bought the car I called my bank and asked them what the loan value was on the vehicle. The Loan Manager looked it up in their booklet and said “$12,500″ – the Eclipse lost almost a third of its value when I drove it off the lot! Enough said about buying new.

By understanding the car market and buying used, you end up avoiding the financial loss of driving a new vehicle off the dealer’s lot. We need to save money – not throw it away. You should have a $1,000 emergency fund that is kept in savings. The $1,000 emergency fund is not to be used towards the purchase of this vehicle!

Pay cash – don’t borrow the money

Paying cash means you are avoiding two very pesky obstacles.

1)  You are not paying interest (throwing money away).

2)  You don’t have the burden of another monthly bill.

You might think that you can put $3,000 down and then finance the other $5,000 at 10% interest for two years and it’s worth it. Why not buy a car for $3,000, save $300 a month for 10 months, sell your old car and buy a $6,000 vehicle? This way if you became disabled or lost your job – you would still have a car that is paid for in full. Not to mention you saved $537 in interest alone!

Cash talks. Often a seller will accept less than the asking price on a vehicle if you flash cash in their face. Imagine yourself as a seller. You’re asking $5,500 for the car, but the buyer only has $5,000. Realizing that by selling the car now, they could have that $5,000 in their hand, makes the asking price seem less important.

Buy from an individual

Don’t buy from car dealers because you’ll end up paying 20 to 40% higher on the price. We’re going to buy from an individual who is anxious to sell their vehicle. It’s true that some people will ask top dollar for their used car, that’s O.K. we’re not going to buy from them. We want the rock bottom price.

You have to be patient if you want to save money on a used car purchase. If you are impatient and “have to buy a car in the next two days” then you will be throwing money out the window. Prepare to become a victim. Dealers have what you want – but like throwing money away on interest – can you really afford to waste money?

Study market trends on the vehicle you want

Go to Kelly Blue Book and research the vehicle you are interested in purchasing. Look at the ‘private party value’ to get an idea of what you may end up paying. Banks and Dealers use another book for determining ‘loan values’ – which means the items are overpriced. ‘Market Value’ based on consumers who are borrowing the money for purchases are always higher priced than ‘Market Value’ based on paying cash. Kelly Blue Book accurately determines the cash market value of used vehicle purchases.

Now look in your local newspapers in the classified section. Target the vehicles that you are interested in and notice what the asking prices are. You’ll see that the asking prices will fluctuate according to age, condition, extras, and how fast the owner wants to sell. You’ll soon learn the appropriate market range for your vehicle. This should give you an idea of how cheaply you can pick up the vehicle of your choice.

Making the purchase

Timing is everything, because a good vehicle priced low moves fast. You need to be the first potential buyer that goes to look at the vehicle. Here’s why. If this vehicle is in excellent shape with low miles and is priced low – the first person with cash who sees it will buy it!

I look at the classifieds online because they are often posted on a newspapers website before the paper is actually delivered. This gives you a head start on people who are still waiting to read the classifieds in print, by the time they read the paper, good deals are already gone.

By reading online I was able to catch a five year old GMC Sonoma with 47,000 miles. The asking price was $5,500. I called the seller to verify the mileage (seemed low) and the mechanical condition. I then asked if he could accept $5,000 cash for the truck, and if he could, I would be on the way to look the truck over. Within 90 minutes I was standing next to the truck.

It was already dark so I pulled a flashlight out, popped the hood and started looking at everything. I was looking for leaks or any sign that this vehicle may have been wrecked or had scrapped parts added to it. Then I crawled under the truck to look for any signs of leaks – there were none. In fact the truck looked and ran like new. While I was inspecting the truck, the seller was on the phone with another potential buyer. This truck wouldn’t be available tomorrow. A few minutes later I was driving away in my new (slightly used) Sonoma. I put 20,000 miles on the truck and resold it for $5,000 eight months later. The first person to look at it had cash and left with the truck and title in 15 minutes.

If there would have been a problem with any of the mechanical parts on the truck, I still had my $1,000 emergency fund available. A used car dealer would probably have sold the same truck for $7,000. Some people rightfully worry about parts breaking down on a used car. This can happen at any time on any used vehicle (and even new ones), no matter where you bought it. How much are you willing to pay for a false sense of security?

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