Friday, August 10, 2007

Buy a Car You Can Afford

I was talking to a friend of mine this morning and I asked her what the one thing was that worried her most about buying a new or used car. She told me that it was paying more for a car than she intended to or could afford.

I have written in past columns that you should know exactly what car you want to buy before you do your comparison shopping. You have to compare “apples and apples”. You must also have a firm idea of the most that you will pay for that car. If you don’t know that you can buy a specific year, make, and model for your maximum budgeted price, go back to the drawing board and come up with a car you can afford. Even if you think you can but find out that you can’t after comparison shopping, don’t buy anything until you have chosen another car that you can afford.

When I say “know the price you can afford”, don’t think that I am talking about “monthly payment”. Too many people equate price with monthly payment. In fact, car dealers rely on this confusion to make big profits. If you really want to “make a car salesman’s day”, just walk into the dealership and tell them you’ll buy that car just as long as he can keep your payments under a certain amount. When you have told him that, you are telling him that you don’t care about the asking or selling price, whether you buy or lease, what interest rate you pay, what your trade-in allowance is, how well the model you chose retains it’s value, or how long you finance the car. Each of these items is inextricably tied together.

Many dealers add a supplementary price sticker alongside the federally mandated Monroney label. It often looks exactly like the Monroney and buyers assume it is part of the official MSRP. This extra label adds thousands of dollars to the real MSRP. Be sure you determine the real MSRP and the real discount from MSRP. When you lease a car, the leasing company owns the vehicle at the end of the lease, not you. That’s why lease payments are so much lower. If you buy the car, not nailing down the interest rate by competitive shopping allows the dealer to make a lot of money in finance reserve. This is the money banks pay dealers for charging a premium over the interest rate that the bank charges the dealer (called the “retention rate). The interest profit to the dealer can be in the thousands of dollars on a single transaction. If you don’t competitively shop your trade-in and check research sources on the Web, the dealer selling you the car may not allow you the fair market value for your trade-in, just another way of increasing his profit. Some makes and models of cars depreciate faster than others. After 3 years, some models retain up to 61% of their original cost but some retain as little as 25%. This is a huge price difference between two cars that you don’t find out about until you trade that car in on your next purchase. You can finance a car for 12 months and up to 72 months. The shorter the length of time, the lower the interest cost. Don’t be tempted to finance a car for longer than 36 months just to get the payment down.

You can understand why it’s not as easy as it sounds to have a firm idea of the most you are willing, or can afford, to pay for a car. The selling price and monthly payment are just two of 7 items that you must have a firm grasp of. There is also lease or buy, interest rate, trade in value, resale value of the car you are buying, and length of financing. If you know only 6 of the 7, you have left the car dealer a loophole that can cost you money.

3 comments:

  1. Check your dealership website. It is slow when you try to click on to any of the pages. It takes forever to load specials and pictures of your team. Also it is almost impossible to load pics of you customer meetings. Please look into this asap.

    ReplyDelete
  2. As an American, born in America, lived in and grew up in Miami and still work in Miami. I feel I can comment on your Ad better than most.The Cubans came to miami in the 50's not knowing the language. Most of if not all learned the language and strived in America where the american lanugae is English.Then when older gererations arrived they were better financially because of thier early forefathers who came here first paved the way for them.They not only took over Miami But most of Miami is named after towns in Cuba. They don't have to learn the lanuage they have moved their country into America. Why because we made it easy for them. This is what you are trying to do to sell a car. Help them struggle with the lauguage have them struggle with ours but don't bend over to them for the almighty dollar. They already own Miami what do you want them to do take over the whole state ? I'm sorry I really liked the way your ads were and the service you personlly offered, but I am afraid I will have to look for another American dealership to spend my money at.

    ReplyDelete
  3. I checked my dealership's Web site and it's working fine right now. Thanks for reporting this. Hopefully it was just a temporary glitch.

    Regarding the comments from the person living in Miami, I can understand your concern. I was born in Ft. Lauderdale in 1940 and I grew up in West Palm Beach.

    Whereas there has been compromise and accomadatons necesary for us to adapt to the large Hispanic population in South Florida, we musn't forget the positive impact they have had on our economy and our culture.

    The Cubans came to the this country to flee a communist dictator in search of freedom and liberty. By welcoming them we were lauded and respected by all other free countries.

    ReplyDelete

Earl Stewart On Cars welcomes comments from everyone - supporters and critics alike. We'd like to keep the language and content "PG Rated" so please refrain from vulgarity and inappropriate language. We will delete any comment that violates these guidelines. Oh yeah - one more thing: no commercials! Other than that, comment-away!