Financial Series

Car Shopping Part 2: Interested in a specific type of car?

Welcome to part 2! For those of you starting here, this is your place to find some fun tips to help you get together a spreadsheet that allows you to figure out how to look for your car when you have some pre-specified expectations. This part covers less about the car itself and more about getting yourself the best deal for your needs! If you are still trying to figure out what car you’d like to buy, check out the first part of the series (part 1)!

New, Used, CPO?

Cars come in all shapes and sizes, their certifications are on the spectrum, and their prices can be reflected in that. 

New cars are usually overpriced – you might have heard that cars depreciate close to 10% just by driving it off the lot! Find out what the dealer paid for the car in order to figure out how low you can anchor the price. New cars also come with a manufacturer warranty that are set for X amount of years OR Y amount of miles (whichever comes first). Usually you will want to buy an extra warranty on top of the manufacturer warranty to make sure you are covered. This  is something you will want to do a little more research on.

Certified Pre-Owned Cars

It seems like not many people know about CPOs. A dealership will buy back a car from an individual who would like to trade it in for a new car or it’s a car that has been leased and returned. That car is then put through a rigorous screening process to make sure it’s safe, and thoroughly checked for any missing pieces. After being certified, it will be sold as a certified Pre-owned Vehicle, meaning used, but will have a warranty in case anything goes awry. I really like this option because it can be cheaper to own a luxury brand — it’s safer, and you can be assured that you will get that dealership company — to look at the car while under warranty for any reason. You will also want to consider how long the manufacturer warranty time/miles is left on the car, and how long can the car be insured. Having double warranty on the car will just ease your mind a little if anything seems off. 

Used Cars are a little more cheaper than if they were Certified, but it’s also more risky. The seller will be motivated to sell, but you will definitely want to double check the Kelly Blue Book value of the vehicle, and figure out when you can get the car checked out by a mechanic. Safety is one of the most important aspects of owning a car, and you want to make sure that it’s safe for you to drive! Any sticky points in the car can be a negotiating anchor, but also, a reason not to buy the car — depending on how much it matters to you or costs to get fixed.

Cash, Finance, Lease

Cash: One of the easiest ways to get your car. My close friends will tell you that I’m the type of person who doesn’t buy something until I have the money for it in cash. The car I want costs about 28K when all the bells and whistles are added. This means that I will need to save 28K on the side before I even start calling dealers and see what the OTD price is. This means you can skip all the paperwork too and not spend hours on hours at the dealership. This will take a lot of legwork in the beginning. 

Q: “But Caroline — you’ll be just dropping $28,000 in one go! Isn’t it better just to save that money and just pay as you go? Isn’t it better for your credit score?”

Said a person to Caroline

A: “This is right! I will be dropping 28K like a hot potato for this car. But you have to understand where that 28K came from. For the past 2 years I have been investing my money and accumulating gains. So the money for this car will be coming from my interest, not my principle. Credit score wise, I have my credit card bills to keep me at a fantastic credit score, and I’ll probably take a mortgage out in the future, so that can replace those car payments.” 

Caroline’s response to the person

Finance: If you can’t get the lump sum for your car, no worries! Auto-dealers have one of the lowest APRs I’ve seen! It’s much more popular to finance with an auto dealer than with a bank nowadays. The one thing you need to be aware of, and smart about is when you pull the trigger to buy your vehicle. You’ll want to watch out for announcements like: “60 months 0% APR”, “72 months .72% APR”. Ads along those lines. This will mean you will have an extended period of time to pay back the car with little to no interest. 

  • Let’s do some math for three price points:
    • If you want a car that costs $45,000 with no down payment then at 60 months 0 APR that means you have to pay back $750 a month every month for 5 years before paying interest. If you can afford that go for it. 
    • If you want a car that costs $30,000 with no down payment then at 60 months 0 APR that means you have to pay back $500 a month every month for 5 years before interest. If you can afford that go for it. 
    • If you want a car that costs $20,000 with no down payment then at 60 months 0 APR that means you have to pay back $333.34 a month every month for 5 years. If you can afford that go for it. 

Get the picture? This is fine if you can afford it and pay it off ASAP. When the promotion period ends then that’s when it starts to get scary. That interest is gonna increase and make it much more difficult to pay the car off. 

Lease: Okay. There is a lot of controversy behind leasing. Some people think it’s nice, others don’t. 

Here are some benefits of leasing: 

  • If you want to keep changing cars every year or two or you see yourself moving places too much to commit to one car. This option is best for you. 
  • Warranty is included
  • Less than financing
  • No long-term regrets
  • You’re only paying for the cost of the car over a few years – a downpayment on the lease is far less than of a financed car. 
  • Can get higher-end models for lower cost
  • Sales tax is monthly — not the total sum of the car. 

But here is the main problem with leasing — you are not paying monthly and getting more ownership of the car. It’s just like a long term rental that you have to return back to the dealership eventually. Now, if you are thinking of just having a car for two years for your job, then sure, lease a car, and right off the taxes as a business expense.  You’ll end up owning nothing after spending thousands of dollars so remember you’ll always need to figure out your next move when you lease a car. 

Ahhhh. Cars can be such a great thing to have — but also something you regret if you don’t do the work– you could be paying too much in interest, the features you thought were there weren’t, the dealer pressured you to buy it. Whatever possible reason to regret, we are going to avoid it by being meticulous and strategic. Happy car shopping 🙂 We hope you find something that will bring you lots of joy.


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