Should I Buy a Car?

Feb 20, 2008 - 10:39 AM PST

Buying a used car can be expensive in repairs. A car is a depreciating asset. That means if you pay $15,000 for it, its value drops $3,000 overnight when you drive away from the dealership. This is why it may make sense to buy a new or certified pre-owned car.

How to do this? In most cases, you are going to need to finance it. Car companies offer great low interest rates as incentives to buy. Go to autobytel.com. You can get the Kelly Blue Book value on the car. You NEED this before you go in. You have to know what the cost is or you will be taken for a ride! You can also find out who is offering rebates and incentives such as zero percent financing and/or cash back. This is where you can really save money.

If you are a female you should take a male shopping with you. This is not sexist- I am a female. I don’t want you to get taken advantage of. I have a young, female client who went alone to a car dealership in New York. She is a widow; her husband served in the Iraq war. I asked her what she paid and she said $38,000. Yet she put $19,000 down because the dealership told her to do so. Because she was financing $19,000, her payments were very high, approximately $600 a month for 6 years. I told her that since she could afford it she should file for a secured loan for the car. She could do a CD for 5 years, paying 5% and do a loan against it for 19K at 9%. Her payment plan would be cut by 1 year and her monthly payments would go down to $394. The interest she gets from the CD after 5 years amounts to $3800, which effectively lowers her payment by $65 a month. So she is paying $329 a month for 5 years instead of $600 a month for 6 years.

Most of you will just get a loan from the car dealership. They have the lowest rates on the new cars. If you want to finance a used car, you can also check out the rates from AAA Auto Club. They are very competitive. If you are going to finance the purchase, watch out for the extras they throw in: pin striping, extended warranty etc. When you meet with the finance manager don’t sign on the spot. Be willing to walk away. Keep a copy and read it. Make sure the purchase price is what they told you. My client thought she paid $38,000 for her car. When I looked at the Truth-in-Lending form it showed she paid $50,000, which after financing amounted to over $60,000. I told her she could be driving a Mercedes for what she’d paid. I went back to the dealer and politely forced them to redo the loan on the agreed purchase price of $38,000.

This was my client’s first car purchase.

You may also need your parents to co-sign if you don’t have any credit. Try to finance the car 3-5 years. 6 or 7 is just too long. You will save thousands in interest if you cut the term shorter.

Happy Car Shopping!

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