The Car Buying Process:
Don’t Get Taken for a Ride
Presented By:
Gregorio Alcantar M.S. ‘06
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4 Steps to the Car Buying Process
BUDGETING
NEGOTIATING
PICKING A CAR
MAINTENANCE
BUDGETING
• Before you start shopping for a car, determine how much you can afford to
spend.
• Usually begins by reviewing your budget
• Budget - a plan on where your money is going
Car Payment
$$
BUDGETING
How much can you afford? (Be real!)
Guidelines
● You should not have a car payment
that can take up more than 20% of
your discretionary income after
paying your regular expenses
● $2000 discretionary income = $400
car payment
PICKING A CAR
Research
• Research is important because it gives you
bargaining power
• Pick a good car (i.e. reliable) - NOT shiny, or
with bells and whistles
• Review reliable sites for information
KBB.com
PICKING A CAR
How much car do you need?
Identify your Needs vs. Wants
• Type: Compact, Sedan, Sport,
Truck, 2-door, 4-door
• Will you drive it much (e.g., living
close to campus-walk)
• Car Features: Apple’s Carplay,
heated seats, Power Windows
• Prioritize (you may need to
trade off some of the wants for
a lower price
• Select 3 or 4 choices that meet
your needs and research the
features of each car
• Make a pros and cons list
• Compare your choices and weigh which one is the best option for you.
• Any car you evaluate MUST fit within your budget (STORY about guy
who couldn’t sleep)
PICKING A CAR
Lease vs. New vs. Used
LEASE
•
•
•
•
•
Agreement w/ dealer to use
property (the car) for
specified time and mo.
payment
Don’t own car, only renting
Car available for purchase at
end of lease term (at
expected value at end of
lease term)
People can afford to lease
expensive cars than they
would be able to finance
Advantage: No down
payment, no trade-in to
worry, new car for few years,
BUT you own NOTHING and
pay penalties for excess
mileage, wear and tear
NEW
USED
•
More expensive
•
Can save you money
•
Loses value when
driven off lot
•
Likely to need more
repairs
•
Less maintenance
and thus save a lot
on repairs
•
Bought at actual value
current for car
•
Keeps Warranty (if within
3 years/36000 miles
•
OWN vehicle
•
No smog checks for
7 years
**Don’t assume you have to buy
a used car - if right new car, right
price, and keep for a long time save hundreds in long run
PICKING A CAR
• TEST DRIVE the car of your
choice to see if the car lives up
to your standards
• Is it comfortable?
• Does it drive smoothly?
• How fast does it stop?
• Don’t window shop - try it on!
• Take your time - don’t be in
a hurry when shopping for
this purchase!
• Tip: It helps to leave your wallet
in the car (bring license only)
Common Mistakes
when Picking a Car
•
•
•
•
Not Enough Cross-Shopping
SETTLING for What is on the Lot
Skipping the Test Drive
Buying More Car than you Need
NEGOTIATING
Determine a Fair Price
• Decide what price you think
is fair before you make an
offer for a car.
• Kelley Blue Book publishes a
pricing guide for all models
and all years.
• By looking up the model and
year of the car you are
considering, you can find an
estimated fair price for it.
NEGOTIATING
Preapproval is the process of
getting a new or used car
loan pre-arranged through
your bank or credit union.
NEGOTIATING
Common Mistakes when Negotiating
• Buying Unnecessary Add-Ons
• (e.g. alarm, sound system, floor mats,
seat covers, nav)
• Focusing on the Monthly Payment
• Saying up front that you want to pay
Cash
• Being Clueless about Financing
• Negotiating Down from the Sticker
Price
• Fumbling on the Trade-In
NEGOTIATING
Determine a Fair Price
• The sticker price on a car, or
manufacturer’s suggested retail price
(MSRP) is the price shown on the tag
in the car’s window.
• A fair price for a new car usually lies
somewhere between the sticker price
and the price the dealer paid for it
(the invoice price).
• According to the Automobile Association of America (AAA), the dealer’s
invoice is approximately 90% of sticker for compact and subcompact vehicles,
84-87% of sticker for luxury vehicles.
• A fair price is likely to be 3-6% over the invoice price.
NEGOTIATING
MSRP
STICKER
PRICE
NEGOTIATING
Terms
MSRP: Manufacturer Suggested Retail Price
Sticker Price: Price shown on the window
Dealer Invoice: The price the dealership pays
Fair Price : The price you want to pay 3-6% under Sticker Price
**Sticker Price = 100%+taxes
You pay = 94-97%
Dealer paid = 90%
NEGOTIATING
Negotiating the Price
•
Statements like, “This is the only car I want,” or “This is just what I
am looking for,” weakens your bargaining position.
•
Don’t reveal emotions
•
Make your initial offer lower than your top price, and then be
prepared to negotiate
•
A car-buying service allows you to choose the vehicle features you
want, and the service will locate it, negotiate the price, and
arrange for the delivery (for a fee).
NEGOTIATING
Don’t want to Negotiate,
go through other means
to purchase car
Also… try to ask for
some freebies!
NEGOTIATING
Financing Your Car
Financial Institutions
•
Banks, credit unions and
even insurance companies
offer car loans for 36, 48,
60, or 72 months
•
Longer terms mean lower
monthly payments, but
higher total interest paid
because you are using the
money for a longer period
of time
Car Dealers
•
Most new car dealers offer financing
•
On particular models during particular
times of the year they may offer better
terms than others
•
GMAC (General Motors Acceptance
Corporation) is an example of a finance
company that makes loans on cars
through dealerships
•
Most other manufacturers offer similar
programs
•
You would make your payments to the
finance company, not to the dealer
MAINTENANCE
Maintenance and Repairs
a.k.a. TOTAL COST OF OWNERSHIP (TCO)
•
The owner’s manual will tell you what
services your car needs and how often.
•
Typically, you change the oil every few
thousand miles, have a major engine tuneup every 20,000 to 30,000 miles, and
perform other maintenance at scheduled
intervals.
You should plan for unscheduled repairs, like flat tires, broken belts, and
leaky hoses that can be costly.
•
MAINTENANCE
Cost of Operating a Car
Fuel
•
The cost of gasoline depends on the fuel efficiency of your car’s engine and
number of miles that you drive.
•
Larger vehicles and more powerful engines require more fuel.
Depreciation
•
A decline in the value of property due to
normal wear and tear.
•
As a car ages, the number of miles driven
increases, the physical condition begins to
deteriorate, and mechanical difficulties arise.
MAINTENANCE
Cost of Operating a Car
• Also, styles and consumer tastes change over time.
• All these factors usually cause cars to lose market value.
• Not all cars depreciate– very old vehicles in excellent condition or with
high resale value
• Depreciation is the single greatest cost of owning a car- the cost of
gasoline is second.
• A car will retain more of its value over time if it is well-maintained and
has fewer miles on it at the time of sale.
MAINTENANCE
Registration, Title & Sales Tax
•
All states charge a fee to
register a car title- the legal
document that establishes
ownership.
•
A car title lists the legal owner
(usually the lending institution)
and the registered owner (you)
•
You must pay title fees and sales taxes only at the time you buy the car.
(e.g. $25,000 at 9% sales tax = $27250 (2250)
•
However, you must pay a tag fee each year and pay for emissions testing
in some states every few years.
7 Signs You Bought a Good Car
1.
Reliability - It does not break down often; will last at
least 10 years
2.
A Car You Love - you enjoy getting the car and driving it
3.
Resale Value - after 7 years, car still worth at least ½ of
its drive off price
4.
Insurance - affordable (new more expensive than used)
5.
Fuel Efficiency - must I say more
6.
The Down Payment - you placed a large down payment (saves on interest)
7.
Interest Rate - a low and affordable interest rate means hundreds of dollars
in saving over the car loan
The Key to Car Purchasing Success...
...is to know what
you need, have done
the research, and
don’t budge but be
reasonable at the
negotiating table
Resources
★ Sethi, R. (2009). I will teach you to be rich. New York: Workman Publishing.
★ Gamm, S. (2013). More money, please: The financial secrets you never
learned in school. New York: Penguin Group.
★ de Paula, M. 10 common car buying mistakes. Retrieved from
http://editorial.autos.msn.com/listarticle.aspx?cp-documentid=1171403
Thank you for attending!
1. In the chatbox, please input whether you are a CSUN
Student
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2. Let us know how we did!
Please take a moment to follow the link in the chat
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