On Car Buying, Part I – Not Getting Fleeced

CarsI’ve been thinking lately about what we buy when we buy a car, and how to make the best personal financial choices when car buying.

Can you buy your personality at the car dealership?

From birth, until now, you have been taught that your car is your personality.

Are you Ford Tough?  GM Patriotic?  Audi Sporty?  Toyota Dependable?  Volvo Safe?  Mercedes Classy?  Lexus Svelte?  BMW Quick?  Volkswagon Quirky?  Hyundai Cost-conscious?[1] Without hardly trying, I can conjure a car to match each of those adjectives as quickly as I can type the words.

I am here to tell you the shocking news that your car is not your personality, and that instead your car is a transportation tool for moving your physical self from one location to another, via paved roads.

The more you purchase your personality at the car dealership, the more you will pay for something you don’t need, which puts you further from your financial goals.

On minimizing merciless fleecing at the car dealership

Many of us associate purchasing a car not only with purchasing our personality via a 2-ton consumer transportation device, but also with financial trickery.  The latter association is well earned – the ‘used-car salesman’ stereotype is no accident.

To minimize personal fleecing, the best thing you can do is limit the number of transactions you engage in with your car dealership.

When you walk on to the car dealer lot you may think you’re buying a car.

Frequently you’re simultaneously buying a car, trading in your old car, negotiating a loan, settling on an affordable monthly payment, picking automobile accessories, and discussing dealer warranties and services.

You do these transactions once every 5 or 10 or 15 years, whereas your counterpart from the dealership does this multiple times a day.  The information and skill disadvantage between you and the car salesman is extraordinary.  Each simultaneous transaction presents a fleecing opportunity.

My advice: Try to do only one thing at a time.

If you need a car loan, try, try, try, to get this loan lined up ahead of time, ideally from your local bank or credit union. 

If all goes well, you begin your car shopping at the dealership with a known price limit, interest rate, and monthly payment amount.  If, at the end of your car purchase the dealer can do better than your bank, so be it.  But you can at least leave all of that loan negotiation until the end, separated from price.

If you need to trade in your old car, you may find it most efficient and convenient to drop off and pick up a car in the same place, so I can’t frown too much on the practice, for non-financial reasons.  On the other hand, just know that the introduction of another ‘moving part’ to the transaction allows for another opportunity for your friendly car salesman to dip into your wallet.

Car loans – Your mortal weakness

The most effective way to fleece a car buyer is to focus his attention on the car loan monthly payment, and away from the price of the car or the interest rate on the loan.

“How much can you afford per month?” asks your friendly car salesman, who has thereby tilted your head back to better expose your throbbing jugular to his surprisingly pointy canines.

If you got your loan approval ahead of time at your bank, monthly payment is an irrelevant question that you can ignore.  

Ideally, you reviewed a maximum purchase amount, bank loan interest rate, and resultant monthly payment at the bank, away from the charged and scary atmosphere of a car dealership.

Even if you need the car dealer’s loan you should still ignore the monthly payment question while inside the dealership.  Focus first, instead, on the overall price of the car.  After that is firmly set, you can move your focus to the interest rate of the loan, which reflects the cost of money.

At the risk of stating the obvious, if you got the best price possible on the car itself and the interest rate is acceptable, then the monthly payment will be fine. 

Or it won’t.  But it will be the best you can get.  You should know your acceptable car price and interest rate – based on your income, and your credit rating and the local cost of money – before walking onto the dealer lot.

Please also see upcoming post Car Buying II – Thinking About Your Car’s Price

[1] I could go on with the less desirable traits earned by car brands: Are you Peugeot Undependable?  Jaguar Pretentious? Fiat Promiscuous?  Dodge Plastic?  KIA impoverished?  Mitsubishi Sub-Prime?

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8 Replies to “On Car Buying, Part I – Not Getting Fleeced”

  1. Hey, nice article!
    Just a remark: here in Brazil, the country with the most expensive cars in the world, the adjectives “impoverished” and “cost-conscious” cannot be applied to Kia and Hyundai.

    These brands, as stupid it might be, are considered “deluxe” here.
    A 2013 Elantra costs, approximately converting from our currency to dollars, 45 thousand dollars. That’s more than twice the average price in the US.

    So, even with our government reducing the taxes over new cars, it’s still a good idea to buy an used one, payin in cash, rather than spending four or five years paying for a loan.

    1. Roberto – that’s a good and fair point, my ‘brand’ descriptions apply more to the relative cost of cars in the US.
      For what its worth, I bought a Hyundai Elantra and am very happy with the price and quality. Its plenty ‘Deluxe’ for me.
      Of course, it was $16K in 2009, not $45K, I guess due to lower taxes and import costs here.

      1. So, Banker, that’s exactly what I intended to say. The point is, with the price you paid for a 2009 Hyundai Elantra in the US, I could only buy a car like the Fiat Palio in Brazil, for example, without the “optional items” (that any car should have, but that’s another story), like ABS, air bags, air conditioning.

        For R$ 14,500, (the rough equivalent to $7,500) I bought a 2001 Fiat Siena, without air bags and ABS, two years ago. Not quite a deal, not even “deluxe”, but still takes me where I want to.

        1. That’s crappy that Brazil has such high extra costs. Is it to protect the local car manufacturers? I seem to remember historically there was a big car industry in Sao Paolo, right?

          1. Yes, here in Brazil we have Ford and Volkswagen factories in São Bernardo-SP (search Google for Autolatina), General Motors in São José dos Campos-SP, FIAT in Betim-MG. Those are the most traditional brands here, the vast majority of small cars on the streets are from those brands.

            Not too long ago (I can’t remember the exact dates, sorry) Nissan, Hyundai and Honda (which already produced motorcycles here) installed factories here too.

            The problem is that we don’t have high standards of quality. That, associated to the government, who protects the automotive industry. Not even tax reduction is enough to lower the prices of new cars here, the manufacturers keep the price almost unchanged to increase profit.

          2. Oh, and I forgot to mention the french automakers, Citroen, Renault and Peugeot. They are already installed here, but I can’t remember when that happened.

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I founded Bankers Anonymous because, as a recovering banker, I believe that the gap between the financial world as I know it and the public discourse about finance is more than just a problem for a family trying to balance their checkbook, or politicians trying to score points over next year’s budget – it is a weakness of our civil society. For reals. It’s also really fun for me.

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