Video: Being Smart About Car Buying

This is another installment from my 10-part series hosted by KLRN on being money savvy, called It Just Makes Cents. This one encourages you to be smart and frugal about the car-buying process.

If you prefer knowledge like this to enter straight into your ear-hole, then you would want to go to the SoundCloud links provided by KLRN.

Finally, text is the way I generally learn, so let’s do that too!

One of the hardest things to get our heads around about cars: A car is a large consumer device that loses value over time. It’s not an investment. It’s not our personality. Also – beware the manipulative question “How much can you afford to pay per month?”

Car Marketing – Beware

Our brains have been soaked and marinated in car advertisements practically since birth. I think this is why it’s difficult to imagine that the “meaning” of a car isn’t bigger than the “meaning” of a washing machine, dishwasher, or any other useful but ultimately disposable thing that just loses value every year and costs money to maintain. With cars, we tend to crave more from the brand than from our dishwasher brand. That craving costs us money.

A car doesn’t define your sex-appeal. It doesn’t make you stronger. An expensive car does not make you rich. In fact, just the opposite. To the extent a car is an expensive consumer device you bought on credit, it makes you poorer. This is sometimes difficult to remember, because of the car advertisements in every media we’ve all seen every single day of our lives.

Less Car, Less Often

Here are the two big lifetime ideas about how to be financially clever about car buying: Buy less car. And buy cars less often. 


“Less car” doesn’t mean just 2 of the 4 wheels and engine, while forgetting the brakes and roof. It means: look to buy a car that literally costs less. 

A car good enough to take you from home to work, and back again, could cost you one-tenth of your annual salary. Or it could cost you half of your annual salary. Which one do you want? Try to go with the one-tenth end of the spectrum. If you don’t make a huge salary, you’re looking at an older vehicle with some significant mileage on it.

And “less often” means try to extend the life of your existing ride. Make it last 15 years, not 5 years. Don’t trade it in after 5 just because the dealer reached out to you. What the sexy car advertisements don’t tell you is that every time you buy or sell your car, you lose money. Fewer lifetime transactions means less of your money lost.

Get Pre-Approved Before Walking on the Lot

Finally – Let’s talk about car credit. In an ideal world (I know, I know, most of us are not there yet) you buy a car with cash. Paying cash would tend to force you to shop for “less car,” which is a win. 

But I know we’ll often have to buy on credit, getting an auto loan. 

The best way to do that is to separate the loan process from the auto shopping. What do I mean by that? I mean, line up an auto loan in advance – before walking onto the car lot. Your bank or credit union is in the business of lending for cars. You get pre-approved for a certain amount of a car loan – given your current credit and income – and you’ll then know what you can afford. Shopping for a car, with pre-approval from your bank or credit union only up to a certain amount, limits the temptation to buy more car than you need. 

Beware the “Monthly Payment” conversation

It will also keep the car-buying negotiation fixed on the price of the car, where your focus should stay. Car dealerships notoriously focus your attention on the “monthly payment.” That’s a trick. The cost of the car is in the price, and the interest rate you pay on the loan. The “monthly payment” conversation essentially distracts us from getting the best interest rate and the lowest price overall.

The best you can do

Most of us are not yet living in a ‘post-car’ world. If you can get by on biking and the occasional Lyft/Uber, that could be worth tens of thousands, maybe hundreds of thousands, over your lifetime. But we’re not there yet – and until that day, cars are still useful. 

The best you can do, financially, is minimize cars’ hurt to your bottom line. Buy less car. Less often. Use cash if you can, and shop for the lowest auto-loan interest rate before buying, if you must borrow.

Please see related posts

Car Buying, Part I

Car Buying, Part II

Adventures in Auto Insurance

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On Cars Part II – Acceptable Price of a Car

Cars 3Please see my earlier post: Cars I – On Not Getting Fleeced

Here’s several ideas that may help you pay the right amount for your car.

1.       Cars are not investments.  Unlike houses, cars only lose value over time.[1]  Cars are big consumer goods that depreciate quickly in value.

2.       As a result, all money you put into your car evaporates over time.  The more you pay for your car, the more money you’ve vaporized with consumption.

3.       Paying more for a car at the lot does not make it more likely that you’ll avoid dings, scratches, accidents, depreciation, or food spills.  In fact the monetary damage you inevitably suffer as a result of these events will be that much higher, based on your higher starting price.

4.       Used cars are offered at a lower price than comparable new cars.

5.       Buying a new car means you’ve got one day to enjoy your higher value consumer good.  After that one day, you own a used car.  The value of that car the next day, should you choose to sell, is significantly lower than it was when you bought it, yesterday.

6.       Paying cash, rather than purchasing with a car loan, is not available to everyone, and it does not necessarily guarantee a better deal at the car dealership.

7.       What paying cash does do, however, is make you a more disciplined buyer.  If you have only a certain amount you’re willing to spend, and it comes immediately out of your bank account, you’re less likely to be fleeced in all the various ways the dealerships will try to fleece you.



On accessories, know that some car dealerships like to channel the Pentagon’s pricing scheme for paper clips, hammers, and toilets when it comes to car accessories.  Accessories are a major profit center for some car dealerships.

“Those little floorboard carpets there?  Hoo-boy, those will probably run you an extra $1,200.” 

“Oh, you actually want windshield wipers?  Well, that’s only available in the Deluxe model, which we sell for an addition $6,800 above the base model.  Not everybody requires windshield wipers, as you know.”

Obviously the cure for this type of bullshit is the Interwebs, which – when consulted in advance – clear up exactly what is ‘Base Model’ and what is ‘Deluxe.’

The weird and amazingly annoying thing is how often – in the present day – power windows, air conditioning, and a car stereo qualify for extra costs above base model.  Any car company who still considers these ‘Deluxe’ accessories should be publically shamed.  That’s my new rule.

Cash Back

If you’re walking away from a car dealership with extra money ‘cash back’ following your car purchase, you’re doing it wrong.  Just trust me.  This is not a good deal for you.

Zero money down, Zero % financing, Zero payments for 6 months

Same idea here as cash back.  File this one under the category: There’s no free lunch. 

So, you’re definitely overpaying for this thing you bought with zero, zero, zero conditions.

And yeah, I’m talking about a company like Mitsubishi, which had the zero, zero, zero offer a few years ago.  Any business which offers you a costly consumer good like a car[2] on credit terms like this knows, in their heart of hearts, they are fleecing you on the price.  Anyone who bought a Mitsubishi under those terms offered a few years back probably overpaid by about 30% for that product.[3]

Now, if you never intended to pay for the car and just wanted to take temporary advantage of an overly generous car offer, then you’re a clever cheater and Mitsubishi’s offer was just a nice way for you to cheat the system. 

But if you’re a bona-fide car buyer who bought a Mitsubishi under those conditions: I’m sorry but you paid too much for the car.

Please see my earlier post: Cars I – On Not Getting Fleeced

[1] I’m not referring to collectibles, smart-ass.  I am aware of that exception to my rule, which is irrelevant to this rule about car-buying.

[2] Or, even more typically, but on a smaller scale, home furniture.

[3] Of course I’m making this 30% number up. But I do have experience with the time value of money. Zero, zero, zero deals depend on customers, who have no idea about the time value of money, not noticing that the only way this makes sense is if the selling company WAY overcharges for their product.

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