Quick Chat: Car Buying

Every now and then, friends will instant message me for advice. Here’s a one-minute chat I had with my friend Max, who lives in Los Angeles, about buying cars.

Max: Mike Dang—quick Q. Do you know any trusty source about buying cars?

Mike: Definitely check out Carmax for used cars.

Max: Cool.

Mike: Also, use Edmunds.

Max: Yeah, I have used Edmunds. It’s good.

Mike: Sometimes buying a new car is cheaper and smarter than buying a used car.

Max: Yeah, I think I’m going for new just because I want to have this for about 10 years.

Mike: Yeah, I get asked this question sometimes, and I always suggest used because cars are depreciating assets, meaning they quickly lose resale value once you start driving it.

Max: One more question—would it be dumb to buy it in cash, as opposed to financing?

Mike: Um, totally not dumb!

Max: Hmmm. The car dealer told me it would be a bad idea because I would be forgoing a way to build credit. But then again, he might have an interest in me financing.

Mike: Forgoing a way to pay interest? Yeah, he wants to sell you financing. And you only need to build credit when you want to buy a house or a car and borrow money. And in this case, you’re not borrowing anything, so it’s pointless.

Max: Got it. Right. Okay. Yeah, that’s what I assumed.



17 Comments / Post A Comment

joyballz (#2,000)

If you end up going with a used car, check NADA guides for the value. AND don’t buy GAP insurance or a warranty from the dealer. If you want it, find a credit union that offers it and it will likely be better and more than 50% cheaper.

OhMarie (#299)

Ew, that car buying dude is awful.

Thoughts on buying used privately or through a dealership? I tend to lean toward the craigslist market, but the boyfriend is insistent about going through a dealer.

aetataureate (#1,310)

@Splendorofmorgan You can get fully f’d over either way on a used car. The major pro of private owner is that the sales tax is usually way, WAY less so you could potentially save hundreds of dollars just on that. Also, I recommend Lemon Squad with my whole heart for ANY used car, if you or someone in your life doesn’t know enough to give the car a thorough looking over. (I certainly don’t!)

kitten_witawip (#1,309)

@Splendorofmorgan I have done both for my past 3 cars. Paid cash for 2 and put one on a credit card. You need to have a mechanic you trust look at the vehicle before you buy from either. I don’t think the end result varies too much though I avoided paying taxes on the private purchase.

kitten_witawip (#1,309)

@aetataureate Lemon Squad seems a little high. When I bring cars to my regular mechanic to check out he has done it for free. The one time I had to bring a car to a mechanic I did not know it cost me $40.

aetataureate (#1,310)

@kitten_witawip If you’re shopping really local and have a mechanic you trust, certainly do that instead. I wouldn’t take a car to a strange mechanic, and Lemon Squad will inspect a car wherever it is, not where you can drive it to them. (The car I just bought is from a metropolitan area 4 hours away.)

@Splendorofmorgan I bought a “Certified Pre-Owned” Volkswagen through a dealer — it was a 2004 Jetta I bought in 2008 or so. The price was pretty reasonable, I was able to get financing despite iffy credit, and had a dealer warranty/maintenance package similar to what you would get for a new car, which probably saved me at least $1,000 when routine problems cropped up. Maybe I got screwed somehow but as a non-car expert, I was pretty satisfied.

lindseykai (#1,544)

@kitten_witawip How did you avoid paying taxes on a private purchase? I just bought a car from a coworker, and had to pay the sales tax when I went to the DMV to transfer the title. At the time, it occurred to me that I could make up a lower number for the purchase price, but I think I would’ve felt guilty.

kitten_witawip (#1,309)

@lindseykai I did not have to pay anything at the DMV. I did not have to pay anything when I sold my old car either. I am in California, maybe the law is different here or it changed since I bought my car.

limenotapple (#1,748)

I’ve been shopping for cars, and it seems like most of the newish used cars I’m finding are just…not that great of a deal. The rate for financing a used car (in my area, anyway) is greater than the rate for financing a used car, and the prices aren’t as different as you would think. I was completely sold on the idea of buying a used car until I saw how close my monthly payment would be, and now, unless I magically find the perfect for me used car, I’ll probably buy new (particularly if I get close to 0% financing). I was really surprised at how expensive used cars are.

aetataureate (#1,310)

Great advice, Mike! I would never buy a new car, but at some point I’ll be “RICH” enough to buy certified pre-owned. Won’t that be swell.

ThatJenn (#916)

@aetataureate I just bought my first certified pre-owned car, which is also the fanciest I have ever aspired to in car-buying, and I will say that it is SWEET. My car payment makes me cry a little (not really at my current income, but if I ever leave this job I’ll probably make less money and then it will suck, so I’m going to try to pay it off early), but I am thrilled with the fact that my maintenance costs are likely to be about 90% lower than they were for my previous, non-certified car, at least for a few years.

sony_b (#225)

Alternate opinion IF YOU HAVE THE CASH. Because they are trying to sell you the financing, you can talk them down on the price, sometimes even below their invoice. When I bought my car (2008 Civic Hybrid) my credit wasn’t great but I had a big chunk of cash. I talked them down on the base price (I don’t remember what that was, but it was like 2k below invoice according to my research at the time), let them talk me into a crazy-ass 11%, six year finance deal, and got them to throw in the 7 year prepaid maintenance for “free”. When I got the first bill I paid it off, leaving $100 left on the balance, and then I paid $10 a month for year before paying it off entirely. I think all-told I paid less than $200 in interest, got a great deal on the car, and had a year old, fully rated loan on my credit report. WIN.

i make lists (#1,687)

@sony_b I agree that financing could be a good option if you need to build your credit score. It shows that you’re able to take responsibility over a large loan and pay it steadily over several years. And…I hate to sound like such a banker here, but you never need credit until you NEED credit. It certainly doesn’t hurt to at least build your score.

You can always choose to make payments towards the principal amount, which will lower the interest over the life of the loan and not advance the due date.

What might be a good idea is to take some of the cash and put a large down payment on the car so that you’ll have smaller monthly payments. And I’d also ask how much you have in savings…if you’re going to drop $20k or more IN CASH on a car, what will you have after that? Do you have an emergency savings?

While it’s an AMAZING feeling to pay for something in cash, it’s also prudent to ensure that you still have an emergency fund after that purchase.

ETA: And all the “yous” are to Max, not you, sony_b!

@i make lists Credit is also a good option if you need a car now but don’t have the cash to buy one outright. In fact, that is why it was invented.

I just think it’s interesting that the guy assumes he needs to build credit. Maybe because he’s in his 20’s? Still I’d be a little insulted. I am 27 and my credit score is over 800. If I had the cash to just buy a car (without completely depleting my savings) I would do it. I don’t know that paying interest on a loan I don’t need would do much for my already good credit. But if you do need to build credit but also have the cash, I agree with using the financing as a negotiation and putting up a big down payment and paying the car off within a year.

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