Let’s say you are looking to buy a brand new 2018 Nissan Altima and you live in San Diego with an area code of 91945. If we go to fair market value, we can find some very useful information.
Based on car purchases around the location, the fair market value is $20,779-$22,756 for the day of September 24, 2018 (fair purchase prices are updated weekly). But here’s the question: Why don’t all the cars have the same price?
Like any business, car dealerships are going to try and get the most value out of the products they are selling.
If you were selling something on eBay, you wouldn’t settle for the first lowest bid, right? You would probably wait to see how much more money you could make by obtaining another offer.
But as a consumer, would you rather pay $22,756 for the 2018 Nissan Altima or save almost $2,000 and purchase the exact same car?
These helpful tips could potentially save you hundreds of dollars on your next car purchase.
1. Purchase a Used Car
Depreciation is the decrease in the value of an asset over time.
According to this article by Real Car Tips, most new cars depreciate 40%-50% during the first three years of ownership, while a three-year old used car will only depreciate 25%.
The average price of a new car for 2018 is $36,270. After a 3-year depreciation, the cost of depreciation would become roughly $14,508-$18,135 considering the 40%-50% depreciation value from the Real Car Tips article.
Alternatively, the average price of purchasing a used car is $19,400. Using the 25% depreciation, the cost of depreciation would be $4,850.
A new car could not only cost more money, but it also depreciates and loses its value a lot quicker than a used car.
When purchasing a new car, just keep in mind it will essentially start to depreciate the moment you drive it off the lot.
2. Shop Around for Your Own Lender
Car dealers have their own list of lenders they work with and are incentivized to offer them to you, but you don’t have to use them.
One of the smartest things you can do before going into a dealership is to shop around and see what kind of quotes other lenders will give you. That way, you will already have an interest rate with you that the dealership will have to beat.
However, if you do choose to find your own lender, you need to be conscious of how many are running inquiries on your credit report — too many could end up your credit score.
Remember, all things being equal (e.g., principle, term, payment amount, payment date), the lower the interest rate, the more money you’ll save paying off your car.
3. Do Your Own Research
Let’s be honest — the internet is now a crucial part of our lives. We use it as a tool to socialize, shop, and gather information.
I don’t know about you, but before I purchase anything, I make sure to check online to see which store offers the lowest price and compare.
Before you make a car purchase, why not use the same method to make sure you are getting the best bang for your buck?
Not only can you use helpful and honest websites to find a fair price for a car, but you can also ask others on social media and online forums about their personal expertise and recommendations to help you make a more educated decision.
4. Avoid Impulsive Decisions
What is the rush?
Is Dwayne “The Rock” Johnson going to be waiting at the door of the dealership to give you the "People's Elbow" if you don’t buy the car now?
Granted, you should always be prepared in life, but the likelihood of encountering this type of scenario is very low.
Some sales reps may tell you the opposite, but there is absolutely no harm in going home to do more research to make sure you are getting a fair deal.
Watch out for high-pressure sales tactics! Even if the car you are considering is sold, they will probably still have models just like it and the deals will more than likely be there tomorrow.
5. Put a Larger Percentage of Cash Down
Most experts will say making a 20% down payment is ideal because it could improve the chances of you getting a favorable loan, keep your monthly payments low, and mitigate the risk of paying more than your car is worth in interest.
Some dealerships may offer zero-down deals in order to entice you to purchase the car. However, if you don’t put any cash down, your principal balance will be higher, thus increasing the chance of paying more money towards interest.
In most cases, dealerships don’t make money until a car is sold, so they are often incentivized to get rid of cars as quickly as possible — sometimes they may get a little overzealous in trying to convince you to purchase a car that same day.
My personal experience:
When I was browsing a few lots for a potential car purchase, I stumbled upon one I really liked. However, I didn’t have any intention of buying it that same day. As I told the salesman I’d like to go home, think about the decision, and then discuss it with my wife, he quickly replied, “Tell us what we can do to keep you guys from going home today.”
Luckily, I had done my research previously and had a fair price in mind. I used this as a negotiating tactic, while also leveraging the fact that they appeared to be willing to do anything to get me to stay there.
I negotiated my way to finalizing a deal which was lower than I anticipated before I walked into the dealership.
7. Watch for Seasonal Sales
Just as the clothing industry will offer sales throughout the year to move inventory for incoming fashions, so too will the automotive industry.
According to Autotrader, most new car models will start arriving in the Fall. Dealerships may try to move the previous years’ models as fast as they can by offering hefty discounts.
During the year, you should also make sure to keep an eye out for big sales on Memorial Day, Labor Day, Black Friday, etc.
According to Investopedia, the best time of the year to purchase a car may be in the month of December.
“The two peak seasons for auto sales occur during the spring, from the end of February through the end of May, and from September through November. During these periods of peak demand, cars' average sale prices can rise by 10% to 15%.”
“After peaking in November, motor vehicle sales tend to drop dramatically in December as the retail sales sector begins to experience its large holiday seasonal upsurge.”
With end-of-the-year car sales, manufacturers and dealers will be trying to meet sales goals and quotas to reach their own incentives — this could be a win-win situation for you and the dealer when you start negotiating!
See How Much You Can Save!
Hopefully the tips of purchasing a used car, shopping for your own lender, conducting your own research, avoiding impulsive decisions, putting more cash down, negotiating, and being on the lookout for seasonal sales can help you save a bunch of money on your next car purchase!
We would love to hear some of your personal experiences and anecdotes of car purchases to not only hear how much you possibly saved, but also to help educate those people new to the process of buying a car!