Tag Archives: buying a car

Buying a car- Cash or Financing?

Word is finally getting out to my friends that I am working at Dick Hannah Volkswagen as a sales and leasing consultant. I haven’t really been spreading the word as aggressively as I should, and my circle of friends is very wide, so it makes sense that its taken so long for people to catch on. It’s pretty awesome getting calls about cars.

Recently a long-lost friend of mine asked me if he should pay for a car outright with cash or purchase it through some sort of financing.

This gentleman served in the military for about 8 years. He was Navy, and I assume spent a lot of time on tour, billeted, on the government’s dime. He had had a steady income, fairly low expenses, and was able to save up some money. He’s now a civilian trying to figure out what’s best for him and his family financially.

He has an aging car. He knows it’s time to upgrade his vehicle to avoid the potential expense of keeping his old car running. On top of that, his car still has some inherent value he wants to use in the purchase of a new vehicle.

In the future, he wants to keep his monthly expenses down as well as limit the amount he will pay for the new vehicle by avoiding paying interest. Also, he thinks that the dealership might a prefer selling cars for a for the car and would prefer it?

Dealerships do not actually prefer to receive cash/check for cars anymore. In fact, the dealership would probably rather finance the cars. Why would they give you a discount to do something they don’t want you to do? (Don’t get me wrong, people with cash often make good clients, but it has more to their willingness to do the deal now as they have been planning for it.)

Did you know that banks will often pay the dealership to underwrite through them? Banking was once a very risky business. (To all the bankers out there, yes- I know banking is still very risky… but not as bad as it once was.) But now we have fairly accurate credit scores and high-tech methods to validate and track people, making it much safer to loan money.

That safety allows for banks to accurately gauge and manage risk. Having an accurate gauge of creditworthiness allows the banks to offer very competitive interest rates to customers.

Here’s where things get interesting. My friend has to gauge opportunity costs of spending his money on a vehicle all at once. Opportunity costs are the loss of potential gains from choosing one alternative over another.

For example. What if he can get a loan for 5 years at 2% interest? The money would be free to invest. Say he is very lucky and gets an average of 8% a year for 5 years. That would be of benefit to him, no?

But what if he takes a loan, and lacks discipline? Spends the money elsewhere, and then ends up not being able to afford the car. What if he can’t keep a job. What if the market crashes like it did back in 2008, and the US economy lost trillions and the investments he put his money into all go sour. What if you want to buy a house and your debt to income ratio is too far off to get it?

It all comes down to a matter of preference, and risk management. I personally believe he should buy the car using financing if the interest rate is low. I assume he can manage his money well enough if he is asking for advice on the topic, and also managed to save enough money for this to be a question. He must try to keep his loan from being underwater by putting enough of a downpayment to allow for flexibility in the future if something comes up. A car’s value tanks like a rock after the purchase. Should he need to get rid of it, it’s good to have a smaller loan balance than amount owed.

Why would you invest into something that is a liability? Keep the money, be wise with it. Having cash that you can invest in your future goes a long way. There is a phrase in business,  “Debt is cheaper than equity.” Read the article to see what I mean.

Another great article gives you some good advice: Here

Guide to Car Buying: Research (work in progress)

It is never fun having nightmares. I recently had one about the car buying experience. Full on a horrific, tragic, and morally draining dream. Bad dreams about buying a car are weird because I’m a car salesman. I understand this is because things that stress you out are typically things you dream about, and it’s my brain’s way of unfolding the events of my day.

But a big part of my time is spent ‘informing‘ people about what it is they should do. In a weird sense, that’s like asking an alligator to teach you to swim. I recognize this is job security for me, but I alway love those deals where the person comes in, informed, and has everything ready for me. They know what car’s they want to drive. They know their credit score, have a down payment. Everything is ready.

It is not hard to get a car, just like it’s not hard getting a loan. You can walk into a payday loan office, or log onto a website, and get one in 5 minutes. It won’t be very much, and you aren’t going to be getting anything that resembles a real deal. Same with a car. Car buying is easy, but doing it well requires a bit of research and preplanning.

This preparation should happen at home.

Google is a fantastic tool. Just type in “how to buy a car” and see what comes up. Perhaps that’s how you found this post. Awesome!

A superb starting point is building out a budget. Budgeting should be the hardest part of buying a car. Most of the car buying experience hinge on what your credit score is, how much you are willing/can to do as a downpayment, and finally what are your payments. Budgeting takes time, but it will build you up for a successful car buying experience, as well as help keeps ownership costs reasonable.

A cool resource for budgeting is Mint. This part is a must. Stop reading – go there – now. Set it up, and begin using this. Seriously. They have articles on money, spending, and how much you should target your spending on different things. Specifically a car.

I know Mint has an excellent credit score tracker, but I like to give people options. Credit Karma is another one. I have been Credit Karma lately because it mainly focuses on just credit scores. (Side note- this is just a reference, not the exact credit score you’ll be using when you purchase a car. And your credit score doesn’t reflect all of your experience with different lending companies. If, for example, you bought a Volkswagen- using VWCredit as the lender- and had the car repossessed they might not be willing to work with you again. The opposite is true as well, if you bought a Volkswagen filed for bankruptcy but kept paying on your auto loan, they might be willing to lend you money again because you were a good client.)

Once you get the budget squared away and have been living a good clean life where you’ve been saving up some money- you can begin to look at what kind of cars you want. Motor Trend is a great resource. They have tons of reviews, news, and other critical information. Very well polished. Love it.

Another excellent site I’ve been reading quite a bit myself has been Edmunds. They have some magnificent tools. They help frame the purchasing experience. They have a splendid, long, story about how one of their new writers works at for a car dealership under cover. This story is an awesome way to learn what my job.

A solid golden standard is Kelly Blue Book. KBB is a fantastic resource to find out what your used car is worth. (A little note, what your current vehicle is worth does not always equate to what it’s value is; furthermore a car’s market value is different than trade in value. This is HUGE. I will write an article about this.)

And this final site I’d recommend is True Car. True Car a resource that helps after you have narrowed down what vehicle you are buying and gives you an excellent price reference for what you want to be paying.

After you decide on which car you one- begin looking for a dealership with which you want to work. A really good site I’ve been enjoying is Dealer Rater. Dealer Rater is where I am rated most often. Searching for the dealership on Google, Yelp, and the other usual sites are ok I guess.

[ I think this is all I have for now. This post is a work in progress. I will be updating this post, so feel free to keep an eye on it. Feel free to comment, or email me. I also have a new email for this blog. me@mdimitry.biz ]