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Your Four-Part Guide to Buying Cars

Car buying can be stressful and time-consuming. Without experience or advice, structuring a deal tends to be one-sided, favoring car dealers over drivers. Stay informed about the car buying process to reduce stress and ensure you get the best deal possible.

Establishing your budget

When looking for a car, you should consider how much you can responsibly spend on vehicle-related items such as car payments, insurance, fuel and other fluids, and maintenance.

  • The 10% rule: aim to spend 10% of your annual income or less on a car, whether you’re buying new or used.
  • The 20% rule: your total monthly car expenses should be 20% of your take-home income or less.

Don’t forget to consider variables that may affect your monthly payments, such as:

  • Term: length of time over which your payments are spread.
  • Rate: interest rate your lender is offering you.
  • Trade-in: if you choose to trade in your current vehicle.
  • Down payment: amount you pay upfront.
  • Taxing state: car sales taxes vary by state, so your car’s “sticker price” will not equal your total costs.

Ranking priorities

What vehicle features matter most to you? This step will help you compare your budget and priorities to set realistic expectations for your options. Here’s a list to help you get started:

  • Affordability
  • Safety
  • Performance
  • Seating & space
  • Payload
  • Appeal

 The more flexible you are in your requirements, the more negotiating power you will have.

Communicating with dealerships

Most of your negotiations with dealerships should not be done in person. Dealers may pitch you a lower sales price in person, hoping to make points on you by increasing your interest rate in financing. Instead, stay away from dealerships until you have received a detailed breakdown in writing of the agreed-upon price.

Negotiating by phone or email helps you save time and maintain control over the situation until the numbers are finalized. Rather than visiting dealerships to find the best options, you can have car dealers compete with each other while you manage the situation from the comfort of wherever you’re using your devices.

The appropriate time to visit a dealership in person is when you need to take a test drive, sign paperwork, or pick up your vehicle.

Understanding the sales process

Buying a car can be complicated and overwhelming. Here are a few tips for navigating various parts of the sales process:

  • Purchasing your car: Do some research to determine an average price for your vehicle, accounting for any extras you want added. The online price is unlikely to match the actual cost, so focus on the bottom line instead of fixating on one piece of the deal. Usually, $500-1,500 above the invoice or manufacturer price is a good deal.
  • Trade-ins could affect your payments depending on if you paid off your car, owe more on the car than it’s worth (also known as being “upside-down” or “underwater”), or have a lien on the car title, meaning someone else legally owns the vehicle while you pay a debt.
    • Use reputable resources like NADA or Black Book to determine your potential trade-in value.
    • Check how much the vehicle might bring in on sites like Autotrader to understand what different regions are willing to pay.
    • Clean the car before visiting the dealer for an appraisal.
  • Financing: how’s your credit? Is your equity on your trade-in positive or negative? How much is your down payment on your car? These factors and many more can affect your financing options. Here are some negotiation tips:
    • Ask about your buy rate, or the lowest rate you were approved for. Your dealer will try to mark up the rate on your contract because they can make more on in-house financing.
    • Have a pre-approval ready. Get pre-approved by your bank or local credit union as leverage for negotiating your contract rate.
    • Weigh your financing, rebate, and incentive options. You may qualify for a cash rebate deal from the manufacturer or other incentives, such as low-interest financing. However, if you have good credit, you likely already qualify for very low rates and may be better off using your own financing and collecting money off the bottom line.
  • A car warranty is the manufacturer’s promise to help cover replacements or repairs during a specified period. Try negotiating a long, low-cost exclusionary policy for larger refunds and a lower effective cost. If you’re offered a wrap policy, take it!
    • The longer the policy on time or mileage, the better. These policies are cancellable, but a longer period ensures complete coverage and the best opportunity to cash the warranty back in at the end of ownership.
    • Only the manufacturer can offer extended warranties, but some third-party companies offer vehicle service contracts that provide similar services.
    • Warranties are valuable up to a certain cost. Ask us about our connections and how we can help you get the most value out of your warranty.
  • GAP waivers and loans can help you pay the difference between your outstanding loan balance and insurance payout in case of a total loss, or when your car sustains damages for which the cost of repairs exceeds the car’s value.
    • GAP waivers can only be built into lending contracts. They are bought with financing and cover up to 150% of your vehicle’s booked value. These waivers are not attached to your insurance, so in the event of a claim, you don’t have to submit a separate claim on your insurance. GAP waivers cover up to a $1,000 deductible with your insurance.
    • GAP insurance can be bought separately through monthly payments to an insurance company. It covers up to 105% of your vehicle’s value. In the event of a claim, you must submit two separate claims: one for the GAP insurance, the other for the actual accident. GAP insurance does not cover any deductible.
    • When compared monthly to each other, GAP waivers are usually cheaper if sold correctly. Learn more about the difference and the best choice for your situation from your Oakwell experts.

While most advisors only provide guidance when it comes to assets they get paid for, your Oakwell experts are true fiduciaries. That means we advise on your entire financial picture, not just what we manage, and we always put your best interests first.

 You deserve comprehensive wealth management with personalized advice and fresh perspectives directly from your team at Oakwell Private Wealth Management. Get in touch today!


The information contained in this article represents the opinion of Oakwell Private Wealth Management and should not be construed as personalized or individualized investment advice.