A Canadian's random thoughts on personal finance

Mar 9, 2011

How to buy a car

A recent post from Michael James reminded me of the car I just bought in August. The way we bought the car eliminated the problem he mentions and many others. I heartily recommend it.

Back in 2007, we decided we wanted a Honda Fit. We have no intention of ever buying a new car, but we went into a dealership anyway to test drive one, and the salesman worked out the numbers for us. The quote came out to $23k.

Instead of signing on the dotted line, we started pretending we had car payments, and setting aside the amount. (Yes, this early blog post of mine was nonfiction.)

I figured if I waited three years, we'd save about $6k in depreciation, and because we wouldn't be paying interest on a car loan, we'd save another $3k in interest, so we'd be spending $14k. So once we had saved up $14k, we just waited until the car we wanted reached that price.

That happened this past August: we saw a listing online for a 2007 Fit with low mileage for $14k. That week I went to the dealership and told the salesman that I wanted that car, and if he could make it work for $14k all-in, he had a deal.

Well, he made it work, so I bought the car.

The process was pretty much stress free for me. I got the car I wanted at the price I wanted, without any negotiation. Ok, it's true that the salesman might have shaved off a couple hundred bucks if I had negotiated harder, but in the big scheme of things, I saved $9k by waiting a few years, so I'm not going to try to stiff this guy for a couple hundred more bucks. In the end, we were both happy with the deal, so as far as I'm concerned, that makes it a good deal.

The most striking part for me was when it came time to sign the contract. He was explaining all the extra charges like taxes and whatever else. I can't even remember what the charges were because, well, I just didn't care. I had negotiated the bottom-line price, so in effect he was paying all these other charges, including the taxes.

And to top it all off, I didn't have to worry about financing rates, and I didn't even have to give the dealer my car insurance info. He didn't care because he had cash in his hands.

The only painful part was writing that bank draft for $14k. Man, that's a lot of zeros for a cheapskate.

Update: My wife would like me to point out that, while I may not be a world-class negotiator, I didn't just walk in and pay the sticker price on the car. They were asking $13,999 plus taxes, plus plus plus... We paid $14k all-in, which works out to almost 20% off the sticker price.


Michael James said...

Negotiating based on the bottom line cost sounds like an excellent idea. I wonder how most car salespeople would react to this.

On the subject of writing big cheques, I can still remember the first cheques I wrote with 4 digits, 5 digits, and 6 digits. They were separated by several years, but for each one my hand was shaking.

Patrick said...

@Michael: Wow, you're still an entire digit beyond me then.

Anonymous said...

Negotiating the bottom line has worked for me in the past. I think it works especially well at used car dealerships. I haven't been able to negotiate anything when buying a new car.

SLDC said...

you did the right thing in terms of saving up for it. We did a similar thing last year - we bought a 2007 kia magentis for $14K including all taxes etc. with low mileage...We paid cash for it...I felt like we should have negotiated more to get it down lower but my husband really wanted the car.

Erwin Calverley said...

Buying a car through cash is really better than leasing it. A lot of car dealers offer discounts if you’re going to pay through cash. You will also save more because you won’t have to deal with interests and other miscellaneous payments. Negotiation is a lot easier as well, mainly because of the significantly reduced paperwork. Finally, selling a car bought by cash is a lot easier because you don’t have to deal with the bank.

Erwin Calverley

Clint Moore said...

I definitely agree with you, Patrick. Paying cash may be painful at first, but the freedom from future financial responsibilities is definitely worth it. And when you decide to sell it, it will be easier because you don’t have to deal with too much paperwork.

Clint Moore