Thursday, 16 July 2015

Car Buying Smarts

My poor beloved Volvo SUV has gone to car heaven. It is a somewhat long story worthy of it's own post, maybe next time.  Bottom line was I needed to decide if I would spend another $4000 in repairs after I already spent $2200 repairing the SUV that was 9 years old.  

Holy crap! What do I do? The SUV had been paid for and I was not sure my budget could handle a car payment. But I also did not have $4000 to repair a car that might not last another year before needing more money.

A co-worker pointed out to me that I once said I spent $400 a month in gas in my SUV and that her car payment and gas was about that, so technically I could afford the new car. So I made the decision. After 5 years of driving SUV's I was going back to a car. It will take some getting use to but I do enjoy getting 600 kms on a tank of gas.
My "new to me" ride.

So reluctantly accepting I needed new wheels I started shopping. I have not bought a new car from the car lot since 2007 and I am apparently getting wiser with my age and better with my money. I did a lot my research and tried not to be lured in by shiny objects and flashing sale signs. So after my whole ordeal I thought I would share a few tips for car buying on a budget.
1. Make a budget and stick to it. Consider not just the car payment, gas, insurance and maintenance cost as well. My cost needed to fall within the $400 I spent in gas monthly in the Volvo. That was payment and gas. I could not have gotten a $380 a month SUV payment and still afford to put the gas in it! Consider all cost and don't forget to call the insurance company to see if your cost will go up, lucky for me mine went down $40. Yippee!

2. What do you really need? Make a list before shopping. After many visits to a multitude of dealers and hours on online researching I realized something. The snazzy cars on commercials that are fully loaded with bells and whistles don't match the payment on the bottom of the screen. What I wanted and what my wallet wanted did not agreed.   I decided I could not buy a car without air conditioning, and because I live in Atlantic Canada, heated seats. But I could not not justify paying for another additions. Bye bye sunroof and leather:(

3. New, slightly new or previously loved? Do you want a car still with plastic on the dash? 3 Kms on the odometer? If you are considering something older that no longer has a warranty consider putting money aside monthly to cover any repair cost that may come up.  Don't forget many dealers sell demo's- staff have driven these cars for several months and normally have less than 10,000 kms on them. The dealer will take money off the purchase price to allow for the mileage. This will get you the new car smell for a slightly lower price.

4. Get all the numbers first: Don't be fooled by car salespeople selling 0 percent financing. I was told so many times that I might as well forget used because the interest rate is high. Buy a shiny new one and get 0 percent financing. But how is it possible they can give free financing. Simple they don't. 0 percent offers often are paired with a big discount if you pay cash. That discount is usually the cost of borrowing.
This feels like high school math, quick students! Which is cheaper $17,000 at 3.9 percent or $24,000 at 0 percent? 
Run the numbers on the final amount paid on the car with 0 percent and the final amount paid if you got a 4 percent interest loan from the bank and paid cash for the car. Which end price is lower? It may surprise you.

5. Consider your plans for the car when deciding on a payment term. I had a low budget so watching the numbers go down as dealers offered me 6,7, and even 8 year payment terms was tempting. Now my husband takes his truck payments over 7 years because he drives them that long, his last truck he owned for a decade. If this is you then go ahead a spread your payments out. If you have no long term plans with the car don't do it. I have no intention of driving a car for 7 years. I truly love SUV's when carting around my family, dog and all the stuff that comes with it. If I pay my loan out over 7 years when the time comes to sell it or trade it in I will owe more on the loan than the car is worth. Don't let that happen. If you like shiny things ever two years consider a lease.

So what did I do?
I found a 2014 Mazda3 at the same trim level as the new 2015 with 20,000 kms for sale for $17,500. The monthly payments on the new Maxda3 may have been lower but only because the dealer did what I asked for- gave me lower payments. He had them paid over 7 years. Total cost to purchase is $24,500. The 2014 will have an interest rate of $3.9 but over 5 years. At 3.9 percent a car costing me $17,300 will cost me $19,200. I save over $4000 on the same car. I have plans to pay extra when I can to reduce my cost of borrowing even more.

Here is a great calculator to find out true cost of borrowing.

Want to read more about the 0 percent financing offers? Here is an article from National Post.

 I found and interesting article on the Globe and Mail website on the pitfall of 0 percent financing. It is a great read.

Hope I have helped in some way!!!


  1. You have certainly become wiser and better at it, as evident from those tips that you gave us. I think the best part about this post is when you talked about considering the payment options for a new car. It really pays to think before jumping into a deal, even though it looks like a steal. More often than not, there’s probably a catch to it. Anyway, thanks for sharing your thoughts on the matter. Cheers!

    Rhonda Burgess @ Bob Dunn Hyundai

  2. Great advice and thank you for taking the time to create such a detailed buying guide. I am in the market for a new truck and this will help me to keep my focus when I get to the dealers lot. I usually get distracted and wind up buying more than I needed. Your guide will help me keep on track.

    Freddy @ Jacky Jones Chrysler Dodge Jeep Ram

    1. Thank you! Yes it is easy to get sidetracked by the 0 percent interest. And it may very well be the best option in the end I just think it is great to get down to the actual cost to buy the car in the end :)