They say the best time to buy a car is during the fall when new models come out or at
the end of the month when sales associates and dealerships are looking to hit their targets.
I say the best time to buy a car is after you've done all your research.
I'm Peter Guay of PWL Capital, and in today's "Do It Together" segment: I'll go through
the key elements you need to know when buying a car.
For most of us, buying a car means financing the majority of the purchase
after you put down the down payment.
Buying is cheaper if you plan on owning the car for more than 5 years.
If you're like most Canadians and keep your car for an average of 11 years, then you'll
be driving debt-free for a few years before you need a new car.
Now, we all get carried away when we sit in a new car but I want you to keep something
in mind.
There is no such thing as 0% financing!
Unless it's from family, no one is lending you money for free...
The government of Canada has to pay 1.5 - 2% to borrow money for 5 years, you are going
to have to pay more than that!
All those ads on TV offering 0% financing are really appealing and do draw customers
into the showroom but they are basically false advertising.
So how can they offer 0%?
It's simple, they inflate the price of the car to offset the lower cost of financing,
which, when you think about it, might explain why the car depreciates so fast when you drive
it off the lot.
Knowing all that, there are only two primary factors to negotiate:
the price of the car and the financing rate.
Now, by price of the car, I mean the total price, with interest.
Not the monthly payments.
You don't want to spread out the loan over such a lengthy period that you end up paying
way more in interest.
Of course, you could buy the car outright with cash and drive off the lot with a discount.
Here's how: because the dealers and manufacturers inflate the price to offset the lower financing
rates, you should get a substantial cash discount if you buy the car outright.
To figure out how much, you'll have to know how to discount the proposed car payments
over the term of the loan at a reasonable discount rate, say 5%.
In other words, 5% is your opportunity cost on the money you could have invested if you
financed the car instead of buying it outright.
And before I wrap up, here are some other considerations that apply to both
leasing or buying a car.
Don't buy at the first dealership you find.
Comparison shopping is key when getting a new car.
There are always several dealers in every region for each car brand.
They are supposed to be competing against each other for your business, so make them!
Dealerships work on volume, so if they're getting close to the end of the month
they really want to meet their targets.
And so they can be highly incentivized to move cars off their lot
to meet their manufacturer's quota.
Use that to your advantage!
Trade in values: Always shop them around.
Different dealerships will give you different prices for your car.
So find the best one, and leverage that with the dealership you finally choose to work with.
Don't keep the numbers in your head, write everything down and take good notes.
It will help you make sure that your negotiating is as strong as possible.
And finally, try not to get tempted by all the extras because like the name suggests
those extras will cost you a lot.
They're cool to have but they're also a lot of money out of pocket and you won't use
them as much as you think.
Is that sunroof really worth it?
Probably not.
And one final thing: car dealerships expect negotiation, so take notes, prepare, go in there and
get a new car at a great price whether you buy or lease.
Don't forget to subscribe, follow, share, and like so you get notified when I post new episodes.
Thanks for watching.
I'm Peter Guay and this has been Do It Together Financial Planning.
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