It’s a big decision buying a car. Not only do you need to make sure it fits your lifestyle, you also need to make sure: it’s not a lemon; that it has a decent warranty; you research the trim level needed most; you make sure it fits in your budget, and the list goes on. It’s a lot of work, but the time you put in up front will greatly benefit you in the long run—and that’s the goal isn’t it, to keep your new addition to the family running for a long, long time.
According to a 2017 article in
Business Insider, Warren Buffett—you know, the guy who is worth somewhere around 84.4 billion dollars—always buys his vehicles at a reduced rate. Actually, what he does is he finds one that has had some minor damage (hail, fender-bender, scrapes and dents, but never anything too serious), purchases it for a fraction of the true cost then has it repaired. He then drives said car until the wheels fall off or his daughter is too embarrassed to ride with him, whichever comes first.
So why does a man who could buy every vehicle in America choose to hunt for bargains when he car shops? Because it’s worth it in the end. Within the sea of vehicles out there, and the fluctuating prices of those vehicles, major deals can be found. It just takes a little time and effort.
How Much is Too Much?
Respected moneyman, Dave Ramsey has a lot to say when it comes to making the big decisions in life, such as buying a home or a car. Here is what Mr. Ramsey had to say about purchasing a car in a question-answer section of his website:
“The total value of all your vehicles—things with a motor in them—should not be more than half of your annual income. If you make $50,000 a year, you shouldn't be driving a $40,000 car. That's stupid. Why? Because they all go down in value. You're putting money in something that goes down in value, and you need to be able to financially absorb that loss without it crippling you.”
Now this might be a little hard to swallow for some. It’s nothing to see a price tag of $40,000 hanging from a car, but it does seem silly to spend more than half your annual income on something you could get for much less. Why are so many people willing to pay inflated prices? Because it’s easy, and because they just don’t know any better.
Dave goes on to say, “Cars lose 70% of their value in the first four years. When you turn $30,000 into $11,000, you need to be able to absorb that hit. That's about $100 a week, by the way. Let's pretend there's a bizarre circumstance where you don't have a lot of income, but you have $10 million in real estate. Then we might use a different formula. If you're worth $10 million, then you can probably afford a nicer car than your income would indicate. As a general rule, your income is a good indicator of your financial juice, so you have to think about how much you're going to put toward something that's going down in value. Rich people don't put a large percentage of their lives in things that are going down in value. That's how they became rich. We're going to buy on a ratio of our financial situation. We're not going to buy a new car—ever—until you're worth at least $1 million. You're not going to have the total of all your vehicles ever—except in very rare circumstances—be over half of your annual income. That tells you if you can afford to do something like this.”
Aha, so that’s why Warren Buffett refuses to pay full price for his cars—vehicles typically go down in value, not up. This is all the more reason to make sure what you are buying is what’s best for you, whether it be a family-van, pickup truck, or a sporty Jeep Wrangler, you want to make sure the purchase is worth it in the long haul and that you aren’t spending too much of your annual income.
The True Cost of a Car
Though it’s true the value of a new car drops the moment it is driven off the lot, as long as you aren’t breaking the bank to buy it, it could still be worth the price, and the drop in price, just so long as you have done the research and you know you can afford the (true) cost of the vehicle.
Here are a few hidden car costs that (non-savvy) buyers often fail to calculate:
- Financing Charges. Paying for a car in cash is usually your best option, but let’s be honest, how many people are actually able to do this—besides are friend, Warren Buffett? For those of us who do need to get a bit of financing, it’s important to note that throwing at least a little cash as a down payment can drastically reduce the monthly cost. It might also be a good idea to try and extend the loan and try and find the lowest interest rate. These are numbers and scenarios you will need to spend some time going through, and it could take time—which is why most car buyers don’t bother looking into the myriad was a car can be financed. Do your research and take your time, it will be worth it.
- Tax Credits. “Hybrids and electric cars seem great, but they cost so much!” We hear this all the time, and there is some truth to it—but there’s more to it than that. Yes, you will pay more initially for these types of vehicles, but you do save on gas and energy while you own the car. And that’s not all: you can also receive plenty of national, state, and local tax credits that can completely justify that hefty price tag. Buying these vehicle used can help drive the price down as well.
- Insurance Premiums. Car insurance, after the initial price of the car, is usually where you will spend most money. The problem is companies charge different premiums depending on the type of car you buy. And it’s not just the make and model of car you get, these premiums are also based on the style—that is trim level, body style, etc. Usually, specialty vehicles (performance-oriented) have higher premiums, but it’s difficult to tell just how much you will be paying until you play around with the numbers and vehicle types. insure.com is a great website with a calculator that can help you crunch the numbers and find the best price for the car you want to purchase.
- Maintenance and Repair. Though cars these days are usually able to go longer than ever without having maintenance and repair, every car driver knows there will be a need to take the car in for work to be done, whether it’s minor or major repairs. Because of this, it’s important to spend time going over warranty options. Luckily, at Mount Airy Chrysler Dodge Jeep Ram Fiat, we will not only provide you with all your warranty options, we also have expert technicians who can do any maintenance and repair on site.
Quick Tips: Three Important Factors For Buying a Car
We know buying a car can be tricky. When living in a city such as the size of Charlotte, things can become daunting pretty quickly. Everyone has an opinion on what you should buy, how much it should cost, and so on. Then there’s the risk: what if it breaks down? What if I don’t end up liking it, or it isn’t the right fit for the family? Though the risks taken can often be scary, they can also be minimized, or even eliminated, simply by following a few basic rules.
#1 Research the Car You Want
Spend time cruising around the Internet doing some fact-finding—look especially for things to watch out for in conjunction with your specific make and model—and narrow down your search as you go. Read through comparison guides and reviews on sites such as
www.kbb.org and
www.caranddriver.com. You can also find reviews and blogs of used vehicles on various dealer websites (such as ours!). Once you find what you like, stay firm in the “must haves” (such as manual or automatic transmission, number of miles if buying used, engine size, etc.), but also be willing to budge on the smaller things. There is plenty of information out there, you just have to take the time to find it.
#2 When Possible, Have Cash in Hand
When out looking for possible winners, it’s a good idea to have the cash ready. You never know when someone will swoop in and overbid the car while you’re off to the bank. Also, it’s tough to turn down cash, making the possibility for you to underbid a little better. If purchasing from a dealership, don’t rely on the dealer to find you the best financing—that is, unless you shop at Mount Airy Chrysler Dodge Jeep Ram, where we can help find you the best rated financing around. If you need it, spend time finding the best borrower percentage rates, and where to get them.
#3 Get a Professional Opinion
It can be time consuming taking a possible car purchase to a trusted mechanic, but it’s well worth it—in fact, it’s probably the most important thing you can do. No matter what the vehicle history says, or how you felt during the test drive, why not take the time and pay the $50-$100 it takes to have a professional scour through every inch to find anything potentially wrong or worrisome? There are plenty of shops in Charlotte that are trustworthy and fairly priced, but if you don’t “have a guy,” our technicians at Mount Airy are your best option. They know our cars inside and out and will relay every bit of pertinent information to you—no secrets, no hidden agendas. We want you to be happy.
There are two types of car shoppers we see on the lot. There are the ones who are a little nervous with blank faces and sweaty palms. They haven’t done the necessary research and they are hoping the best scenario for them just happens to reveal itself—which we all know does not usually happen. Good things come to those who work for them, which perfectly defines the second type of car shopper we see. This group is confident and exited. They know they are about to save a lot of money and drive off the lot with the car of their dreams. Simply put, they have done their research.
You see, at Mount Airy, we want the same things you do: a low-cost, well-built car that will last for years to come.
Come see us today and let’s find your new car.
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