Financial Freedom Junkie

7 Steps to Save $1,000s When Buying a Car

• Adam Fernandez • Episode 2

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#2 After meticulous research and budgeting, I managed to negotiate over 20 percent off the dealer's asking price for my used truck. I’ll walk you through each step, including researching fair vehicle prices, understanding dealership add-ons, leveraging timing, getting pre-approved for financing, and more. You’ll also learn about the benefits of using resources like CarEdge.com and get perspective into how to trade in a vehicle and handle extended warranties. Whether you’re paying cash or financing, these tips can help you negotiate a car purchase like a pro and secure a great deal on your next purchase.

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Disclaimer: This content is for general informational, educational, and entertainment purposes only, and it is not financial, tax, investment, or legal advice.

I spent months and months researching and budgeting, making sure I would get the right vehicle for our family. I found the truck of my dreams, made sure it would make sense for our financial situation, and I even spoke to a salesman at the dealership several times before I went in to buy it. But you're not going to believe what happened next. I'll fill you in on the story to tell you what I did to close the sale with over 20 percent off of what the dealer was asking so that you can save big on your next purchase. Welcome to the Financial Freedom Junkie Podcast, where we help everyday people master their money and fulfill their financial purpose. You should never lose sleep over money, but together we can change that. I'm Adam Fernandez. Join me and let's get addicted to the pursuit of financial freedom together. It's time to become a financial freedom junkie. So after more research than anybody wants to know about, I decided I was going to purchase a RAM 1500. I checked online. I saw some options at our local dealer. I called the dealer. I told them that I had a budget of under $30,000. And they said that there would be plenty of options that would, one, fit my needs, and two, fit within my budget. Well, surprise, surprise, there wasn't really a car that, one, met my needs and fit my budget. Unfortunately, the best option that they had was for a purchase price of $33,000. Now, I knew that that was going to be even more than$30,000 when it came to adding on taxes and fees, So I basically moved on. Well, I kept track of the car, and interestingly, the following day, they'd actually dropped the price to about $29,000. And I thought, interesting, well, maybe they've got some wiggle room here. So I called back the dealer. Naturally, I didn't say that I noticed the price drop. And I asked the salesman if there was any wiggle room in that truck that I had just seen. As I kind of expected, yeah, yeah, sure, come on down. We'll just kind of, they don't want to negotiate over the phone. I get it. Now I had used CarEdge.com to figure out what a fair value for that vehicle would be in my market. And it was about $32,000. And I thought, well, I'm not willing to pay $32,000, but if I can get $30,000 out the door, I'd actually be really happy with that. So my wife and I went down to the dealership. We waited there for a while, and before we talked about the numbers we were looking for, we just waited to hear what the salesman came back with. And I gotta say, I was shocked when I saw the total price was over $39,000. Well, I look at the detail and they've got over $4,000 of all these things that they add on to the vehicles. They do this for every vehicle that goes into their lot. And something I had learned about before that I heard works for some people, Is I, I basically told them, look, I appreciate that you're doing all these things and you're adding on all these things to the vehicle. But respectfully, like, I didn't ask for them, you know. I wouldn't have opted to pay for all these upgrades to the vehicle, all these things that you put on the vehicle. I would have never have selected them myself. And the salesman acknowledged for whatever reason or another, that that is where they make a fair amount of their profit on the sale of the car. And I told them, look. I'm sorry, I just, I, I can't pay for it. You'd have to basically slash the price of it altogether. And he said, I'll go back to the manager, what, see what I can do. Long story short, back and forth, my wife and I sticking firm to that $30,000. The sales price ended up dropping even a little bit more to about $28,000, and we went from an out the door price of $39,000 to $31,500. It was about an $8,000 reduction and over 20 percent discount on what the dealership was really asking for. So we were really proud that at the end of May 2023, we purchased a 2020 Ram 1500 Classic SLT for over 20 percent off. Now, keeping in mind that many consider 20 percent off of the asking price to be considered a lowball offer, which is effectively a starting point for negotiations, we're really happy that we ended up getting 20 percent off. Now you may not experience the same results, but I'm very confident that these seven steps that I'm going to go over will prepare you to get a great deal on your next purchase. First, this won't come as a shock, but you got to research. You got to make sense that the vehicle that you're buying makes sense for your budget. Now, if you're paying cash, this is going to be a whole lot simpler. You kind of just decide, okay, I'm going to save up X amount of money every month, or I have X amount of money right now in the bank, that I can put down on a car, buy it outright, drive it out to the dealership, no complications. Now most people are going to be financing a vehicle. Now if you're financing, whatever down payment you put on the car is going to be a significant factor, so you have to kind of figure out what your comfort level is. But here are some guides that'll kind of help you figure out what makes sense for you and whether it fits within your budget. Now, of course, these are not hard rules because really, at the end of the day, you got to do what feels right and what works for you. But here are some guidelines to help you determine whether it's within your budget. Now, you've got the 20/3/8 car buying rule, which was put together by The Money Guy. The 20/3/8 rule basically states that you're going to put at least 20 percent down on the purchase price. You're going to take out a loan no more than 3 years and your monthly payment will be no more than 8 percent of your income. Now, I think the 20/3/8 rule is fantastic. I think it's ideal. I think it's what you want to strive for, but it may not work for some people. For someone that needs a little bit more flexibility, look to the 20/4/10 rule similar to the 20/3/8 rule, with the 20/4/10 rule, you're still going to be putting down 20%, but you can take out a loan that is no longer than 4 years, and total maintenance costs of the vehicle should be no more than 10 percent of your pre-tax income. Now, maintenance expenses will not only cover the loan payment, but it'll also cover insurance, fuel, whatever else you need to keep the vehicle running. Now if you're trading in a vehicle, do your homework before getting to that dealership. Now there are tons of resources out there, but the best thing that you can do is get a cash value for your vehicle, not some estimate from all these different websites, a cash value, so what a dealer would actually pay you for your vehicle. And you can do this through CarEdge, which I'll talk a little bit about later. Now, when you get to the dealer, salesmen are going to be asking if you're trading in a vehicle. I would start by saying that you may or may not do this, because what you want to do is you want to treat your trade in as a separate transaction. You want to figure out all the details about the new vehicle that you'll be getting before you bring the trade into the mix. Trust me, it's going to help you out. Now, keep in mind, It is ideal for you to trade in the vehicle at the dealership that you're buying a new vehicle from because, effectively, you pay taxes on the net value purchase at the dealership. So the net purchase will be the purchase of the new vehicle that you're getting minus the value of whatever vehicle you are trading in. So it may be in your benefit to trade your vehicle into the dealership that you're buying that other vehicle from, but only if what they're going to be paying you for that trade-in makes sense. I would use CarEdge to determine the value of your trade-in. It's not going to give you some estimate, more or less, what your vehicle is worth. It's going to give you actual cash value that some other third party is willing to pay for your vehicle. You can go down to your local CarMax if you have one, but CarEdge.com is an excellent resource that you can use to determine the value of your trade in, and find out what multiple third parties would pay cash for your vehicle right there on the spot. And then you can take that to the dealership. If the dealership that you're buying that new vehicle from will match the price that you got online, Then that's best case scenario. That is amazing. But if they're not going to match that price, then you need to consider whether it still makes sense to trade in the vehicle because sure, you'll save on taxes, but at the end of the day, you might be better off just selling your vehicle to another party. and paying the taxes. CarEdge.com also has an excellent calculator where you can put in all the details about the car you're thinking about purchasing, and it'll do all the math for you. But more on that later. Now you may have heard this before, but the best chance of negotiating a car deal is at the end of a month, quarter, or year. If you can help it, I would try to go for that. And you're more likely to be able to get a better deal because salesmen are trying to meet their quota and managers are being incentivized to meet selling volume demands. Get pre-approved. I highly recommend you consider getting pre approved for financing before you go to the dealership. Even if the pre-approval gets you quotes from one or two different lenders, that will give you some insight as to what interest rate those lenders would be willing to lend you that new vehicle for. So trust me, this will come in handy later. Most of this can be done online in a matter of minutes. Ask for the out-the-door price, not the purchase price. Now the purchase price is just the purchase price of that vehicle. Duh. You care about the out-the-door price because it is the full cost of the vehicle, taxes and fees included, before factoring interest into the equation, if you're financing. So the out the door price is what you care about at the end of the day. That is the total cost of what it takes for you to get that vehicle out of the dealership. Ask for the buy rate if you're financing. Now this one can be huge. Once you get all the details sorted out with the salesman, once you get to the financing manager, you're going to want to ask the financing manager for the buy rate. Now, what is the buy rate? Now, when you're financing a vehicle, the interest rate that you're paying on the loan is considered the sell rate or the contract rate. Now, most dealerships have relationships with preferred lenders. Those lenders will effectively lend money to the dealership, or you, so that you can purchase that vehicle, and the rate that is charged based on your credit profile to purchase that specific vehicle is considered the buy rate. The buy rate is the rate that the dealership will have to pay to the lender so that somebody with your credit profile can purchase that specific vehicle. Now, if you're someone that trades in a vehicle every three years or so, this is an easy item to scratch off your list. Don't even consider an extended warranty because it won't make sense in this situation. Now, if you're buying a used vehicle, tread lightly and scrutinize every detail about that extended warranty. Extended warranties are another item that the finance manager will bring up to you. Now you can always buy an extended warranty after you leave the dealership. And there you won't have any pressure, you'll have time to research everything that you're getting into, what's covered under that warranty. Now I think where extended warranties make the most sense are when you're buying a completely new vehicle because those extended warranties are going to be coming directly from the manufacturer, not just the dealership that you're getting the car from. So this is where it may be a good idea, But this all really depends on your risk tolerance. CarEdge. All right. I've talked about CarEdge before. Now, CarEdge is in no way, shape, or form a sponsor of this video, but CarEdge is a one- stop shop for buying, selling, and trading in vehicles. They've got free resources. They offer easy to read data reporting to make sure that you don't overpay. And if all that's too daunting for you, they offer coaching and consulting with industry experts. And they even offer a concierge service to take care of your car buying process from start to finish. So pretty much anything you need when it comes to buying, selling, trading in, or even maintaining a vehicle, CarEdge has got you covered. Definitely check them out. So make sure to do your homework and that the vehicle fits within your financial profile. I will say, this was a relatively new truck, so the circumstances will change depending on the vehicle that you're getting into and current market conditions, including where you're buying from, like a dealer or a third party, because the market will play a huge factor into negotiability and leverage. But please, if you take away one thing from this video, let it be that when you're buying a vehicle, you need to be comfortable with that decision because it makes sense for your financial situation and not for your social status. And with auto loan rates where they are today, you want to make sure you get the best rate possible to save on interest. So make sure to check out this other episode where I go over ways to quickly boost your credit score. That said, thanks so much for being here. I appreciate you. If you found this to be valuable, please like and subscribe. Comment on what you found most interesting and share it with others. I'll catch you later. Oh, and one more thing, quick disclaimer. This content is for general informational, educational, and entertainment purposes only, and it is not financial, tax, investment, or legal advice. See full disclaimer at financialfreedomjunkie.com/disclaimer.

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