Cars are a perennial topic here in the MMM forum, so here's a step-by-step plan for buying a car and minimizing the damage. Perhaps it can become a sticky topic here and others can add insights. The point is to save thousands of dollars when obtaining a car, compared to what most people do.
1) Understand your minimum transportation requirementsThis is the most important step, and the step where the most money is at stake. 90% of the 4WD SUVs you see driving around never go off-road. 90% of the trucks never haul anything. 90% of Jeeps are used to commute between a suburban house and an office building, or idle in the Chick-fil-A drive-thru. So unless you are driving fire roads in the wilderness every few weeks, hauling construction supplies for a living, or have six kids, you don't need the average vehicle on the road in the U.S. The average vehicle is a clown car aimed at consumer-suckers and represents the incineration of cash for the sake of an image which was cultivated by advertising. Despite what the ads say, the more you spend on a car, the less free you will be! You can have a fancy car or a nice early retirement; pick one!
You should consider whether you need a car at all. If you live in a place with bus or subway service, avoiding car ownership is an opportunity that could return thousands of dollars and dozens of hours per year back to your life. If you live within biking distance of work or groceries, riding a bike instead of using a car could add years to your life and delay the onset of age-related or obesity-related disability. If you only need a car, say, twice a month, the simple solution is to rent one. Thirty days of rental costs much less than one year of owning a comparable vehicle. Additionally, there are options such as carpool groups, electric bikes or gas-powered scooters, Uber, Lyft, taxis, getting deliveries, jobs where you can work from home, etc. You probably don't
have to own a car.
Steps to perform - MANDATORY:
a)
Write out each of the functions the car will typically perform for you. E.g. "Drive each morning from home 6 miles to work." These are your minimum transportation requirements. NOT, "drive donuts in a rock quarry like the rugged half-shaved model on the TV commercials" and NOT "impress all the supermodels who will get into my car at the nightclub". It sounds dumb, but this is how most car-broke people think. Note that you will come across once-in-a-while items as you make the list, like "haul home 12 bags of garden mulch" or "road trip 500 miles with 3 friends". These are not "typical" uses, they are things that might happen every once in a while. For these situations, it's much cheaper to rent a truck or a van on those days while owning a well-used subcompact for all the other days.
b)
Determine on a scale of 1 to 10 how new the car should be. Let's say one point = 2 years of age and/or 15k miles. If you are driving for a living, putting on tons of miles, can deduct travel costs and depreciation, and cannot have your business disrupted by maintenance needs, you should pick a newer, lower mileage car, like 2 to 4. If you want a car to get groceries every week and plan to drive 5k miles per year, you should pick an older, higher mileage car, like 7 to 9. This is important because just as disrupting a business to deal with large amounts of maintenance is wasteful, so is letting a newish car depreciate and cost a fortune in insurance while it mostly sits in a driveway.
c)
Ask yourself if you need to move instead of getting a car. If the typical uses in part (a) involve driving long distances from your exurban house to the grocery store in town, work in town, or to meet friends in town, perhaps the problem isn't the vehicle, it's that you chose to live an expensive distance from everything you go to do in town. Look at the big picture. Are the other benefits of your location worth the cost to wear out and replace vehicles so frequently? Is it worth the commuting time? The ecological damage? If you think living in your current spot will make you happy, are you actually happy yet? This is a final check before proceeding further.
2) Learn how to buy a car from a private partyYou are
not going to a dealership with bright lights, balloons, and salesmen in golf carts, all paid for by the financial mistakes of other people. You're going to buy a used car from someone who already made that financial mistake, and is about to accept a fraction of what they paid. If it's not clear to you why one should avoid dealerships, go to kbb.com and look up the value for a two-year old car. Note how they have different prices for dealers and private parties. Note how the prices for the dealers are about 15%-20% higher than from private parties. Yes, that's the reality. People pay thousands of dollars extra to buy from dealerships rather than out of somebody's front yard. And they get basically nothing in return. Plus, they typically get upsold on sneaky dealer fees, documentation fees, cleaning fees, crap warranties, etc.
As an added bonus, you'll know how to sell your own cars from now on, rather than getting ripped by dealer trade offers. This knowledge is worth thousands of dollars per transaction!
You may allow an exception on this point for low-budget dealerships with gravel lots, but still insist on the private party price. These small-time dealers buy at auction for the trade-in price and are happy to make $1k per car sold. Their advertised down payment is generally what they paid.
However, the barrier for many people is the mechanics of how to complete the transaction. There are issues such as liens, titles, bills of sale, sales taxes, etc. There's no need to reinvent the wheel here; just google "how to buy private party car" for loads of articles. Here's one of the best:
https://www.valuepenguin.com/auto-insurance/buy-used-car-private-sellerOne note: Be extremely careful when signing the back of a car title. If either you or the seller signs on the wrong line, you'll run into all sorts of trouble at the revenue office and probably have to work with the seller to file for a new title at a cost of around $150. Also, get a bill of sale and write the seller's driver's license number on it. Your state may have additional requirements, such as a notary or emissions check.
3) Select some models that meet your minimum transportation requirements. Now that you have your minimum transportation requirements in writing, it's time to decide which models are capable of meeting this minimum, and which should be disregarded because they exceed requirements and therefore cost too much. If you don't need seating for five or six, disregard all minivans and large SUVs. If you don't need to tow a trailer or haul hundreds of pounds of materials/objects, disregard all trucks. If you don't need 4 wheel drive, leather interior, a V6 or V8 engine, large vehicle size, etc. disregard all those. Likewise if you actually do need to haul a construction trailer through mud with 5 passengers, you'll disregard vehicles that don't meet that minimum requirement. Even then, though, the car makers will be selling something with a bunch of added expenses you don't need. E.g. does such a work truck need a luxury interior or an "exterior appearance package"? No.
With your list narrowed down, peruse the models on kbb.com, fueleconomy.gov or jdpower.com. Then read the reviews. If you'd like to know whether a vehicle is reliable, use Consumer Reports or carcomplaints.com. Car complaints provides a list of recalls, technical service bulletins, etc. as well as lots of input from real consumers.
My favorite source for information about used cars is
https://www.edmunds.com/tco.html. This is the only website I know of that offers a five-year projected cost of ownership. It's an invaluable resource. You may gasp at this number, and this may be your final warning that you are buying too much car or that you are prioritizing a car too much over financial independence. This, in addition to the reliability information, should allow you to narrow it down to 2 to 4 models. Almost there!
Next, install an app or shortcut on your phone for Carfax or similar that will allow you to purchase a vehicle history report on the spot if you are interested in a particular car. Consider doing the same with KBB.com.
4) Do Research. Decide how much to spend. KBB.com will tell you roughly how much it should cost to buy the year and model of car you are looking at. However, it may look like all the private party cars posted on Craigslist, Facebook, etc. are priced higher than this. That's because in real life people negotiate. You should not pay more than the KBB price for a car, but don't pass up the cars with high asking prices. Expect to make an offer slightly below the KBB price and negotiate for something around it.
Next, factor in the costs of your state's sales tax on cars, and registration/tagging fees. Also, if you are moving up from an old car to a new car, your insurance will become more expensive, and you might want to go from liability-only to full coverage. If you are a worth somewhere in the high six figures and buying a car that represents maybe 1-2% of your net worth, consider self-insuring rather than purchasing full coverage. Totaling such a vehicle would be the equivalent of one minor down day in the market.
If you keep spreadsheets or budgets to track your progress toward FIRE or your post-retirement spending, update those numbers with the new five-year cost of ownership from Edmunds TCO. Verify you will still be on track, financially.
5) Come up with the cash.As a Mustachian, you should be able to dig up a few thousand by going through all your jeans pockets, opening your piggy bank, and looking under your couch cushions, but if that doesn't work you have a few options:
a) If the car is cheap enough, you might just pay for it from your checking account.
b) You might need to sell investments. If you can harvest tax losses, do that first. The only thing that sucks more than the cost of car ownership are paying capital gains taxes to enjoy the costs of car ownership. Do not touch your IRA to buy a car! NO!
c) It may be more economical to borrow. Yes, borrow. [whispers of heresy from the no-debt crowd] Hear me out: If your local bank or credit union is offering single-digit loan rates, that might be a better option than paying capital gains taxes and taking money out of investments. Gather information on the loan opportunities available to you, your investment alternatives, and any fees or conditions associated with the loans (e.g. a minimum balance in one's checking account). Automate the payments.
d) Likewise, if you are aggressively paying down your 3% mortgage or buying bonds yielding 1-2%, maybe just stop doing that for a few months to accumulate the cash.
6) Transact. Now that you have a specific plan, scour Craigslist, Facebook, your local newspaper, etc. Ideally, give yourself a couple of months to look for the right deal, but if you need a car ASAP you'll need to be flexible. Prepare to take decisive action, because good deals disappear the same day. If you don't have a car, prepare to rent or borrow one so that you can travel to look at a few cars. Prices drop as you get farther from metropolitan areas, but think hard before doing a multi-hour road trip to look at a car.
Take the right steps and ask the right questions, per the private party car buying guides, and drive a hard bargain if needed. If you end up walking away from a few cars because the owner won't go down on price, you're probably doing it right, gaining experience, and earning hundreds of dollars per hour for your troubles.
Personally, I am not offended by cars with salvage or rebuilt titles, as long as they aren't flood cars. Your VIN check will inform you of this. Expect to pay 30-40% less for a car with a salvage, rebuilt, or previously damaged title. Be 100% aware of the laws in your particular state for these specific terms. In my state, nobody cares what the title says, but in other states you cannot register or drive the car at all!
BEWARE OF SCAMS: Ads with well-taken pictures of vehicles priced at 1/3rd of value are scams. All adds with an email address or phone number written over the picture or "for more details, email ***@gmail.com" are scams. Any deal involving mailing a check, depositing the seller's check, using an escrow service, wiring money, or providing personal information are scams. On some platforms like OfferUp, most ads are scams. Look long enough and you'll notice the patterns.