I had the frustrating experience of going through the car buying experience this past weekend. This car was not for me but for my cousin who turned 18 on Friday. Yep, this is the same cousin from this post. He has been at his job now for a year and a half and managed to save over $8000 (I'm so proud of him). He came to me because he wanted to buy a car and wanted to make sure he made a wise decision. I was more than happy to help him out because I didn't want him to make the same bad decisions I did when I bought my first car at 18.
Image Courtesy of bdjsb7
Image Courtesy of bdjsb7
The first thing we did was sit down and discuss what his price range was and how he would pay for the car. Normally, I would have told him to take the majority of his savings to pay for the car in full but make sure he leaves himself enough money for an unexpected financial emergency. This time though, I went a different route. You see, since I wrote the "I Want to Be Rich Like You" post, he has become a father. He has a beautiful three month old baby boy. Granted, I wish it had not happened but what is done, is done. We've had numerous discussions about it and he knows I will be on his back to make sure he is taking care of his responsibility. Seeing as how he has this additional responsibility, I wanted him to only use a small portion of his savings. We decided on a price range of no more than $10,000 and he was going to be putting $2000 as a down payment; the rest would be financed. He has no other debt and can handle a small car loan comfortably. I told him he could always make extra payments to pay off the loan early. I usually would be against financing a car but in his situation, we felt that needed to pay a little more to be sure he had a good, reliable car to transport his son. Since he did not have enough saved to pay for the purchase in full while still leaving himself a hefty emergency fund, his next best option was to finance the purchase.
We did research online for safe, reliable and fuel efficient used cars and decided on him purchasing a used Nissan Sentra or used Honda Civic. Knowing what we were looking for and the price range, we headed off to search for the vehicle. We went to about 15 car lots until we found the perfect car for him. We found a used 2006 Nissan Sentra with less than 23,000 miles with an asking price of $12,900. The car was exactly what he was looking for so we sat down to wheel and deal with the salesman. I won't go through all the negotiation details with the salesperson but we ended up getting the car three hours later for $9600.
Since he had no credit history, he needed a cosigner. His mother took the responsibility of cosigning the loan because this was one thing I was not willing to do. (Have you watched any of the tv court shows about people cosigning loans and having their credit ruined when the person they cosigned for did not pay the loan?).
Had he gone to the dealership alone to purchase the vehicle, he probably would have paid about $4000 more for this vehicle. He had never purchased a vehicle before so he did not know you could negotiate the purchase price. That was a savings of $3300. He also did not know about all the junk fees the dealer adds to the purchase. I was able to get them to waive the document fee for a savings of $489. The dealer also added in a charge for vehicle etching (basically, this is a charge for putting the vin # on the glass). Since this was a used vehicle, this charge had already been covered by whomever originally purchased the vehicle. This was a savings of $239.
As the title says, knowledge is power. Since he did not know what he was doing, he was smart enough to find someone who did. Unfortunately, I had to learn the hard way and made all the same mistakes myself with my first car. These days, if I am not sure about something, I find someone who knows better than I do or I do research until I am better able to make a decision.