08 February 2013

5 Mistakes to Avoid when Buying A Car

I've written in the past about what I call conspicuous frugality—getting stuff that looks like or otherwise gives the impression of having cost far more than it really did. While that may not be the primary impetuous behind the purchase, it is often a nice addition. I used my car as a prime example, for reasons that aren't necessarily contradictory. Still, the fact of the matter remains, my car buying experience was less than stellar and I certainly could've gotten a much better deal because I made several critical errors at the dealership that day that have cost me thousands. However, learn from my mistakes! Even though I got the short end of the deal, you don't have to. Let's take a look at where I wandered off track.

Day I bought it, stuck in traffic on way home.
1. Look at the CarFax BEFORE buyingI know. I couldn't believe myself at the time. Yet, I drove out of the dealership that day without knowing what had happened to my new acquisition before it got to the dealer's lot. Even though the dealer had the VIN posted with the listing, I just neglected to run the required check. I probably could've even gotten a free one at the dealership. But, I forgot to ask. It never even crossed my mind. After arriving home, I ordered one a couple days later and it was then that I noticed several questionable entries. Of course, it was already too late at that point.

2. Pay attention to warning signs. Although I skipped the CarFax, I had other clues of the impending woes. The car smoked a little under load. One of the headlights was finicky there on the lot. The moonroof had trouble closing. Disconnected wire loom dangling in passenger compartment. All those should've been gigantic warning signs to me screaming 'KEEP AWAY!' Instead, it was a combination of dismissal and 'challenge accepted'. Even after leaving the lot, another surprise awaited: the Check Engine light popped up on the way home. As a result, I've thousands of dollars on fixing those problems. So far, only sporadic progress has been made against all the bugs that continue.

3. Negotiate. With warning signs glaring, I should've taken a much harder line on the negotiation. Although my car was listed for sale at a price that was slightly lower than any of the other ones on the market at the time, the previously mentioned problems that I'd seen meant I still ultimately overpaid for what I ended up getting. After perusing various forums, I've realized that most of them are common problems with the cars. Some are easier to fix than others, but all cost time and/or money. As a result, use that information to negotiate. Clearly, buying a new car should preclude there being any problems, but lemons do exist.

4. Don't be afraid to walk away. A big part of negotiating is your commitment to the deal. Low commitment actually strengthens your hand. In my case, the dealership was about an hour away, and I dragged my brother down with me. As the day wore on, he was getting antsy and generally tired of the proceedings. Additionally, I had taken an entire day and driven down there. So from my point of view, I had already put quite a bit into the car. But, I still could've left the dealership just as I'd arrived. However, I didn't want to leave then have to drive back again another day. In hindsight, leaving would've "cost" me a day, but saved me thousands of dollars by allowing me to think about the deal over the weekend, including a better consideration of the warning signs. And getting a CarFax.

5. Don't pay with credit cards. Something else that should've been painfully obvious: if I had to take out a loan for it, I probably couldn't afford it. In this case, doubly so since the loan was on plastic. (Although as it turns out, my credit card interest rate is still slightly lower than the auto loan.) A second problem with the plastic strategy is the transaction costs*. On large purchases, the merchant might do what the dealer did to me: have you pay them. That added even more to the final cost, making it less of a bargain.

Anyway, there they are. These are only a small snippet of the issues that led to a fountain of money being spewed toward keeping the machine running. Keep this post handy as you go near any dealership looking to buy a car so you don't end up in my predicament. Thankfully, it's running again because I do still owe a bit more money on it. It really sucks to be paying for a car that doesn't even run, as I learned last year. I do plan to pay it off before the year ends, a move that will free up my money stream a little every month.

*To process an electronic transaction, the credit card companies all charge merchants a percentage of the sale to process it. Even though the actual cost to process a bigger transaction is minute at best, the companies still charge higher items as percentages of total, not a flat fee. So as you can imagine, when you swipe for an item that costs a couple thousand dollars, the merchant gets hit with a transaction fee that could easily pay the salary of an employee for the day. In CA (and I assume other states too), it's illegal for anyone except gas stations and government organizations to pass on that fee to the consumer.

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