Tips for Buying a Car on a Student Budget
Updated By Staff Writer on April 16, 2020
Whether you have eyes for a brand new model or you are just looking for a used car that will comfortably get you from place to place, there are a few key tips you can employ that will help save you time and money.
The MOST Important Tips for Saving Money
1. Do your research!
If you don’t want to spend a lot of money on repairs, then purchase the most current issue of Consumer Reports to see how each vehicle you are considering fares in terms of reliability and resale value.
2. DO NOT fall in love with any car!
As soon as you fall in love, your ability to make sure you get a good deal is compromised and you are more likely to accept unideal terms and conditions.
3. Compare everything!
Compare like makes and models, offers from other dealerships, and auto rates from different lenders. Knowledge is power. Taking the extra time to research and compare empowers you to negotiate tougher and save money.
4. Don't believe everything they tell you.
Whether a dealership or seller tells you they have done specific work to a car, make sure an independent mechanic verifies that. If they tell you their offer is for today only, don’t believe it; they just want to get you to buy before you leave. You have more negotiating power than you think. Chances are if they haven’t sold the car yet and you come back the next day and tell them you will buy it at the previous day’s offer, they will accept that because, again, they don’t want you walking off without buying their car.
5. Drive before you buy.
Always test drive each car you are considering before you buy it. Even new cars drive a little differently from car to car. It is always good to make sure there aren’t any surprises, and one way to lower the chances of that happening is to drive the car before you buy it.
The Best Tips for Buying at a Dealership
Wait until the last day of the month to purchase a vehicle.
The salespeople AND managers are given monthly incentives to hit goals and if your deal helps to get them into the “bonus” range, they are much more likely to offer deeper discounts because it makes them more money in the long run.
Come into the dealership an hour before it closes.
Purchasing a new or used car from a dealer typically takes a minimum of two to three hours to complete. Everyone is anxious to get home by the end of the day and you are much more likely to find deeper discounts accepted by the manager so they can all get out of there sooner rather than later.
If you have a trade-in, sell it yourself!
You will always make more money selling your existing vehicle on your own than trading it into a dealership. Why? Because the dealership only finds value in the trade if they can resell it and they can’t resell it and make money if they buy it at a fair market value. They will always buy it at loan or auction value because they want to put it back on their lot later to sell at a premium market price.
You can research auction sites or in a NADA or Kelley Blue Book guides for what these purchase prices are. You can also find these numbers online. If you ask for more money for your trade than what they initially offer you, and they appear to give it to you, what you don’t know is that the dealership is actually discounting off the profit it was making on the vehicle you are purchasing, rather than ACTUALLY giving you a higher trade allowance, so that action ends up reducing your ability to get the full discount you could have received on the vehicle you are trying to purchase.
Know where you can ask for discounts!
Dealerships markup just about everything and understanding what their bottom line is gives you power. Dealerships are doing you a service and as they are NOT a nonprofit business, deserve to be paid for that service. The question is how much is that great service and experience worth? They paid something for the vehicle you are considering. They are also paying to advertise it, staff for keeping the vehicles gassed, clean, protected and serviced, and the costs of all of those items as well.
These fees are wrapped up into a charge dealerships include in your purchase price and it’s called the vehicle PAC. Every dealership has one. They markup PAC beyond their actual costs. After market items such as fabric protection and undercoating, mats, vehicle warranties, and even the interest rates they offer are marked up. If you know your credit union has a lower interest rate, then tell the dealership to either go lower than that rate or you will just finance it at your credit union. Warranties and aftermarket items are hugely marked up. You can ask for discounts of more than half their offering and they will still be making plenty of money on these items.
Make the Dealer SHOW you their cost on a vehicle.
When you haggle on buying a vehicle, figure out what you feel like the dealership’s service and time in helping you are worth and make your offer from dealer cost on up, not sticker price on down, which is the norm for most people. Make sure the dealer shows you the cost of the vehicle and that number should NOT include PAC. If you feel like their time and service is worth $2000, then offer them $2000 above dealer invoice or cost with the condition you SEE the proof of cost.
Older vehicles can sometimes yield deeper discounts.
There are two ways to determine if a vehicle has been sitting on a dealer’s lot longer than most. One, you can ask, or two, you can look at the stock numbers on the sticker in the window and notice the pattern to determine which are older-aged vehicles. It costs the dealer money to keep vehicles on their lot so they don’t want them around for long before they are sold or auctioned. They are more motivated to discount those vehicles that have been sitting around for a while.
Math is math.
DO NOT negotiate based upon an ideal monthly payment. Know what you need your payment to be in advance of financing a vehicle. Determine your best interest rate and the term length you are willing to finance (3-4 years is generally ideal). From there, you can determine what the price range of your car needs to be to keep in line with payment expectations.
Dealerships can make more money on you if you don’t understand this because if you just give them an ideal monthly payment figure, they may find they can make a lot more money by charging you a premium price for the car at a higher interest rate but then extend the financing terms to a 10-year loan to get your payments lower and into your ideal range. It is a quick way to become upside down with your vehicle (owe more than your car is worth) and pay a whole lot more for your car than you would have otherwise.
The Best Tips for Buying a Used Car
1. Have an independent trusted mechanic give it the once-over before buying.
Dealers often have their service departments fix up a car to make it showroom-ready and test drive just fine. However, they want to put the minimum amount of money into a car because that eats directly into their profits when selling it. As a result, their inspection of all that might be wrong often isn’t extremely thorough. Having an independent competent source check it over could end up saving you a lot of money and frustration, and is well worth the money for the assurance and peace of mind.
2. Go over the car with a fine-tooth comb.
Even if you find a scratch or two, whether you care about those scratches existing or not, that is something you can use to negotiate a discount off the price of the car. Look inside and out at items like tire tread, miles, scratches, dents, rips, missing or broken pieces, etc. — every one of which you can use as a point to get fixed or ask for a discount off the asking price.
The Best Tips for Buying a New Car
1. Learn which manufacturers are offering a monthly incentive.
Manufacturers often give dealerships special incentives each month to push one particular model. Often those incentives mean extra money for each of those models sold beyond what they normally make. Dealers are often willing to negotiate deeper discounts for those models over others, knowing they will receive additional money for the sale of that type of vehicle. Know before you go in which models have those types of incentives on them the month you plan on buying.
2. Customer ratings for dealerships carry a LOT of weight.
Manufacturers base inventory, bonuses, and other incentives on how their new car customers rate them. You can use this to your advantage. Let the dealer know you will give them a perfect rating if they give you what you see as fair in return. But make sure you follow through if they do!
3. Demos can save you money.
Most dealerships offer their managers a vehicle to drive as a perk of the job. The managers are told to stay within strict guidelines of how many miles they can put on the vehicle before they have to retire it so it doesn’t lower the value of the car. When they have vehicles that have neared their limit, they are often anxious to move them off their lot and are usually willing to discount them at a deeper rate.
These tips can help anyone save money and frustration when buying a car. And when your budget is especially tight with the strains of student life, knowing and employing these valuable tips could help you potentially get an even better car than you thought you could have on a tight student budget.
Mara Fineshriber is a marketing executive and aging single mother of two children. She is the head cheerleader, homework-enforcer, photographer, chauffeur, financier, bandage-applier, and snack-bringer for her youngest son’s sports exploits.