How Not to Buy a Car

Last week a friend of mine told me he was looking to buy a car. In this time of economic uncertainty, are you also looking to take advantage of the recent car deals and make the best financial decision? If so, learn from my mistakes and save yourself thousands of dollars. My experience took place a number of years ago, but it is just as relevant today.

Below is an excerpt from my book Dad’s Little Book of Wisdom: Earn More, Achieve More, and Live a Good Life, which will be available for pre-order on Amazon on June 8th.

My first car buying experience in 1998 proves that inexperience is costly, but not fatal. I did, however, learn a lot about negotiation and large purchases in general.

I needed a car to travel from South Bend to Chicago. I went to two or three car dealers. At the Toyota dealer, the salesperson told me I could lease the 1998 Toyota Corolla by just making the monthly payments. The advertised price of $199 a month soon ballooned as I was presented with various options that I kept accepting.

Salesman: “Would you want wood grain interior for only another $42/month?”

Mark: “Sure!”

Salesman: “Would you want the gold hubcap exterior for only another $35/month?”

Mark: “Cool! Yes!”

It went on until I was paying $310 a month, or 50% more than I expected! Had I realized I was being asked to spend an additional $4,000 (($310-$199) x 12 months x 3 years), I would have never agreed. But I didn’t realize it.

Dave Ramsey would refer to this as “Stupid Tax” – money I spent because I didn’t understand financial math at the time.

My “Stupid Tax” was almost much greater. As this was a lease, I only had purchased 15,000 miles a year. At the end of my three-year lease, if I drove over the allotted 45,000 miles, I would owe a ridiculous amount per mile over my allocation. Fortunately, at this time, I was dating my future wife. She was working for BP. Since they wanted to test the impact of their gasoline on vehicles after wear and tear, they let employees drive company cars to test the fuel. My wife volunteered to drive one of the company cars. I drove her Saturn. We did this for over three months at the end of my term savings thousands of extra mileage fees.

Be very careful with leases. In fact, I recommend to avoid them altogether.

The next time I purchased a car, I did much better, but I still made mistakes. I shopped around virtually by sending an e-mail request to car dealers with the options that I wanted for a Honda Civic. Only after I received quotes did I go visit the best combination of price and local service.

I felt so proud of myself walking into the dealership with my quote knowing I had saved a few thousand dollars that I relaxed and let myself purchase the extended warranty—which gave the dealer back all the money I saved!

Later I learned more about the math. According to Dave Ramsey, “On average, you’ll pay about $1,500 on an extended warranty, and the average repair is $180. I don’t recommend buying extended warranties, ever. If you can’t afford a $200 repair on a car, then you can’t afford the car.”

I paid $1,800 for the extended warranty. I drove it for close to 200,000 miles and it never had a repair that qualified. To top it off, I financed the car purchase and the extended warranty costing even more money. Learn from my mistakes. Don’t buy extended warranties. Buy reliably manufactured cars and self-insure with a small amount of savings. Second, keep saving. By saving up to purchase something you can afford you will avoid all the interest payments.

You learned “How Not to Buy a Car.” Now learn how to buy a car: “13 Lessons from a Salesman Buying a Car”

Mark Fennell – Mark has over 22 years in the energy industry, including sales, speaking and leadership experience. He is author of “Dad’s Little Book of Wisdom: Earn More, Achieve More, and Live a Good Life.” Written as the advice he would give to his three kids for after they graduate from high school or college. Now available on Amazon for pre-release in ebook and in paperback by June 20th. Learn more at www.dadslittlebookofwisdom.com.