Many Negotiations, Not One
Buying a car isn't one negotiation, it's many: your trade, the new car you're buying, the financing—and the newest, most popular profit centers—warranties, protection packages, alarm systems and other add-ons.
If you don't know what you're doing, you can save money in one area and pay too much in the other; no fun at all. That's why dealers can sell cars for "no profit" and still make thousands on you. And that's why you need to pay very close attention to the right steps.
The Right Way, Step-by-Step
If you really want to save money and still like your car after the fourth payment, you'll have to look at the car-buying transaction in a new way. Most people find a car and adjust their budget to fit that car's payment. That’s the wrong way, and usually means you end up eating pinto beans for years on end.
The Money Matters approach doesn't start with the car at all; it starts with your budget. Money Matters also encourages you to slow down rather than speed up. Emotions in car buying should come after you've done it right.
And we define "right" as saving money and buying the right car, too. Doing it our way, versus simply following the dealership's lead, can literally put thousands in your pocket. So, throw out the conventional thinking and consider this:
- All cars are bought for cash.
- No cars are bought with trade-ins or payments.
- Trade-ins and payments only provide you cash.
Right now, based upon your budget and your old car, you have an exact amount of cash available to you to buy a new car. That amount of money is called “Available Cash,” and it’s—logically enough—made up of all the cash you have available to buy a car.
“Available Cash” is made up of three things:
- The cash your payment will buy you, called “Loan Cash.”
- Any cash your trade-in may give you after paying off your current loan. That cash is called “equity.”
- Any other cash you may have—rebate money or savings, for instance.
Understanding “Available Cash” Helps You Understand Your Budget!
Here’s an example of “Available Cash.”
1. “I take home $2500 per month after taxes and deductions.
2. I drive a three year-old Mustang convertible.
3. I owe $13,000 on it.
4. I want to trade in my car.
5. I don’t want to make more than 48 payments.
6. Now, what can I afford to buy?”
You plug all that information into the Available Cash calculator or ask us to make this calculation, and you’ll get this answer: “Okay, according to all that information, what you really said was, ‘Based on my budget and my trade-in, I have $26,000 in Available Cash to buy a vehicle.’”
Know your Available Cash figure and you’ll always be on budget!
What’s your personal Available Cash figure?
That’s easy to determine. Use the calculator in the right hand column after you complete the following steps (You can use our Available Cash Worksheet).
Use these steps to figure your Available Cash.
1. First determine a “wholesale” value for your trade-in.
“Wholesale” is the amount of money a dealer will pay for your old vehicle. But “wholesale” isn’t a definite figure, the amount can vary from dealer to dealer. At most dealerships the objective, incidentally, is virtually always to give you as little for your old vehicle as possible.
If you are very smart, you need to determine your individual vehicle’s wholesale value. Here are three ways:
- A good way: Clean up your trade and drive it to three or four used-car departments of new-car dealerships, and tell the manager you are thinking about selling your old car, not trading it. The highest offer a dealer makes to buy your car is its true wholesale value.
- A quick but less accurate way: Go to www.nadaguides.com and look up your current vehicle. This figure isn’t exact—it’s an average for all cars in a specific category, so use it only as a guide.
Caution: NADA Guides is a commercial site used by many dealers and others in the business to solicit your business. The credit union has no control over what is on this site. So, be cautious as you use this site, ignore all the ads and come back to Money Matters.
What if you still owe money on your trade-in? If you still owe money on your current vehicle, you will need to know its “pay-off” to figure how much “equity”— cash value—the vehicle is worth. For a rough estimate of the amount owed, multiply your payment figure by the remaining months in the loan. Subtract that figure from the vehicle’s wholesale value to determine a conservative estimate of the vehicle’s equity. For a more accurate figure, call your financing institution and ask for the pay-off (or “loan balance”) amount. You’ll need your loan account number to get that. Write your pay-off and equity on your Available Cash Worksheet.
2. Now think about what you can really afford to pay each month on a vehicle.
Do you want to pay more than you’re paying now? Would it make your life easier if you had a lower payment? You decide. If you need assistance, call us at 1-800-678-5363 or 405-235-3030. and talk to a WEOKIE loan staff member — they are always willing to help. Once you decide what would be a sensible payment for you, write the figure on your worksheet:
- I want to pay _____ dollars per month.
3. How many months should you finance?
WEOKIE may finance up to 72 months, based on the age of the vehicle and the amount financed. But the truth is we hope you won’t stretch out your payments to the longest possible time. Financing longer means you’re paying vastly more money in interest, and may owe money on your vehicle for years after its useful life is over. To determine how many months you should finance, call WEOKIE at 1-800-678-5363 or 405-235-3030.
By financing for the fewest months that will fit your budget you actually can buy more vehicle. For instance, the difference on a $30,000 loan financed for 48 instead of 60 months is only $4 a day. Pay the higher payment, finance for 48 months rather than 60, and you'll save over $2,000 in interest. Great! You’re already saving money. And wouldn't it be nice not to have car payments for that fifth year? So how many months should you go? Jot that number on your Available Cash Worksheet:
- I want to make $____ payments for ___ months.
4. How much other cash do you have on hand that you plan to spend on a new vehicle?
Are you looking at a car with a rebate? Include that figure here. Do you have savings that you plan to use as additional down payment? Include that figure.
Now, let’s use the facts on your worksheet to determine your Available Cash using the Available Cash Calculator in the right hand column. Need help? Just call WEOKIE or stop by for assistance.
When you finish, congratulate yourself. Your Available Cash figure rules! To stay within your budget, Available Cash is all the money you've got in your car buying account. That's all the money you have to pay for everything: cost of car, taxes, other charges, insurance, etc. Exceeding your Available Cash is like bouncing a check on your budget. And you know you don't want to do that.
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