Buying, trading, selling your car? Read this first.

One of the largest and most expensive purchases you will ever make is buying a car.  I have been to many new and used car dealerships and even with my substantial background in finance and debt, I remain surprised at the financial mirage that some salespeople use to make a bad deal seem okay.

A family member recently asked me what I thought of trading in a two-year-old car, which is financed, and refinancing, with a new car of the same model.  The reason for the trade was that the two-year-old car had substantial mileage and was about to come off warranty.  The family member’s priority was to get the most bang for the buck and he was concerned about the cost of future repairs.

The family member went into the dealership and asked the absolute wrong question:

“Is it possible to get a new car but keep my monthly payment the same?”

The salesperson had no problem and came up with the following proposal:

The customer could get what they asked for on two conditions, the payment was increased from 6 to 8 years and the interest rate was increased from 0.9% to 3.9%.  However, this is a lousy deal for the customer.  The customer is paying four times as much interest and increasing the borrowed amount by 33%.  I call it “getting on the hamster wheel of debt”, no matter how fast you run, you never get ahead.

Here are some key tips for saving money on your car:

1. You get your money’s worth when you drive the car until it no longer runs.
2. Always negotiate – the dealer sets its price leaving room for negotiation.
3. Don’t focus solely on the monthly payment – length of payment, interest rate and residuals all impact the total cost of the vehicle.
4. Make sure you are getting maximum value on the trade-in.
5. Shop around – purchasing a car can be time consuming but it is a large purchase and you need to look at different dealers and different cars in order to establish the best deal.
6. Consider a used car – a car can depreciate up to 40% in its first two years, take advantage of this by purchasing a used car but:
7. Check car proof to make sure the car has not been in an accident.
8. Check multiple dealers and websites, such as autorader.ca,to establish value.
9. A warranty can be of great value for you and any future purchaser – consider extending the warranty if applicable.

Harris & Partners Inc is one of the leading debt management companies in Canada.