2 Simple, Powerful Ways to Pay Less for Your Next Car

Middle Eastern woman looking at car for sale
A new car is one of the biggest wealth drains for you and your family. Use these two simple yet powerful tips to take control of this expensive item.

Think in the Long Term (for Models)

Buy the car you want -- but only after it's at least two years old, and three would be better. By doing this, you automatically save hundreds of thousands of dollars over your lifetime.

When I was 23, I wanted to buy a nice four-door sedan, and I was drawn to the Cadillac STS. The new model had a base price of more $50,000, and with any kind of little extras the sticker was almost $55,000. I was doing very well at a young age, but I wasn't doing that well to blow 50 grand on a new car.

I was thumbing through my local paper (yes, this was before the Internet changed everything) and saw an ad for a 2½ year old Cadillac STS for $19,500. The car had less than 40,000 miles on it and came with an extended warranty to 90,000 miles. It was gorgeous, shiny and just serviced.

It was an attractive price since the first owner was eating the depreciation.

According to www.Edmunds.com, the average car will lose 11 percent of its value the second you roll it off the lot and an additional 15 percent to 20 percent the first year you own it. The second-year depreciation (loss) is another 15 percent, for a loss of at least 45 percent over the first two years.

Depreciation is usually calculated off of the base price, not the extras. This could be the sport package that raises the price $10,000 but only gives you $2,000 back after the first year or two. So it's quite possible to find beautiful cars with manufacturer warranties still in place and pay 35 percent to 50 percent less than the first owner did when purchased new.

I drove that car for four years, had very few out-of-pocket repairs, and sold it for $3,500.

So what kind of deal could you get today? When I was young, one of the dream cars was a Ferrari Testarossa, and its price was around $200,000. You can buy one now for around $50,000, and most don't have that many miles on them because they're babied by the owners.

Think in the Short Term (for Loans)

If you finance your auto purchase, you can save a lot of money by keeping the term to no more than 36 months. This builds equity in the car faster and saves on interest.

This might be difficult because the monthly payment is higher than if you finance over six years, and it's higher than a monthly lease. If you finance $25,000 at 5 percent interest for three years, your monthly payment will be $749.27, and your total payout will be $26,974. If you extend that loan out to six years, your monthly payment drops to $402.62, but your total payout rises to $28,989. That's $2,015 more out of your pocket to own the car.

Assuming you buy the car with a small down payment, by financing it for six years, your loan pay-down is going at a much slower pace than the depreciation on the vehicle, creating an "underwater" situation on the car almost from the get-go. During the three-year program, you're paying down the car faster than it's depreciating, giving you options if you have to sell the vehicle.

If you truly can't afford that three-year payment, take out a five-year option and send a little extra every month toward the principal to pay it off sooner.

Leasing a newer model looks attractive because the monthly payment is less, but you might not want to do that. I'll explain why next week, when I offer several other ways to save loads of money when purchasing an automobile.

John Jamieson is the best-selling author of "The Perpetual Wealth System." Follow him on Twitter and on Facebook.

More from John Jamieson

Top 10 Best Bang for the Buck New Cars

Increase your money and finance knowledge from home

How to Buy a Car

How to get the best deal and buy a car with confidence.

View Course »

Managing your Portfolio

Keeping your portfolio and financial life fit!

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Walk, take public transportation.

February 14 2014 at 5:46 PM Report abuse +1 rate up rate down Reply

Cars are almost to the point of being obsolete. Unless you have a big family and lots of passengers a truck is more practical. It's hard to buy stuff if you only own a car. A 60 inch wide screen tv wont fit in a car, neither will a dinette set, nor a riding lawn mower, nor a couch, nor patio furniture, nor a new refrigerator, etcetera.

February 14 2014 at 6:12 AM Report abuse +1 rate up rate down Reply

Better yet, if you live a good weather area, get a "driver" (not a show care) classic car. Instead of depreciation, you have appreciation, easy (and cheaper) to fix yourself and in many areas insurance and plates are less too.

February 13 2014 at 11:34 PM Report abuse rate up rate down Reply

I'm 57 years old. The car prices of today are ridiculous....more than we paid for our house! Just remember no matter how "cool" it looks....your dream car will eventually end up as a crushed little square in the junk yard. In my lifetime, I bought two brand-new cars, and I'll never do it again. (Yes, I'm a slow learner). Paid cash for the car I'm driving now. It gets me from point A to point B. That's all you need. If you feel the need to spend a lot of money on a car to impress your friends...you have very shallow friends. Cash is king!!!!!!!!!!!!!

February 13 2014 at 10:22 PM Report abuse rate up rate down Reply
Hello, WildBill

OR you could just buy a sought-after car, like my Scion tC which I bought in 2005. I actually could have made money off the car when I drove it off the lot, and for the next two years. That car has held more value than 90% of the cars in America. And the maintenance on it has almost been zero.

More advice: Never trade a car in to a dealer when you buy a new one. You are better off selling it privately. Or at least, offer it to the dealer after all the paperwork has been completed for your new car. The minute a dealer knows you have a trade-in, the price tag on your new car starts going up. You just THINK the dealer is offering you a good trade-in. In reality, he/she is getting it back on the price of your new car, and it's worth more to him that way because it also raises your finance charge.
Never buy an extra car warranty on a new car. Everything that is major that could go wrong is already covered by your initial warranty.
And always start negotiating UP from the price the dealer purchased the car from the manufacturer, which is easy to find in the Kelley Blue Book or on the internet. Offer $500 over the dealer's price. Never start at the point a dealer is offering you $500 off a vehicle. If you negotiate DOWN that way, you are a comlpete sucker. And when you have your deal all worked out and are about to sign the paperwork, call the dealer and ask for another $200 off, or you will walk.

February 13 2014 at 9:31 PM Report abuse -1 rate up rate down Reply

Shop around. One dealer gave my husband $5,000 more for his trade in than the other dealers.

February 13 2014 at 9:08 PM Report abuse rate up rate down Reply

So by following his method of buying a car for for almost 20 grand and then selling it for $3500 only four years later - a loss of 82% - I can save hundreds of thousands of dollars over a lifetime?

February 13 2014 at 8:42 PM Report abuse +1 rate up rate down Reply

I bought an HHR in '06 new, It now has 128,000 miles on it and it has had no issues. I paid cash for the car and it had a $19K sticker price (I paid $14K). Trade in value estimates from a couple of dealers has been $2500-$3000, Since the HHR has had no issues, I'm passing on a new car which now have sticker prices of $25K+ sticker price. Car dealer are trying to sell new cars by knocking $500 off the MSRP. I'm not buying!

February 13 2014 at 7:37 PM Report abuse rate up rate down Reply

Duh, what else is new????

February 13 2014 at 6:10 PM Report abuse rate up rate down Reply

This person is obviously a moron and not from the working middle class lol

February 13 2014 at 3:04 PM Report abuse +1 rate up rate down Reply