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Saturday, November 22nd, 2014


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I Work, Therefore I Drive

This article is part of our 52 week journey through Bill’s latest book, The Graduate’s Guide to Life and Money. Each week, a full excerpt from his book will be presented from beginning to end. To get your copy of his book, visit www.TheGraduatesGuide.com.

There are several ways to get from one place to another. In college you probably walked, took a bus, or bummed a ride from someone who had a car. Perhaps you even used a bike or roller blades. While you can use those same methods to get to work, you will probably go with something more sophisticated such as a motorized scooter or a Segway. You might just choose the more traditional route and use public transportation or drive a car. No matter what method you choose to get to work, you will probably own a car at some point in your life. For instance, I used public transportation to get to work, but I used my car to get to the train station. I still use the car to go to the grocery store and the movies. For now, we’ll assume you are going to be purchasing a car sometime.

Here we go again. Another one of life’s little ironies. In order to get to your job, you need a car. In order to buy a car, you need a job. Who came up with this system anyway? Sometimes it feels like the whole world has something against those of us who are just starting out. But wait… Just when it seems to get grim, you see that sign at the dealership, “No Credit? No Problem.” Perhaps you’ve received one of those “checks” in the mail. If you haven’t yet, you will. It looks like a check, from a car dealership or a major automaker in the amount of, say, $20,000.

So what is the deal with all of those auto dealerships that say credit is not an issue? Be very careful. What they will do is charge you an extra high interest rate on your loan and sometime additional fees, since you have no credit history. If you are worried about not having enough money for a down payment, you may still be able to go through a bank. Perhaps your parents will cosign. (Warning: I am not endorsing cosigning because way too often a person bites off more than they can chew, or they lose their job, or some other life event takes place and their parents get stuck with the bill). I know you want to be independent, but we all could use a little help. You could always refinance later, and take their name off of the loan. Of course, if you follow our debt elimination plan, you’ll have it paid off in just a couple of years anyway. Talk about making your parents proud.

Okay, so what about that check in the mail? Actually, it is nothing more than a loan you may be qualified for in order to purchase a new car. It is somewhat deceptive. If you assume nothing in life is free, you should be able to avoid any of these “tricksters.”

Prepare for the Sales Person Before You Walk onto the Lot

Once again, you are being called upon to do a little homework. This time you may have a little more fun. You only need to do this one if you are thinking of buying a car. You can begin your search by going on the web. Visit www.edmunds.com or www.kbb.com (Kelley Blue Book). From these web sites you can find out exactly how much the dealer paid for the car (if it is new), or an estimate of what the dealer paid for the car if it is used. You can also determine how much your old car is worth if you are trading it in for a newer one. From there you can figure a good starting point in your negotiation process.

Salespeople make their living by selling things. I have nothing against honest salespeople, but I always keep in mind that it is in their best interest for me to buy from them even when it is not in my best interest. Sometimes the dealer may try to guilt you into purchasing a car after spending time with you or talking about some promotion they are very close to getting. This is not a charity function here. You have come to buy a car; the one that is right for you. Don’t buy anything you do not want.

Another great tactic is where the dealer says they are giving you the best possible deal. Then they “talk to their manager.” After 15 or 20 minutes your salesperson returns and says the manager has allowed another few hundred dollars off, but that is as low as they can go, and that is already eating into your salesperson’s commission. In reality, they were probably talking about golf or something for a few minutes. Either way it doesn’t matter, because you should already have an idea of how much you are willing to spend.

One thing you will notice is the whole process takes a very long time. I don’t know the exact science here, but essentially you are being worn down ever so slowly. For one thing, you will have spent so much time there you might as well make the purchase because you cannot imagine going through this again. Besides, most of your day is gone and who has the time to keep looking for cars when there is so much more you could be doing with your life.

If you do decide to make your purchase, make sure there is a clear understanding of what car you are getting, what features and warranties come with it and at what price. Before you go to the final “signature” room, tell the dealer ahead of time you want to be made aware of any possible extras such as extended warranties and so on because you will not add anything else to the sale when you go to sign the paperwork. Dealers make so much extra profit from those last minute sales. It goes something like this, “By the way, I forgot to mention that we also offer a rust proofing package. We could go ahead and add that on for only $10 per month. You’ll hardly notice it in your payment. What’s $10 a month to protect a $20,000 investment?” First of all, it is not an investment, it’s a purchase, but that’s another issue. Second of all, actually there is only a first. Like I said, you are already worn down at this point and you are more likely to agree to anything.

That’s why you must ask before you sit down for the final signatures. Another way of trying to get you would be, “Okay, everything looks good. You would like to protect your vehicle with our three year extended warranty wouldn’t you?” Again, you want to know about all of this upfront.

Just for fun, here are a few other sales tactics to watch for. The salesperson will use the word authorize instead of signature. “If you would just authorize this right here.” Everyone knows that when you sign something you are making an agreement and you should read everything first. Also, everything is an investment instead of a purchase. “To protect your investment, you should…” Anything that is expected to decrease in value is essentially not an investment. This includes cars and refrigerators.

When you begin to do your paper work, not only do you have to wait for a while, the dealer will seem agitated if you start to take time and think before making a decision. If you are going to spend that much money, I say take all the time you need.

There are several ways to shop for a car. You can take the traditional route, which is to browse a few dealerships until you find something that is almost what you are looking for and is close to the price you are willing to spend. Not only will you spend a lot of time, but you may also find yourself negotiating for a car on the lot before you are really ready. The one real advantage to this method is your ability to test-drive several vehicles.

Another option is to write down specifically what you are looking for, send a fax or email to several different car lots within your driving range, and have them send you a quote. You should specify make, model and year, and what condition you want the car in (if it is used). Also, list any features the car must have such as air-conditioning and power door locks. You may also want to list anything you do not want such as any shade of brown or pink. Inform the dealerships you are interested in purchasing a car, based on the descriptions in your email or fax, and that you are sending your request to several dealerships to find out who has the best offer. Once you receive quotes, you can go to the dealership and test-drive the vehicles. If you find that the car is not really what you are looking for, then walk away. The salesperson will probably try to make you feel bad, but we are talking about your money here!

Thanks to our creative society there are several other options available for buying a car. Costco and Sam’s Club offer car-buying services they claim will save you money. You can go directly to some of the auto manufacturer websites such as GM and Ford and build the exact car you want. From there you can enter your zip code and the dealerships in your area will send a quote to you within a couple of days. Some dealerships are now offering no-haggle pricing where they mark the car with the lowest price they are willing to accept, and you can either pay it or leave it. You can even go to e-bay and bid online for a car!

The one key ingredient, no matter which way you choose to shop for a car, is to know what you want. You should create a list of all the features you absolutely must have, the ones you would really like to have, and the ones you absolutely do not want. You also want to figure out how much you can afford. Remember, you may be paying for this car for a long time. If you start to think, “I can sacrifice a little more to get a slightly more expensive car,” you may be slipping right into the dealer’s hands. It is one thing to give up a few nights out one month for a car, but to do that month after month for five years will make you miserable.

Don’t fall for the, “Well, you’re young and you’ll be getting raises so you’ll make more money soon and the payment won’t be that bad.” Remember; when you take out a loan for a car (or anything for that matter) you are already giving up future income in order to enjoy your purchase today. Don’t start thinking about giving up future pay raises also! If you cannot comfortably afford the payment today (take into account other things you want to do with your money and the maintenance costs on the car), you simply cannot afford the payment.

Next week we will look at the ins and out of financing a car, and answer the age old question “does it make sense to lease a car?”

Bill Pratt is a former credit card executive turned student-advocate. He is the author of Extra Credit: The 7 Things Every College Student Needs to Know About Credit Debt & Ca$h and The Graduate’s Guide to Life and Money. Bill speaks at colleges to educate and entertain students about real-life issues in money, leadership, and success. His goal is to help students succeed personally and financially so they can improve the lives of those around them. You can learn more at www.ExtraCreditBook.com or www.TheGraduatesGuide.com.
 

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