Hi there and welcome to another episode on the Financially Boundless YouTube channel. Today, we’re going to be talking about how to buy a car the right way or how to buy a vehicle the right way. I want to preface this by saying this isn’t BS advice to you can get anywhere else in the internet. I’ve actually worked at a car dealership before and a lot of the stuff I’ve seen in practice myself. So I’m not just feeding you lines – this is what you should do and this is what you shouldn’t do. This is actual stuff that I’ve seen in practice before. So let’s hit the ground running and get started. I’m going to go in order here and I’m going to go pretty fast. I’m going to start with some introductory notes and then we’re going to go step-by-step into the car buying process. So with some introductory notes, first of all just realize cars or vehicles in general are expensive! Expect to spend a quite a bit of money on a vehicle for you, or for you and your family, or whoever this vehicle is going to support, especially once you factor in things like depreciation, taxes, inspection, and registration fees. The car is going to have quite a bit of money tied up in it. With that said, new car vs. used car is a question that we get a lot of the time. I personally recommend used cars, especially certified pre-owned cars, because you get a warranty with them, and you’re not paying that new car sticker price that can be shocking sometimes. Plus, new cars lose 10% of their value as soon as you drive off the lot, due to depreciation. I’m an accountant and I care a lot about depreciation! I don’t want to see myself lose 10% of the value on that car the minute I drive off of the new car lot. It’s just not feasible. It’s not practical. Now, the golden standard for car finance or buying a vehicle is the 20/4/10 rule. The “20” part of that 20/4/10 rule means that you should be able to afford 20% down on the vehicle. 20% of the purchase price should be a down payment on the vehicle. Now, there are things such as no-money-down loans, but I don’t really get wrapped up in them because there can be some added fees wrapped up in them. So just make sure you do your homework if you’re going to go that no-money-down route. It could be advantageous to you, but it’s not always advantageous. The “4” part of the 20/4/10 rule is that you should be able to afford a 4-year or less loan. You shouldn’t stretch that loan out for more than four years. It’s just not economically sound to do such a thing because the car or the truck or SUV or whatever kind of vehicle you’re buying is going to start to lose value. You don’t want it to lose too much value and you still owe money on that vehicle. So, 5, 6, 7 – some banks or even doing 8 year loans now – you don’t really want to stretch out your payments that long if you can help it. “10”: The last part of that 20/4/10 rule is that you should expect to spend 10% of your income on that vehicle each year. So we’re talking about things like maintenance, fuel, or gas, and other costs to own that vehicle. So, the 20/4/10 rule says 20% up front as a down payment, your loan should be four years or less, and you should expect to spend about 10% of your income on that vehicle per year. It’s just a general rule of thumb for buying a vehicle. Now, I’m going to give into some Insider advice here. This is all introductory device before you even walk into the dealership. We’re going to get to the point where you walk in the dealership, but we’ve got a lot to cover before that. So this part of the advice is crucial: do not pay for the vehicle in cash. I’ve got to repeat that: do not pay for the vehicle in cash. This is outdated advice. I know if you go to your parents, your grandparents, or definitely somebody older than that, they’re all going to tell you to walk in with a wad of cash to the dealership and pay for your car in cash. No! I will tell you that as the person that had to count that cash on the other end – that was part of my job for a long time when I worked at a car dealership. Don’t do it! It’s a hassle. It’s a hassle for the salesperson who has to count the cash. It’s a hassle for the finance manager that has to count the cash, and it’s a hassle for me in the back office who then has to count the cash and take it to the bank. And then the bank has to count it. Again! That’s four people so far that have counted your wad of cash. If you’re talking $20,000 – $30,000, like for new car, or even more than that… that can be a real hassle. The dealer doesn’t make any money off of you paying cash and it’s essentially looked at exactly the same as writing a check. A personal check functions just the same way cash does. In fact, actually what the dealer wants you to do is finance through them. We’re going to talk about that a little bit later. But if you finance through the dealer, they have all kinds of commissions and kickbacks and things like that if you finance through the dealer directly. So we’re going to talk about that a little bit, but don’t pay in cash! Now that we talked about something you shouldn’t do (don’t pay in cash), something you should do is DO go to the dealer on the last day of the month. There’s 12 days every year that are the best days to buy a car. On the last day of every month of the year, car dealers have quotas to meet. So they have sales quotas – they say you should be selling this number of new cars every month and you should be selling this number of used cars every month. If they’re not close to that goal, which obviously you wouldn’t know, but chances are there right there at that point with or close to that goal, that they need to make a few more sales. So go on the last day of the month to be one of those sales to push them over their quota. They don’t care what kind of deals are making you at that point, because they want to meet that quota. Things like bonuses, commissions, really any kind of bonus money going to that dealership is based on that quota. So help them make that quota, go on the last day of the month. Also, a lot of people ask me: how long should I spend at the dealership, or how long should I expect to spend at the dealership? Will you should expect to spend about 3 hours from start to finish from the minute you sit down with a salesperson, including the test drive, going over all the features of the car, the negotiation, the financing, and what we call the back-end or aftermarket products. I’ll explain all that later. Also, on that note, be prepared not to get the car the same day. There might be things going into a car, especially if you’re buying a used car… they might have to clean the car yet, they might have to detail it, or they might have to do some work to the car yet if it’s a recent trade-in that they’re they’re selling to you. You’ll usually experience of much more thorough delivery, especially if it’s a new car [if you wait]. Somebody from the dealership is actually going to show you all the features on your new car. That’s all the intro notes! Now we’re going to get in step-by-step on how to actually purchase a vehicle, and how to do it the right way with tips from someone who worked at a car dealership. I just want to say before this, don’t forget to subscribe to this YouTube channel. There’s a subscribe button right below this video, and leave me any comments, suggestions, or questions in the comments section below the video, and I will get to them personally, don’t you worry! I also want to know that this YouTube video is the quick abridged version of “How to Buy a Car the Right Way”. If you want the full version, the full text, the unabridged version of this video, I also have a podcast. It’s also called Financially Boundless. I’ll leave a link in the description. [www.pod.co/financially-boundless] The podcast episode is about 45 minutes long, so you’ll get all the tips that you need in there. You can listen to it wherever you get your podcast: Spotify, Google, Apple and more. I’ll leave the link in the description, if you want the full version. [www.pod.co/financially-boundless] Step one starts with research. This is before you even go to the car dealership: research your new or used car purchase. The two sites that are the best to do this on are Kelley Blue Book and NADA Guides. Both websites will have links in the description below the video. [www.kbb.com and www.nadaguides.com] Kelley Blue Book and NADA Guides are the go-to guides for evaluating new and used cars. Car dealers also use these! I will say that most car dealers actually use NADA over Kelley Blue Book. But, you can actually plug in the car that you’re looking at (year/make/model/trim), and get a printout to take the dealer of what those guides think that car should be worth. It’s narrowed down to trim level of the vehicle. So it’s the exact type of vehicle you’re going to get – it’s narrowed down by ZIP code. It’s also narrowed down by color of the vehicle. At this point when you’re researching your new or used car purchase, call your insurance company or go online to your insurance company’s website and get a quote on the car that you think you’re going to buy. Whether it’s a new or used car, just get a quote on it so that you know that it’s not going to raise your insurance rates through the roof, or that it’s actually going to be affordable. I know when I was 16, I loved the Subaru Impreza WRX. The WRX is the most expensive car for a 16-year-old male to insure. I was all gung-ho about buying one, and then all of a sudden I went to my insurance company and said, “what would it cost me to ensure?” They said, “oh that’s the most expensive car to insure… are you crazy?” And I realized quickly that I couldn’t afford one. So, just make sure you do your homework with your insurance company. That’s a step a lot of people forget. Another thing to do while you’re in this research stage is if you have a trade-in and that trade-in has a loan still on it – if you’re still making payments on that trade-in, call the bank that has your loan and get a payoff quote. Some banks will also allow you do this online. The car dealer is going to need to know the amount of the payoff to make on your loan on your behalf. If you decide to trade in the vehicle, I also recommend to not tell the dealer up front. So you have a trade-in, we’ll get into this in a second, but it works out in your favor if you don’t tell them ahead of time that you have a trade-in. You want that to a spring at the last second. Step two then in this whole process is financing. I recommend always getting financing lined up on your own first. So go to your local bank or local Credit Union (even a National Bank) and see what the best loan rates are that you can get. Most local banks, national banks, and Credit Unions have to publish their auto loan rates on the internet for the public to see. [I’m] not necessarily saying that you yourself could get those auto loans, it’s obviously it depends on your credit score and your credit history, but that gives you an idea of what the rates go for, and if you think that you can get approved by one of these banks or credit unions, go for it! Then, just walk into the car dealer with that pre-approval letter and say, “hey if you can beat this interest rate, that’s perfectly fine, and I’ll finance with you. If you can’t, then I’m going to go with this bank or credit union I already found.” I talked before about not paying for a car in cash and that you actually want to finance through the dealership. Why do you want to do that? Because of the dealership makes money off of this! When you finance through the dealership, that dealer is making all kinds of commissions. The dealer makes those commissions, and the people that sold you the loan directly. The finance manager and the sales person – they both make little commissions or “spiffs” off of these loans. “Spiffs” is a dealership term – if you hear that being thrown around, it just means commission. The last step before you actually go to the dealer is to make an appointment. Go on their website (most dealers have websites at this point) and make an appointment to see a salesperson. Usually, especially at the big dealers, you’ll deal with the internet sales department, and they’ll get you set up with an actual physical salesperson at the dealership. They’ll make an appointment for you so that when you arrive Wednesday at 2:30 in the afternoon (example), there’s a salesperson waiting for you that doesn’t have another customer already. A little caveat that I have to this: don’t let them pre-qualify you for financing over the phone. Most internet salespeople are going to try to get you pre-qualified for dealership financing over the phone – don’t do this, because you want to prequalify for that bank or credit union on your own first. Next, when you get to the dealer they’re going to do what’s called a “Four Square” in the industry. I’m not going to talk about the “Four Square” in this video all that much listen, so to the podcast in the description below [www.pod.co/financially-boundless] for a full explanation of what the “Four Square” is in dealership lingo. I’m just going to move right into the deal jacket. The deal jacket is essentially a folder. It’s a physical folder, like a manila folder, but it’s a jacket that has all the information on you as a customer or client, and on the car itself. So the car’s VIN number, its features – things like that – all these pieces of paper go in this one deal jacket. There’s one piece of paper that you want to see when you go to the dealer. If it’s a new car [you’re looking at], you want to see the invoice. Every new car that goes to a new car dealership has to have an invoice. It’s an invoice that comes directly from the manufacturer, and essentially there’s two prices on this invoice that you want to look at. There is MSRP, or Manufacturer’s Suggested Retail Price, and the invoice price. You don’t want to pay MSRP. That’s what the manufacturer says the dealer should mark that car up to. You want to pay something closer to the invoice price, or I say ideally something in between the invoice price and MSRP. The reason I don’t want you paying the exact invoice price is because there are fees that the dealer experiences between that invoice price and the MSRP. There’s things like the delivery fees, the destination fees, the pre-delivery inspection that every car has to go through. The dealer incurs those costs. So, if you’re negotiating right down to invoice price, the dealer truly – I know I sound like a car salesperson when I say this – but the dealer truly is not making any money. Now, when I mentioned this invoice a lot of salespeople are going to give you a lot of pushback on being able to see this invoice. They’re going to say they don’t have it. The car just came in from a dealer trade, and they don’t have the invoice yet. Those may be all very valid excuses. But if they don’t allow you to see the invoice, ask for their manager, ask the manager to see the invoice, and if you actually can’t see the invoice for that car, begin to walk out at this point. We’re going to get into actually negotiating now. So, negotiation. I’m not going to give you negotiation tips in this video because it’s not really what the video is about. The video is about the process, and some tips to help you make the process better. Once they come back with an offer [after you’ve negotiated], you can counter offer. This process can go back and forth as many times as you want. Don’t let the salesperson say, “I don’t want to have to go to my manager again.” No, make them. They’re there for you, you’re not there for them. You’re paying them a commission to make the sale. They’re not paying you to make this sale. Now at this point, do you have a trade-in? If you have a trade-in, tell them at this point and let them rework the deal with your trade-in in there. If you decide against it, then so be it and no harm done at this point. They’ll rework that deal with your trade-in in there. And there’s one key thing you need to look out for. There should only be one new line on that bill of sale: it says trade-in. That should be the only change that occurs between when you didn’t have a trade-in, and now when you do have a trade-in. The next step is going to the finance office. So either you’re going to go to the finance office, or a finance manager is going to come out to the salesperson’s desk. These are the people that are going to talk about loans with you. You can go back and forth on whether your bank is going to be the best rate, or their bank is going to be the best rate. They’re also going to be the ones to sell you the aftermarket – or as we call it in the dealership world – the “back-end” products. So “back-end” products are things like warranties, GAP, tire & wheel, paint protection – sometimes they even have something like collision deductible payment protection – these are all the products that come on after you’ve negotiated the vehicle. So I’m going to talk about which ones are good, which ones are bad, and I’m going to give you some tips. [First], warranties are great. We’re going to focus on warranties first, warranties are great, but ask to see you exactly what is covered before you purchase. If you’re buying a new car, the warranty should be through the manufacturer. So if you’re buying an Audi, the warranty paperwork should say Audi on the top of it. If you’re buying a Subaru, the warranty paperwork should say Subaru on top of it, and so on and so on. If you’re buying a used car, sometimes they try to push third-party warranties, but if you’re buying a used car at a new car dealership franchise, so even if you’re buying a used Hyundai at an Audi dealer (sometimes that happens!), they should be able to sell an Audi warranty on that car. They sometimes have to sell a third-party warranty. I’m not disparaging third party warranty companies, but just ask to see what’s covered. Also if it’s a third-party warranty, ask where you can use that warranty. Sometimes they’re only good at that dealership, and you don’t want to be stuck with that if you decide to move, or the dealership closes (heaven forbid). [Next], I want to talk about GAP coverage as well. GAP coverage stands for Guaranteed Auto Protection. It’s essentially an insurance that kicks in between the price that you owe on the vehicle, or the amount that you owe on a loan still, and what the insurance company says your vehicle is worth should you total that vehicle. So for example, say your car is worth $20,000 to the insurance company. So say you total your brand new car (heaven forbid!) and it’s worth $20,000 to the insurance company. Say you owe $25,000 on that vehicle, so your $5,000 underwater or upside down. GAP is going to pay that extra $5,000 so that when you go to buy another car to replace the one you just totaled, your back on your feet, and you don’t have to roll $5,000 of debt into another loan and keep yourself underwater for years and years to come. Only get GAP if you need it, that’s what I’m going to tell you. GAP is required by banks when you reach a certain loan-to-value ratio (I talk about this more in the Podcast). The next coverage is paint protection. Paint protection – 100%, if you hear anything throughout this video, paint protection is absolute nonsense. Don’t buy paint protection! They will tell you that it covers from stones and chips and everything it does may be a very well and good, but it’s really expensive for the coverage that it provides and sometimes the dealerships don’t even apply it. I’ve heard stories about how it’s a crappy wax, it’s a wax-like product, or somebody comes in to get paint protection and we don’t even know if the car actually got it on it yet, and here you’ve paid $1,000 for a protection that we don’t even know that we ever put on the car. So just steer clear. So when you’re done negotiating, and the finance person has left, look at that bill of sale one more time. Make sure everything adds up (use your cell phone calculator). Make sure all the calculations are correct and make sure nothing has changed. Make sure they haven’t tried to pull a fast one on you or anything like that. In the end, this bill of sale gets your signature on it, so make sure everything is correct before you sign it. Make sure, for that matter, any of the paperwork they give you to sign is correct before you sign your name to it. I also want to make one more note. This [right here] is a YouTube only tip. So this isn’t something we talked about in the Podcast – you’re getting this tip only here on YouTube for watching this video. If you get a warranty or any kind of other aftermarket or “back-end” product and you decide you don’t want it, call the dealership right away. If you get home and you bought Tire and Wheel [coverage] and you’re like, “I don’t need that” and you get somewhat of buyer’s remorse going on, call the dealership right away. Usually, they can cancel this within a few days of taking it out for a full refund. So if you get buyer’s remorse on some of the products, don’t fret, call the dealership. That finance manager that you dealt with should be able to cancel that product. There are certain non-cancelable products, but they should be honest with you. Also, as another note with the warranties and the aftermarket products, you can cancel these anytime – you just won’t get a full refund. So most of these products, especially extended warranties, are cancelable. So if you decide that extended warranty – nothing really going on with the car – “I don’t think I need it.” You can call up and cancel it, and you’ll get a prorated refund according to how many miles or how much time has passed these since you’ve bought a car. In addition, most people don’t realize this, but if you sell that car, if you trade it in somewhere else, or if you sell it outright, call the dealership back if your coverage is still outstanding on an extended warranty, because you get a refund back for the coverage that’s outstanding. Usually it’s not transferable into another person’s name unless that person is family or something like that. So get your refund that you’re entitled to for that coverage. I hope you enjoyed this video. We’re going to have a new videos coming at you every week on the Financially Boundless YouTube channel, and we’re going to have a new Podcast coming at you every week on the Financially Boundless Podcast, which is available anywhere you get your podcast: Spotify, Google, Apple Podcasts – wherever you get your podcast. We also have the Podcast and the videos available on my firm’s website: that firm is Boundless Tax, the website is www.boundlesstax.com. Please feel free to leave any questions, any comments, in the comment section below the video. Also, don’t forget to subscribe to the channel. It really helps us, and you’ll get notifications when we post new videos. If you want to leave me a voicemail – this is a new thing we start on her podcast, because you can’t really leave comments on the Podcast – so if you want to leave us a voicemail telling us how much you like the videos, or how cool the Podcast is, call us. The number is 610-628-9152. 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