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In the end, my wife got the car she wanted for a little more than dealer invoice (how much the dealer paid for the car—in theory, anyway). Rather than trade in her old car, we sold it ourselves for a bit more than we thought it was worth. Nearly 15 years later, my wife is still driving that Civic, which she paid off long ago.

That was smart car shopping. Even if a fax blitz isn't your style, the next few sections are chock full of advice that can help you stay in control of the car-buying process, whether you're in the market for a new or used vehicle.

Note

There's nothing in this book about leasing a car because, financially, leasing is almost always a bad idea. You're probably better off buying a new car than leasing—and that's saying something! The only advantage to a lease is lower monthly payments, but your overall long-term costs are greater—and you have nothing to show for it at the end of the lease. For more on leasing vs. buying, check out http://tinyurl.com/buy-vs-lease.

Buying New

Most people dread buying a new car: They hate the games, the high-pressure sales tactics, and the confusing pricing. But with a little bit of research and a whole lot of patience, you can put yourself in the driver's seat during negotiations.

Money matters

The first step in buying a car is to figure out the finances. It's best to pay cash if you can. If you can afford to do that, have the money in your bank account ready to go before you head to the dealership.

Most people, however, have to take out a loan. If you're one of these folks, be smart about how much you borrow. When you know how much room you have in your budget for a car payment (see Chapter 3), it's easier to manage your expectations so you don't drive off with a car you can't afford. If you need to take out a loan, take care of that in advance through your bank or credit union so you don't put yourself at the mercy of dealer financing, which is almost never a good deal.

On The Money: Saying Goodbye to Car Payments

Despite what you might think, you're not doomed to have a car payment for the rest of your life. In Chapter 7, you learned the importance of paying yourself first to save for retirement (Get in the game). You can apply the same principle to saving for a car.

According to the National Automobile Dealers Association, the average price of a new car is just over $28,000. Let's say you put $8,000 down to buy a car at that price, and you finance the remaining $20,000 for 4 years at 9% interest, meaning your payments will be just under $500 per month. At the end of those 4 years, you'll have paid almost $32,000 for a car that's now worth $14,000. That's $18,000 vanished into thin air!

There is a better way, one recommended by financial gurus like Dave Ramsey and Suze Orman. Instead of financing a new car, take that $8,000 and use it to buy a high-quality used car. Then, instead of paying $500 a month to the finance company, set the money aside in a named bank account specifically for your next car (see Targeted Savings Accounts). That way you're paying yourself rather than the car company.

At the end of a year, your used car will have lost 15% or so of its value, making it worth around $6,800. You can keep driving it and saving for a new car, or take the $6,000 you now have in the bank, combine it with the used car's value, and trade in for a car worth $12,800. And if you keep saving, the next year you can trade in that second car for one worth $17,000. In theory, after 4 years of this you'll have paid out $32,000—just as if you'd bought that new car at 9% interest—but you'll be driving a car worth $23,000 instead of $14,000.

Pretty cool, yeah? Instead of paying interest to a finance company for a vehicle that's losing value, you're paying yourself and gradually upgrading your car every year. For more about this clever way of budgeting your way to a new vehicle without a car payment, watch Dave Ramsey's "Drive Free, Retire Rich" presentation: http://tinyurl.com/drivefree.

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