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What Do I Need To Know Before Buying A Car? | Financial Planning

What Do I Need To Know Before Buying A Car? | Financial Planning

They say the best time to buy a car is during
the fall when new models come out or at the end of the month when sales associates
and dealerships are looking to hit their targets. I say the best time to buy a car is after
you’ve done all your research. I’m Peter Guay of PWL Capital, and in today’s
“Do It Together” segment: I’ll go through the key elements you need to know when buying
a car. For most of us, buying a car means financing
the majority of the purchase after you put down the down payment. Buying is cheaper if you plan on owning the
car for more than 5 years. If you’re like most Canadians and keep your
car for an average of 11 years, then you’ll be driving debt-free for a few years before
you need a new car. Now, we all get carried away when we sit in
a new car but I want you to keep something in mind. There is no such thing as 0% financing! Unless it’s from family, no one is lending
you money for free… The government of Canada has to pay 1.5 – 2%
to borrow money for 5 years, you are going to have to pay more than that! All those ads on TV offering 0% financing
are really appealing and do draw customers into the showroom but they are basically false
advertising. So how can they offer 0%? It’s simple, they inflate the price of the
car to offset the lower cost of financing, which, when you think about it, might explain
why the car depreciates so fast when you drive it off the lot. Knowing all that, there are only two primary
factors to negotiate: the price of the car and the financing rate. Now, by price of the car, I mean the total
price, with interest. Not the monthly payments. You don’t want to spread out the loan over
such a lengthy period that you end up paying way more in interest. Of course, you could buy the car outright
with cash and drive off the lot with a discount. Here’s how: because the dealers and manufacturers
inflate the price to offset the lower financing rates, you should get a substantial cash discount
if you buy the car outright. To figure out how much, you’ll have to know
how to discount the proposed car payments over the term of the loan at a reasonable
discount rate, say 5%. In other words, 5% is your opportunity cost
on the money you could have invested if you financed the car instead of buying it outright. And before I wrap up, here are some other
considerations that apply to both leasing or buying a car. Don’t buy at the first dealership you find. Comparison shopping is key when getting
a new car. There are always several dealers in every
region for each car brand. They are supposed to be competing against
each other for your business, so make them! Dealerships work on volume, so if they’re
getting close to the end of the month they really want to meet their targets. And so they can be
highly incentivized to move cars off their lot to meet their manufacturer’s quota. Use that to your advantage! Trade in values: Always shop them around. Different dealerships will give you different prices for your car. So find the best one, and leverage that with the dealership you finally choose to work with. Don’t keep the numbers in your head, write
everything down and take good notes. It will help you make sure that your negotiating is as strong as possible. And finally, try not to get tempted by all the extras because like the name suggests those extras will cost you a lot. They’re cool to have but they’re also a lot of
money out of pocket and you won’t use them as much as you think. Is that sunroof really worth it? Probably not. And one final thing: car dealerships expect negotiation,
so take notes, prepare, go in there and get a new car at a great price whether you
buy or lease. Don’t forget to subscribe, follow, share, and like so you get notified when I post new episodes. Thanks for watching. I’m Peter Guay and this has been Do It Together Financial Planning.

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