I have a confession to make, but I’m a bit embarrassed to admit it. I bought a used car. Please don’t judge me for this news update. Would you allow me to explain why a frugal guy like me did this and how I made it as frugal as possible? Pretty please?
For starters, I’m moving out of Iowa City this year to another city nearby. The rents are cheaper there, but it’ll require a little commute. Without a car, the move would be impossible. There’s no regular, public transportation available. I wouldn’t be able to make it to school and work each day.
I fretted over this decision for quite some time. I remembered how stressed and awful I felt with a car. It encouraged me to be lazy — driving instead of biking or walking. Additionally, the car loan I had left me nearly penniless each month. I couldn’t save much.
For the last year-and-a-half, I went without a car. I sold it, paid off the remainder of my car loan, and began saving hundreds of dollars by biking everywhere. The commutes to grocery stores, school, and work were tiring, but I was saving every pedal of the way. In fact, over this last 18 months, I saved thousands of dollars.
Now, I’m re-entering the world of car ownership. To make this purchase, I needed another car loan. I paid off about two-fifths of the total price and financed the rest of a $10,000 2014 Volkswagen Jetta. Let’s dig a little deeper into why I chose this car and how I made it as frugal as possible.
Make time for the search
When someone finally decides to buy a car, two pressures tend to take hold: I want it now and I need it now thinking. The want it now has extra time to find a good value, but feel compelled to be zooming around in one as soon as possible. The secondary, need it now group has not left enough time to thoroughly search. They don’t have the luxury of looking.
If at all possible, plan for a car search. Begin it as soon as you get an inkling you’ll need a car. For me, I knew about 6-7 months ago a car would be needed. I started browsing Craigslist, eBay Motors, and dealers’ websites for more information about what was available, pricing, and distance from me.
Then, for every car that sparked my interest and seemed like a good deal, I researched price expectations, reliability information, ratings, and true cost of ownership. Around the same time, I visited my car insurance’s website to calculate expected monthly costs for every possible iteration. By the end of my 6 month search, I knew my stuff — I just needed the car.
Use a credit union for financing
Big banks have one motivation: big profit. When it comes to financing, they’re usually a last resort — regardless of credit history, score, or income. Unless you are immensely wealthy, big banks can’t help save you money on a car loan.
When I was gearing up to buy my first car a few years ago, the first trip I made was to Wells Fargo. I’d been a banking customer with them for 6 years at the time. Curious to know what they’d offer me, I asked the loan officer and was told I should expect double-digit interest on any loan duration or amount. I laughed out loud at the absurdity, and asked if those were the final offers. They were.
I found solace at a credit union; PenFed, to be more specific. Credit unions run on shareholders, much like banks do. The key distinction is that shareholders are credit union members. If you open an account, you usually become a shareholder. You can vote on new board members, propose programs, and advocate for fairer pricing. Credit unions are motivated to help their members succeed. They’re not in it solely for the profit.
With my used VW Jetta, PenFed was able to give me a 2.49% car loan for four years. Even though I’m spreading the remainder of the car over four years, the payments add up rapidly. Fortunately, little will be going back to the bank as interest.
Find rental/fleet vehicles
When you look at the price I paid versus the expected price for a 2014 VW Jetta (upwards of $12,000 for one in this condition), you might wonder, how the heck did he do it?! The key was finding a rental vehicle in this instance.
There’s an underlying assumption that rental and fleet vehicles get driven harder than personally owned vehicles. In fact, it’s pervasive if you look into buying rental cars. Commenters and “experts” weigh in to tell you what they think, but the best advice I’ve seen comes from Bankrate.com:
While we all know rental cars have somewhat of a bad reputation as cars that have suffered abuse by their renters, there’s no guarantee any used car you buy hasn’t been abused in the same way unless you personally know its history.
It simply comes down to logic and critical thinking on this one. All used cars get driven, right? When we buy a used vehicle, we assume either the individual owner or dealer is telling the truth. Some rental vehicles get driven hard, and some non-rental used cars get driven hard, as well. There’s really no way of knowing.
Amidst the murkiness, you can often find a good deal. Whether true or not, people tend to discount these cars and the dealers usually do, too.
Find a friend — don’t go alone
Whether you go to a dealer, a Craigslist creeper, or your neighbor, scoping out used cars can be tricky. It’s hard to check over an entire car at one look, and oftentimes test drives don’t allow the potential purchaser to spot the defects. This is a simple instance where four eyes and two brains are better than yours alone.
When I went shopping, I tried to bring a good friend of mine who also happens to know cars. That allowed me to assume a role when at dealerships and individual’s cars. I could play stupid, as my friend checked under the hood, around the brakes, inside the wheel well, etc. This team effort allowed me to focus on what the seller was saying to pay careful attention to the words shared.
Additionally, having two people present makes a more convincing argument. When you’re negotiating a final offer, having an “expert” around can help convince someone to lower the amount. It’s a game of triangulation against the seller, and if you can perfect it, the prices can become much better.
Alright, now I’d love to know what secrets you have to securing a good value when shopping for used cars. What tips do you have?
Thanks for this post I’m looking to get a car in the next few months and this info was great. I’m really not into car shaming like many financial people are, so if you got a car that fits your needs and did your due diligence, more power to you.
Question, I see deals from time to time on 0% financing. Were you not able to take advantage of this? Or is there a catch behind a 0% loan from the dealer?
Really like the new design by the way!
Sam Lustgarten says
Hey Syed! Thanks so much! It’s a work in progress, but hope to be done with it soon.
When it comes to 0% financing offers, these tend to be for new vehicles and only “highly qualified” applicants. What this means in my experience is this provides car companies an opportunity to tease rates for everyone, but not really offer it to most. Finding a 0% apr finance opportunity on a used car would be insane! You’d have to forward that info my way. 🙂
These sites help with researching the value you’re getting. These ratings are statistical and there may be aberrations, but it can be helpful in avoiding lemons.
Sam Lustgarten says
Thanks for the great links, Ethan! Also, can’t help but notice you’re pushing people towards Honda Civics, aren’t you? 🙂
Derek @ MoneyAhoy says
Honda Civics and Toyota Camry/Corolla are the only way to go! They always seem to come out on top in terms of best bang for your used car buck :-).
Gary @ Super Saving Tips says
There’s nothing wrong with buying a car when you need one, especially a used car. I hope you’re happy with the car (and the deal)!
For me, I am not much of an expert when it comes to cars, so if I’m buying used, I’d want a mechanic to look it over so I know what I’m getting into. If you have a friend who knows enough to check it all out, even better.
Good luck with your move!
If you’re spending less than 15k and don’t want to deal with a lot of maintenance, Japanese cars need to be at the front of your search. More specifically, cars that are made in Japan. I’ll echo the corolla/civic sentiment above, but they are made in America and build quality can be hit or miss. It’s simple, if the vin# starts with a 1, it was built in America, if it starts with a j it’s from Japan. . Carfax can be a good indicator of how well the car was taken care of, you can see if the oil was changed regularly and see if scheduled maintenance was handled on time as well. Granted, if your budget is 10k your mainly going to be seeing 8-10 year old cars with 70-100k miles. Don’t let the age or the miles turn you off, if the car was taken care of, those things don’t matter so much. Next, you really need to have it checked by a mechanic before purchasing, you can’t trust the dealer when it comes to a rental return made in Mexico. It can cost $80-130 for a good inspection, but it really is a cheap insurance policy. The dealer may have said the car was up to date on maintenance but they could easily be lying.
Good luck with your car. I have a car but still commute to work on my bike about 90% of the time, much to the disbelief of my co workers.
James Pollard says
Used cars > new. I always think it’s nicer to let the other guy take the depreciation hit. Plus, I’m not sure how I could take the psychological damage of getting the first scratch or first ding in the car. Let the other guy take care of that too. 🙂
For frguality, one can go much lower in price and clean up a used car. For 2-3K you can get a 15 year old corolla, accord, civic, or camry, and drive it forever. You can throw a $100 head unit in and get siri, hands-free voice calling, streaming, etc. Just saying you can really be frugal and still have a reliable car.