Buying my car

I should have written this back in February, since I don’t have nearly as many recommended links as I should. Anyway, here are a few notes on my most recent car-buying experience.

What Can I Afford
The first thing I had to do was figure out how much I could afford to spend. During my research, I came across a rule of thumb that said you could spend up to 20% of your net income on a monthly car payment. When I found out what that figure was for me, it seemed way too high. So I cut it down to about 12% of my net and moved on to the next step.
The other thing I did which proved quite handy later was get pre-approved for a set loan amount. I’m a Costco member, so I went through their auto financing & refinancing service to do this. The end result of this process was a rate of 5.3% on $25,000 over 5 years. Capital One, the company Costco partners with for this service, gives you check and a payment schedule so you can shop for a car as if you’re paying cash.

What Do I Want
Deciding what I wanted was the easiest part of the process (since the previous step removed the delusional “I want a Lexus” thoughts). There’s tons of information on the Web when it comes to cars and costs. I found to be especially helpful. I used Consumer Reports for some of my research too. After settling on the idea of buying a car with at least four doors, my field of choices narrowed to Audi and Volkswagen. For options, the only real must-haves were leather seats and a sunroof.

Test Drives
I thought pretty hard about buying a certified pre-owned car instead of a new one, so I ended up test driving a number of used Audi A4s and Volkswagen Passats (both with the 1.8 liter turbo engine). In the case of the 2005 Passat, it wasn’t enough engine for that size car. The A4 with quattro was a bit better. The real challenge with the certified pre-owned cars was finding one that was the right price that didn’t have more miles on it than I was comfortable with.

Moving on to new cars, I considered the Audi A3. It’s a nice car, but a bit small. Add too many options and it gets expensive in a hurry. Since my last car was a 2000 Volkswagen Jetta, I thought I’d at least test-drive the new Passat. I wanted a fallback if I couldn’t get a reasonable offer on the A3. The way the Passat handled during the test drive really impressed me. Even with the 2 liter turbo, it’s quite agile. It’s got tons of room inside as well. Given those factors, and the substantially lower cost compared with the A4, I felt comfortable choosing it.

Pricing my trade-in
I didn’t want the trade-in of my car to have any impact on the price I was ultimately offered for a new Passat. So I took my Jetta to CarMax to have it appraised. They offered me $5500 for it, probably because of the high mileage (nearly 100k in less than 6 years).

Pricing the new car
I used to get quotes on a Passat from multiple dealers at once. They all offer “special” Internet-only pricing at points during the year. At my friend Sandro’s suggestion, I timed things so that the purchase would happen at the end of February. The hope was that their need to hit sales quotas would make dealers more flexible on price. In the case of the two dealers I seriously considered buying from (Congressional and Antwerpen), it seemed like that did factor into the outcomes. In order to offer me a lower price, both dealers offered to sell demo cars at a lower price.

Closing the deal
One key advantage I had in getting the best price was Sandro’s friend Elmer. He works in auto finance, so he knows the secret numbers and incentives that aren’t going to show up in a Consumer Reports price sheet or an report. I told him what my best offer from Congressional was and what option package I wanted and he found a car at a friend’s dealership at a price that was a little lower. Once we showed up at Antwerpen to check things out, they offered a demo model at a lower price. The mileage was much lower than they thought, so I chose to buy there instead of trekking back to Congressional.
This is where my second advantage came in. While I was doing some of the paperwork, Sandro remembered that I was supposed to get owner loyalty credit since I’d bought a Volkwagen before. His memory saved me $500.
After a driver from Antwerpen took the Jetta for a test-drive, they matched the CarMax appraisal for trade-in value. In retrospect, my mistake was telling them how much CarMax had offered. I’d kept the car in good enough condition that their driver commented on it. Telling them the appraisal value probably cost me $500-$600.
When it came time to deal with financing, this is where my Costco exercise paid off. Volkswagen Credit initially offered a 5.9% interest rate on the car, quite a bit higher than what Capital One had offered. So I mentioned that I’d gotten pre-approved for a better rate and their 5.9% turned into 5.3% in a matter of seconds 🙂

The end result
I paid $25,500 for a car with an MSRP of $28,430. They also threw in a 2GB iPod nano as part of the promotion they were running that month.

Summary of Recommendations

  • Find out what you can afford first.
  • Get pre-approved for the amount you’re willing to spend. This gives you an alternative to dealer financing.
  • Get your trade-in appraised. CarMax is a nice option because their appraisals are good for 7 days and 300 miles. In any case, it’s an alternative to a dealer appraising it (since they have a vested interest in appraising it at lower than true value). Don’t reveal the appraisal value unless the dealer’s offer is lower.
  • Have two different cars you’re willing to buy.
  • Consider buying a demo car. They’ll have far less mileage than a certified pre-owned car, but will still have a price advantage over a brand-new car. You may even get a car with more features.