Used Car Value: How Much is a Used Car Worth?
on Jan 30 in How to Buy tagged car buying tips, Used Cars by Jason
We recommend three car valuation guides that are popular with both consumers and auto industry experts: NADAguides.com, kbb.com (Kelley Blue Book), and Edmunds.com.
When it comes to a used car, each of these guides will give you two numbers – the wholesale value (also known as the trade-in value) and the retail value.
Wholesale or Trade-In Value: This is what you can expect to get for a vehicle that has normal wear and tear. It’s usually a fair price for vehicles in average condition for their mileage and age. Because this is an average, half of the vehicles on the road will be worth more, and half will be worth less.
Retail Value: This is what you’ll pay for a vehicle that is completely free from defects – it has been 100% refurbished, and it’s as nice a car as you can hope to find for that year and for that mileage. Dealers and private individuals will try to charge full retail value, but keep in mind that less than 3 percent of the cars in the United States are in such excellent condition and worth retail value. In other words, retail value is usually the most you should ever pay for a used car.
When figuring out a fair price for a particular vehicle, it’s important to remember you must adjust for miles and condition. Here are some of the things you’ll need to account for:
- The average annual mileage in the U.S. is 12-15k miles. If the car you’re looking at or trading in has more than twice the average, you should expect to deduct more than the recommended mileage deduction. It’s commonplace to double or even triple the mileage penalty for extreme mileage situations (this is particularly true with NADAGuides).
- If the vehicle needs tires, deduct $400-$600 from the value of the car– if you’re not sure how much you can always call the local tire store and find out.
- If the vehicle needs a windshield, deduct at least $300 from the value.
- If the vehicle needs minor scratches repaired or small dents knocked out, that again will cost a few hundred dollars.
- If you can stand five feet away from the vehicle and see dents or scratches on the car, you should have a body shop look at it to get a sense of how much it’s really going to cost. Believe it or not, a seemingly minor cosmetic flaw can run into the hundreds or thousands of dollars.
- If you’re looking at any substantial body damage, get a second opinion. Body estimates can vary widely.
- Whatever the damage is, it’s best to have an estimate in hand. That will make determining the actual value of a car much easier.
It’s important to remember that you should be just as aggressive valuing your own car as you would a car you’re trying to buy – fair is fair.
The process of valuing a car using kbb.com or Edmunds.com is only a guide. The actual price of the car will be determined by factors such as the local market, the time of year, and how available that type of vehicle is. When you come up with a value, don’t feel like that is the only acceptable one. Too many times people get caught up in a specific number – instead, tell yourself that if you can get within $500-$1000 of the value you’ve determined, you’ve done pretty well. Besides, if you’ve done your homework and you’ve followed all our car buying negotiation tips, you’re going to get a good deal.
As always, take your time when buying a used car. Do your used car research, get multiple used car financing quotes, and feel free to contact us with your questions.
What is Dealer Holdback?
on Jan 30 in New Cars tagged car buying tips, New Cars by Jason
Holdback is money that an auto manufacturer pays a dealership to stock their inventory.
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You’re probably wondering why a dealership needs to be paid to stock inventory. After all, if the dealer wants to sell cars, don’t they need cars on the lot? Why do they need to be paid for that?
The answer is that most dealerships need to borrow money to put cars on their lots. Think about it this way: if a dealership has 200 cars, and the cars cost an average of about $25,000 each, that’s $5 million in inventory. Dealerships, like most other businesses, don’t have that kind of cash flow, so they need to borrow the money to pay for every car on the lot.
Of course, when you’re borrowing $5 million you’ll have some pretty expensive interest payments. These interest payments are known as “floorplan.” This floorplan can add up to an awful lot of money very fast. Depending upon the interest rate, it can cost anywhere from $3 to $20 per day per vehicle in inventory. It doesn’t take long to do the math to figure out how expensive it is to stock inventory. Because of this expense, many dealers decide not to stock a lot of vehicles.
Thirty or forty years ago, manufacturers, eager to sell as many cars as possible, decided that it made sense to pay dealers some “floorplan assistance” so that they would be able to stock more cars. Today, dealers receive 2-3% of the price of every vehicle back from the manufacturer when they sell the car. That money is supposed to be used to offset inventory costs.
For many dealers, holdback is a necessary part of their income. However, you’ll also find dealers with such high turnaround that holdback is a type of profit for them – they actually make money on the interest subsidy because they’re able to sell all their inventory very quickly. Having said that, it’s very difficult to expect a dealer to share any of their profit from holdback with you. Most dealers are already operating with a pretty thin profit margin, and they feel like the holdback money belongs to them. Besides, most customers don’t know about holdback or ask for it.
If you’re trying to get the best deal, follow our standard car negotiating advice, and also remember to go online and get multiple quotes. If there’s a vehicle the dealer really wants to sell and you’re interested in it, you might be able to convince them to sell it for less than invoice. Even if they don’t make a profit, they’ll still have their holdback money, and you would have gotten the vehicle at a bargain price.
Should I Refinance My Auto Loan?
on Jan 30 in Financing tagged Financing by Jason
When it comes to refinancing your car, it’s important to realize that there are really only three good reasons to do so:
1) You can get a better interest rate. If you can get a rate at least 1 percent better (and preferably 3 or 4 percent better), go ahead and refinance your auto loan. You won’t get much benefit from anything smaller than 1 percent. Mentally it may seem like 5.99% is better than 6.25%, but the reality is that they’re so close it’s not even worth your time.
2) You’re at risk of defaulting on your car loan because you can’t afford to make the payments. If you’re one or two months away from repossession, by all means refinance your car.
3) If you’re at risk of defaulting on your home loan because you can’t afford to make mortgage payments unless you can lower your car payments.
However, if you’re thinking about getting equity out of your car so you can get money to pay other bills, you should know that this is NOT a good reason to refinance. Cars do not have equity since they are depreciating assets, and each day they are worth less than the day before.
Banks sometimes offer “car equity loans,” but don’t get sucked it. Even if your car is worth more than you owe right now, that won’t last long. Borrowing against any equity you have today is always a mistake – all you’re doing is stealing from your own future by adding more payments to your current loan. Would you rather make an extra two years of payments on your car so that you can have an extra $100 today? Probably not.
Unless you’re at risk of defaulting on a major asset, don’t refinance. If you refinance for extra cash, you’ll regret it in two or three years when your car should have been paid off and you’re still making payments.
If you do need to refinance, keep the following in mind:
- Don’t pay any fees unless they’re minor (such as the $20 your bank may charge for a new title or lien). Walk away from “refinancing fees” and “loan origination fees,” and other charges along that line. The bank should be happy for your business and shouldn’t charge you for it.
- Don’t add more time to your loan. Unless you’re desperate to lower your payment, try to get a loan that ends at the exact same time your original loan would have. For example, if you buy a car using a five-year loan, and in a couple of years you decide to refinance it, don’t take out another five-year loan. All you’d have done is extend the amount of time that you’ll be paying for your car.
- Check with your credit union. Credit unions have great rates, they want to help you, and they’re willing to work with you more than a regular bank will, especially if you’re in a situation where you’re at risk of defaulting.
Of course, instead of refinancing your car, you can try and trade it in for a less expensive vehicle. Take a look at our tips on negative equity or being upside down, and make sure to figure out your car payment budget before try and trade-in your car.
New Car Buying Tips: How Much Should a New Car Cost?
on Jan 30 in New Cars tagged negotiation tips, New Cars by Jason
How much should a new car cost? While there’s no single answer to this question, dealers should be able to sell you a new car for 1-2% over the invoice price and still make a fair and acceptable profit.
Listen to this article.
There are quite a few websites you can visit to find out what the invoice price of a car should be. Our personal favorite here at AccurateAutoAdvice.com is Edmunds.com, but you can also find out invoice price on Cars.com, KBB.com, Yahoo! Autos, and believe it or not, a lot of the manufacturers are starting to put this information on their websites too.
Once you have the invoice price in your hand, request a few quotes from different places before you approach a dealer. You never know, you might hit upon a special offer when you do that and end up with a price that’s even less than invoice. Try Edmunds, and at least three other places, to make sure you don’t miss anything.
What happens when a dealer doesn’t want to sell you a car for 1-2% over invoice? Sometimes when a new vehicle is in high demand, it’s almost impossible to get a discount. If you’re not willing to pay full price, then your best strategy is to wait for demand to die down.
There are times when a dealership refuses to budge on price because of “principle.” They don’t want to discount their car because it’s a luxury vehicle, because they say it’s scarce, or because they know they’re the only dealer in the area with that particular car.
When a dealer refuses to budge on price, there are a few things you can try:
- Get back online, but widen your search to different states and metropolitan areas. For instance, you might be able to go to a different city or state and save a couple thousand dollars. If you’re saving that much money, it would make sense to fly or drive there to pick up your car. The really cool part is that a lot of big dealers in large cities are willing to deliver the car to you, even if you’re out of state.
- Buy on the last day of the month. Dealers always have quotas that they have to meet, or contests that they’re taking part in, or they have incentives to sell a certain amount of cars, etc. These all stop at the end of the month, and if selling you a car will help the dealer meet their sales goal, they might stretch quite a bit to get your business.
- Try calling the dealership in the middle of a storm. Dealers are expected to sell a certain amount of cars every day, regardless of the weather. If you make them an offer in the middle of a storm, you might be pleasantly surprised. The only catch is, you have to be willing to go to the dealership during the storm to pick up your new car!
As always, take your time when buying a new car. Do your new car research, get multiple new car financing quotes, and feel free to contact us with your questions.
Negotiation Tips: Used Rental Cars aka “Program Cars”
on Jan 30 in Used Cars tagged negotiation tips, used rental car by Jason
One thing we like about used rental cars is that it’s pretty easy to get a deal on one. A used rental car is a commodity, and unless you’re looking for a specific color or feature, you can find them just about anywhere. (Read our article titled “Should You Buy a Used Rental Car?” if you’re not sure about buying a used program car.)
Listen to this article.
Before we give you our negotiation tips, we want to let you know how the used rental car system works. Once you understand the system, the negotiation tips will make a lot more sense.
Generally speaking, rental car companies go to big car manufacturers and lease thousands of cars from them each year. This lease only lasts six to twelve months, during which time the car is rented out at airports, vacation destinations, etc. The rental company then takes these cars back to the manufacturer, where they’re labeled “program vehicles” and sold at special dealer only auctions.
So, when you hear the words “program vehicle” or “program car,” that’s code for “used rental car.”
Our negotiation tips:
1) Tell the dealership that you know their “program car” is really a rental car. Telling the salesperson that you’re in on the secret lets you take control of the conversation.
2) Explain that you’re okay with buying a used rental car, but only if the price is really good. You’ve already exposed their secret, and now you’re taking advantage of the perceived lower value of a used rental to get a better price.
3) Let the salesperson know that if you don’t get the deal you want, you’ll go somewhere else. This threat is often times meaningless, but not when it comes to buying a used rental. The dealership knows that used rentals are commodities. By saying this, you’re telling them that if they’re going to sell you the car they need to do it on price.
4) Offer to wait for a different vehicle at a better price. Used rental cars are sold at auctions held once or twice a month. Tell the dealer that you’re willing to wait for them to buy a car at the next auction for a better price. Once the dealership manager knows that you’re not in a hurry, they’ll probably try harder to sell you the car they have than risk you leaving and buying somewhere else. Remember – one of the keys to getting a good deal is to be patient.
5) Make sure you walk away. Once the dealership has made their best offer, let them know that you’ll consider it, and then leave. By leaving, you make sure you’re getting the best price. Sometimes, you might be gone just five minutes before you get a phone call with a better price. In fact you might not even make it out the door before the manager runs out to tell you to he/she can take a couple of hundred dollars off. Physically leaving is the best way to make sure you’ve been given the dealer’s best price.
Once the sale is over, it’s a good time to familiarize yourself with used car financing basics, as well as review some of our car financing tips.
Negative Equity Tips and Suggestions
on Jan 30 in Financing tagged Financing by Jason
If you’ve heard the words “negative equity” or “upside down,” there’s a pretty good chance that you’re trying to trade in your vehicle but you’ve been told that you owe more on your trade than it’s worth.
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There are a few things that cause you to be “upside down”: It might be that you’re trading in too early, your vehicle could have damage of some kind that affects its value, or it could be that the market has depreciated faster than you anticipated. Most of the time you can overcome negative equity by financing it into your next car loan, but that’s not always the best option. Negative equity can get dangerous, especially when it starts to compound.
For example, you buy a new car, decide to keep it for two years, and then trade it in. When you trade in a new car that quickly, you will have negative equity. However, let’s say you decide it’s not a big deal; you just take your negative equity (let’s say $3k worth) and roll it into your second car. You drive that second car for a couple of years, and then decide you want to trade the second vehicle in (again two years is too soon). You’ll still owe the negative equity from your first car (negative equity is always paid off last) plus negative equity from the second car because you’re trading in too early.
Following our example, let’s you have $3000 in negative from your first car and $3000 in negative from your second car. With a little luck and a high interest rate, you manage to take that $6000 in negative equity and roll it into your third vehicle. Let’s say you really like this third vehicle, and you want to keep it, but something happens and you need to trade it in. When you go to the dealership, you’ll have the negative equity from the first and second cars, as well as the negative equity from this third car because you’re trading it in too soon as well. Add it all up, and you’ll probably have $10,000 in negative equity. Unfortunately, you really can’t take that amount of negative equity and finance it into anything.
This is how negative equity gets dangerous – it follows you from one car to the next, at least until you completely pay something off.
If you have negative equity, here’s what we recommend:
- Take a step back and ask yourself: “Do I need to buy right now?” If the answer is “no,” or “I’m not sure,” postpone your purchase.
- If you have major damage that’s hurting your car’s value, call your insurance company and get it taken care of. If the damage is minor, go to your local body shop or detailer to get rid of the dents and scratches. In fact, just cleaning and waxing your car will increase its resale value (and therefore reduce your negative equity).
- Rather than going to the dealership, put your vehicle on craigslist and try selling it yourself – you can sometimes cover all of your negative equity when you do that. Take a look at our tips on selling your car yourself, since there are some safety issues with that.
- If you have credit insurance or an extended warranty on the car you’re trying to trade-in, find out if you can cancel your coverage. If you can do this it will reduce your payoff (and therefore your negative equity).
As always, take your time when buying a new or used car. Do your car research, get multiple car financing quotes, and feel free to contact us with your questions.
Do I Need All Wheel Drive or 4WD?
on Jan 30 in New Cars tagged deciding what to buy by Jason
If you’re thinking about buying an all-wheel-drive (AWD) or a 4-wheel-drive vehicle (4WD), here are some things to consider:
Listen to this article:
- Safety: Most of the time AWD/4WD vehicles are just as safe as regular vehicles, but there are a few exceptions. Take a look at the government crash test ratings for the models you’re considering to make sure.
- Expense: AWD vehicles, and now some 4WD vehicles, usually come with some extra electronic safety systems. Two of these systems, stability control and traction control, have been shown to reduce single-vehicle accidents by as much as 40%. If you factor the value of these electronic safety systems into the cost of AWD or 4WD, it may not seem so expensive. There’s one more thing to consider: while an AWD/4WD system costs $1500-$2000 more, it may help you get out of a sticky situation (you know, like being stuck in a snow drift at midnight on a deserted mountain road…). You definitely want to weigh the expense against the convenience of these systems, especially in places where it snows.
- Fuel Economy Impact: This is something that some people use to justify not buying an AWD/4WD vehicle – the common misconception is that AWD/4WD vehicles use more gas because of the way the systems are designed (more parts are turning when the vehicle is moving, so therefore there’s wasted energy and the fuel economy is worse). However, when you look at the mileage ratings of comparable AWD/4WD and non-AWD/4WD on the window sticker, you’ll find that simply isn’t true. If you compare the AWD version of a vehicle to the two-wheel drive version, you’ll find that the fuel economy is identical or very close (provided the engines are the same of course).
- Resale value: There are some markets in the country (Colorado, for example) where if you decide not to buy AWD/4WD, especially in a vehicle that people expect it on, you’ll lose a lot of resale value. In these “4wd markets” 2wd vehicles have lower resale value because no one wants to buy a two-wheel-drive Suburban or F150 (because the perception is that 4WD is a necessity). Conversely, there are some markets (South Florida, for example) where 4WD or AWD aren’t really needed, and therefore resale value on a 4WD/AWD isn’t usually any better.
- Insurance Costs: We have found that AWD tends to reduce insurance costs on vehicles, but 4WD tends to increase insurance costs. Call your agent to be sure, but there is a benefit to looking at AWD over 4WD most of the time, at least in terms of insurance savings.
When you’re thinking about getting AWD or 4WD, make sure you consider safety ratings and extra safety equipment that may come with the option. Also, ask yourself if you can afford the extra expense of AWD/4WD and if it is worth some peace of mind. There’s no need to worry about fuel economy, but resale value is critical to your decision – take a look at your local market and find out if AWD or 4WD is valued in your area. Finally, make sure to call your insurance agent to find out about insurance costs for each type of vehicle.
As always, take your time when buying a new or used car. Do your car research, get multiple car financing quotes, and feel free to contact us with your questions.
How Will I Know if a Used Car is a Lemon?
on Jan 28 in Bad Used Cars tagged Bad Used Cars by Jason
Unfortunately, you can’t just look at a used vehicle and tell whether it’s a lemon: you have to go through some steps.
There are three different types of vehicles that can be called “lemons.”
1) A manufacturer buyback. This type of lemon would have had a major problem that the manufacturer of the vehicle acknowledged and then subsequently bought back from the original purchaser.
The best way to figure out if a car is a “manufacturer buyback” would be to purchase a vehicle history report. Carfax is an excellent resource for finding out a vehicle’s history, and so is a company called Autocheck. If a car has been bought back by the manufacturer it will most likely show up on a CarFax or Autocheck vehicle history report. While it is true that in most states a vehicle seller is required by law to tell a buyer if they’re buying a “manufacturer buyback” (cough, lemon) sellers don’t always disclose this information. Also, if you buy a vehicle history report you’ll see how many times a car has been bought and traded-in. Beware of cars that have been traded-in and sold multiple times – that’s an indication that something is wrong with the car.
2) Cars with the same, constant problem. If you’ve had a car that always had the same, constant problem that you could never get fixed, that’s also known as a “lemon.”
The problem that won’t go away can be anything: a bad air conditioner, a constantly failing transmission, you name it. Usually, this problem is specific to the individual vehicle, and unfortunately these things are hard to discover. In an ideal world, you would be able to look at the vehicle’s previous service records, but that’s not always possible. The best way to make sure you don’t end up with this type of lemon would be to get the car professionally inspected before you buy.
3) Cars with major design flaws. These are cars that have lots of problems because they were poorly designed in the first place.
The third type of lemon is a vehicle that has a major design flaw. Since design flaws are specific to certain vehicles and certain model years, and because they usually rear their heads after 2-3 years, Consumer Reports is a great resource for finding vehicles with design flaws. You can also call a local dealership’s service department for the make you’re considering – for example, if you’re looking at a 2004 Corvette, call your local Chevrolet dealer and ask the service department if they have any tips about the 2004 Vette’. If you’re nice and respect their time, they’ll probably give you some good tips. Also, you can check out blogs, forums, and other Internet resources.
While it’s important to use caution to keep from buying a lemon, the good news is that “lemons” are pretty rare.
As always, take your time when buying a used car. Do your used car research, get multiple used car financing quotes, and feel free to contact us with your questions.
Special Ordering a New Car: What You Should Know
on Jan 24 in New Cars tagged deciding what to buy, New Cars by Jason
Special ordering a new car is supposed to mean that you get exactly what you want, usually within a couple of months. Unfortunately, it’s not that simple. Here’s what you should know…
Most automakers don’t accept orders on new vehicles between two and three months before the end of the production year. Generally speaking (depending upon model and manufacturer) you can’t order anything between the months of April and August because production years tend to end in the last few months of summer.
With some manufacturers there’s no point in doing a special order. A lot of companies make cars overseas, and because these cars have to travel across the ocean, there’s more than just the standard two-month to complete the special order — there’s also the two-month shipping time. Because of the amount of time it takes, overseas manufactures don’t really like to do special orders. If it’s even possible to order a car, it’s often strongly discouraged.
When you’re thinking about special ordering a new car, keep in mind that some automakers only allow you to buy cars within certain option groups. If you’re looking at getting one or two options from the package, special ordering might be a waste of time. Toyota is famous for making customers buy option groups, and so is Honda – for example, a lot of times they won’t sell you a sunroof unless you buy the “sunroof package.”
Special ordering a car doesn’t always make the most sense. If there’s a special feature or package that you absolutely have to have, than by all means do a special order. But when you order a specific feature or package, try not to order something too out of the ordinary because it will affect your resale value. If your car is too unique, you may not be able to find a buyer when you’re ready to sell. People tend to buy vehicles that are similar to the other automobiles on the road, so don’t order a car that’s so different no one will want it.
The last thing to think about before you order a new vehicle is that you might be able to get a better deal buying off the lot. You may have to compromise on the color, or features, or both, but if you buy off the lot you’re always going to get a good deal. In fact, buying off the lot is almost always the best deal, the reason being that new car dealers have to pay interest on every car that’s on the lot – every day that a new car sits on a lot, it costs money. Therefore, dealers try to sell the cars they have quickly so they don’t end up paying a lot of finance charges for inventory.
In other words, new car dealers are more interested in selling the inventory they have on the lot right now than the inventory they’re going to get in two months.
As always, take your time when buying a new car. Do your new car research, get multiple new car financing quotes, and feel free to contact us with your questions.
7 Tips For Buying A Car From A Private Seller
on Jan 24 in Buying tagged car buying tips, Used Cars by Jason
Buying a car from a private party can be a great way to save some money. Millions of people buy and sell their cars privately every year, and 98% of the time the transaction is honest and forthright. Nonetheless, it’s imperative that you that you follow these tips so that you don’t get taken advantage of.
1) Be Suspicious: We’ve heard unbelievable stories about people getting taken advantage of by private sellers. People will lie about how they got the car, who owned the car, why they’re selling, etc. Don’t always believe what the seller tells you: take everything with a grain of salt.
2) Take your time: If the person trying to sell you a car is a con artist, they’ll want to consummate the sale as quickly as possible. If they’re trying to “pull a fast one”, they’ll offer you anything to get you to buy immediately.
3) Ask a lot of questions: If a person is trying to sell a car that doesn’t belong to them, they’re going to have a hard time answering questions like “when did you buy your car,” or “has it ever been in an accident,” etc. It’s also smart to ask lots of questions because you’ll be surprised what the seller will volunteer. Just make sure that you listen to the answers carefully.
4) Get the car inspected before you buy: There’s absolutely no reason why a legitimate private seller wouldn’t let you take their car to a mechanic to have it looked at. If the seller is trying to hide something from you (like a bad transmission, flood damage, etc.) they won’t let you get the car inspected. If you can’t get the car inspected, don’t buy it.
5) Compare the seller’s ID to the title and registration: Before you buy from a private party, it’s important to compare their ID to the car’s title and registration. Everything should match, but if it doesn’t, you should tell the seller you need to meet the actual owner (the person on the title and registration). If you can’t meet the actual owner, you might consider walking away. If you buy a car from a person whose name isn’t on the title, you could be buying a stolen vehicle.
6) Ask for emissions test records, inspection records, etc.: You will need these records to register the car after you’ve bought it.
7) Complete a Bill of Sale: A Bill Of Sale is a good idea – it will help protect you from any future problems (in case the sale was illegitimate), it’s a good record to have, and it may be necessary for insurance, registration, etc.
As always, take your time when buying a used car. Do your used car research, get multiple used car financing quotes, and feel free to contact us with your questions.
