photo credit: gprasmus
With the “Cash for Clunkers” program (is it or is it not still in effect?) hiccuping along, some are getting great deals on their new cars. My advice is to take advantage of “Cash for Clunkers” only if you are planning to buy a new vehicle anyway and only if you can afford to pay cash.
But if you are planning to trade your old car for a newer used car, you can save thousands of dollars by doing it yourself instead of using a dealer. The reason is very simple. Dealers must buy wholesale and sell retail in order to make a living, but you can ask more than wholesale when you sell your vehicle yourself and pay less than retail when you buy your next vehicle from an individual.
Cash For Clunkers Logic
Let’s say, for example, you are going to sell a 2000 Honda Accord DX Sedan with 100,000 miles and buy a 2005 Chrysler Town and Country LX Minivan with 50,000 miles.
Based on Kelly Blue Book ( www.kbb.com), you can reasonably expect to get $2,825 trade-in for your Honda but could ask $4,400 (private party sale) if you sell it yourself; netting $1575 more.
The minivan lists at $9,605 private party transaction and $12,205 retail, so you can save as much as $2600 by buying from an individual.
This $2600, coupled with the extra $1575 you made by selling your sedan yourself, nets you $4175 total if all goes perfectly. Realistically, it probably won’t, but even if you save only half that amount, doing the work yourself is well worth it.
An additional bonus is the savings in sales tax. I realize that every state is different, but in Illinois (where I live) you would save $548 if you buy from an individual compared with buying from a dealer.
photo credit: kodiax2
Bonus tip 1: Sell your existing car before buying another car so you won’t become a motivated seller.
Bonus tip 2: Avoid debt and pay cash for your next car. It will drive better if it isn’t dragging a bank note behind it. I have discovered that paying cash makes me much more selective about my purchase than taking out a loan. The process of saving the money and then withdrawing all of those $100 bills for my purchase is much more “painful” than simply signing a loan paper.
Joe – Car deals are definitely tricky! You have to arm yourself with knowledge before walking into a dealership. A knowledgeable buyer will get the best deal.
Of course, paying cash will save you thousands in interest alone. Thanks for mentioning my article about this!
Great tips, Joe. Buying or selling a car is one of those big wins in personal finance if you know how to do it right. It’s a shame we even have to buy these depreciating hunks o junk at all.
Great post joe! We paid cash for our last car, and followed many of the tips listed here. It really does feel so much nicer when you’re driving a paid for car! Now that we own both of our cars, we still pay ourselves a monthly payment in preparation for the day when we need another “new” used car. Then we’ll buy our next car with cash as well!
I agree with the fact that knowledge in the source of which you decide to purchase a car from is going to give you more of an advantage in being 100% satisfied after purchasing the vehicle of your choice. New cars for sale are what people just generally what people go for as they feel that when they do so maintenance will not be an issue. Mechanics are becoming more advanced now than ever so looking for the right used vehicle might be the best thing to do if your budget is low.