Car buying - OY!

Factual Questions
1

Well it’s that time once again to enjoy the the shirts and giggles of car buying.

I’m hoping The Dopers[sup]tm[/sup] help me figure this out and check my reasoning.

I went to the dealer and looked at a vehicle for about $30,300 list. The invoice price on it is about $28,300.

I still owe $11,500 (payout) on my present car.
He wants $19,300 difference.
The way I figure it is:
28300 - 19300 = 9000 is what he’s giving me for the old car, which is low (but they always have a book that comes to an amount they want to give you).

I would have to borrow $30,500 ($19,000 + $11,500)
Best rates are around 4.39%
My total cost over 6 years (I’ll explain why 6 in a minute) ~= $39,500

I think $17,500 difference is closer to reality.
This would make my 6 year cost ~= $37,500, so I counter with that.

He goes off to “work some numbers” and comes back with:
I pay them $580 a month for 6 years (this is why I used 6 years above - apples to apples).
They pay off my current loan.
So, my nut is ~ $30,260 ($580 * 72 = $41,760; - $11,500)

This doesn’t seem right. I’m convinced that as soon as they start talking in terms of monthly payments, I’m about to get screwed. So what am I missing?

2

:smiley:

That is all.

3

There’s your problem.

Why are you thinking about buying a new car when you still owe on your current one? If you insist on doing that, you are going to get screwed financially, no matter how you ‘work the numbers’.

4

Besides being in total agreement with what Lionel said, a note of caution: If when purchasing a car you negotiate on note instead of final price, you will get screwed. Saying something along the lines of ,“If you can get me in the car for such and such a month…” equals putting a huge, “Screw me up the ass with razor blades” sign on your back. Also, never use a trade-in as part of the negotiations. Get the lowest price you can for the car, then tell them you want to trade your car in. Better yet, sell it yourself.

5

Kind of a long story. I do consulting and my six-week project turned into 3 years. I have a round-trip commute of 110 mi., so this car has 91000 mi.

The Long

Yeah. I know that instinctively, but why aren’t the numbers supporting it?

I also know that walking into a dealer with the intent of buying a car = you are going to get screwed. It’s a matter of how badly. So I guess my question is am I really getting screwed less on the second “deal” or am I missing something?

Oh yeah, Inigo Huh? And I didn’t kill your father!

6

I don’t understand why you’re subtracting the 11,500 from your total cost on the offer from the dealer, but including it on the total cost on the other options. When the dealer is saying he will pay off your outstanding loan, he just means he’ll take the trade and roll in the loan balance to your new loan – the same as the first deal, where he offers you 9K on the trade and you’re stuck holding the bag on the 11,5 still.

Let’s assume you get a price on the car of 29K and he takes 10K on the trade. So you’ll need a loan of 19K for your new car and you’ll want to roll the 11.5K from the old car into it for a total loan fo 30.5K (your number from the first example)

According to the loan calculator I found at bankrate.com , 30,500 over 6 years at 4.39% is a payment of 482.62 /mo and a total cost of 34,748.42.

Even at 10% APR for a 6 year loan, the payment does not approach 580/mo on 30,500. So there’s no doubt you’re getting screwed.

7

Here’s some interesting bedtime reading for you:

Confession of a Car Salesman

It’s about a journalist who went under deep cover and worked on the dark side for a couple of months as a salesman, and wrote it all up. You will better understand the number games they are playing after reading.

8

What everyone else said. You need to be an informed consumer.

You need 2 pieces of information -

1: Given mileage, wear and tear etc what is the real world value of your existing car.

Condition makes a substantive difference in pricing to the tune of thousands of dollars. In addition, bear in mind that the dealer needs to buy it - get it checked out, prepped for sale, guarantee it in some limited fashion, and then sell it for a profit. The dealer is making the sale more convenient for you by taking your old car. You could sell the car used in the paper and get a real world market price for it.

The value of the trade in to a retail purchaser of a used car and the dealer are two different animals. He needs to make money on the used car transaction or he is not going to be able to pay his bills. People often have a wildly inflated idea of what their used car is worth, and this is exacerbated by dealers that pump up the offered price of the trade in by loading some of the incentives of the new vehicle onto it.

People then shop around thinking their old vehicle is worth far more than it really is and go back to the “honest” dealer offering them the big number on their trade in ( but not the full range of discounts available for the new car). A lot of used car owners seeking to trade in are exceedingly stupid this way, and get taken. It’s a highly effectively selling strategy.

2: What is the actual invoice price the dealer (not the one on the window sticker) is dealing off of and what are the full range of current incentives being offered. There are various internet sites you can get this info from. You can also get what the range of real world selling prices are for a particular vehicle.

You also need to know how to use a financial calculator (around $ 30 - $40 at most office supply stores) and be able to break a price into payment or reverse a payment into a price. It’s a few buttons to do this.

The bottom line is that you need to get a handle on the arms length, rational value for your trade in and the arms length selling price (with incentives factored in ) of the new car. If you have these numbers you can get a notion of the actual difference of new vs trade in, and what a payment should be based on that number.

Unless your current car is in terrible shape it sounds like you are trading somewhat too early.

9

There are relatively few cars that are worth 11,500 to a dealer with 91,000 miles on them. You did not identify the year, make and model of your used car, but I suspect you may be thousands of dollars "upside down" (amount owed is more than re-sale value) on your used vehicle. The only way the dealer can make that deal work (for him) is to load some amount of the differential owed into the new loan so you will have a larger amount owed than the retail price of the new car. I susepct that is where some of the 580 payment is coming from.

You also need to make sure the $ 580 is not larded with payment protection insurance and other garbage.

Based on a 580/m payment for 72 months at 4.39% the loan you are getting is for $ 36,654.

it sounds (I’m guessing) like he’s valuing your car at 3500-4500 dollars and loading the differential into an umbrella loan for the remainder. As a side note the 4.39% is an artificial, below market, promotional rate supported by manufacturer incentives. I would suspect that the 4.39 rate may only apply to the new car purchase portion of the $ 580/m loan and the remainder is a higher differential rate. (again just a guess)

10

As the previous poster has pointed out, the missing piece of information is the market value of your current car. BUT let’s assume best case scenario for the value, that it is worth $11,500, the balance of your loan. If the dealer had asked for $19,300 in the first place, then changed that to $580/month for 72 months, he’s basically asking for you to finance the $19,300 at about a 11% rate. You can do much better than that in the current market! And this assumes the best case scenario for you. Most likely your current car is worth much less. If it’s only worth $9,000, the rate is closer to 14%. So tell the dealer to take a hike. As previously suggested, negotiate a price for the new car without any consideration of your current car. Once that price is nailed down, then you can try to negotiate a deal for the old car or sell it yourself.

11

aktepI don’t understand why you’re subtracting the 11,500 from your total cost on the offer from the dealer, but including it on the total cost on the other options. When the dealer is saying he will pay off your outstanding loan, he just means he’ll take the trade and roll in the loan balance to your new loan – the same as the first deal, where he offers you 9K on the trade and you’re stuck holding the bag on the 11,5 still.

Yes. I know. I either borrow enough to pay it off or the dealer pays it off and rolls it into the price. The $580/mo is $41,760 over 6 years. If $11,500 went to pay off the existing loan, then the new car cost was $30,260

Let’s assume you get a price on the car of 29K and he takes 10K on the trade. So you’ll need a loan of 19K for your new car and you’ll want to roll the 11.5K from the old car into it for a total loan fo 30.5K (your number from the first example)

Right. We’re saying the same thing. But this is the point I’m confused on: How does his $580/mo ($30,260) “look” better than the $30,500?

According to the loan calculator I found at bankrate.com , 30,500 over 6 years at 4.39% is a payment of 482.62 /mo and a total cost of 34,748.42.

Hmmm. The one I found gave me the $39,500 figure. Now I can’t find it. But I checked yours and got your number.

Even at 10% APR for a 6 year loan, the payment does not approach 580/mo on 30,500. So there’s no doubt you’re getting screwed.

Oh yeah, that’s a given. “How hard and deep?”, is the question.
Sorry. Got to run right now. But I want to answer more of the stuff later.

12

Quite frankly you might not be getting “screwed”, and whatever you are using to get your payment calculations sounds wonky. The test of the deal is the extracted, arms length value of your used car, and the best new car deal you can get. Until you have these numbers you have no idea what the real deal is. Getting customers out of upside down deals is fraught with risks for the dealer, and the loan maker (if different entities) as the amount of the loan is not secured by the real value of the used car.

Here’s a very simple loan calculator

13

Damn the message board demons!! I lost this when I orignally posted it.

First, you are taking the invoice price as the dealers cost for the car. Problem is, it’s not, not even close. The dealer gets serious discounts and rebates on all vehicles so the invoice is next to useless. Figure on an invoice of $28,500, I’d guesstimate that after cash discounts, quantity discounts and other incentives, the dealer is probably only responsible for $25,000 at most.

As for the trade in, assume they are going to add about $4,000 to whatever they offered you when they resell it. Dealers almost always make higher margin on used cars than new. When I was a salesman(for a very short time, thank god), it was always pounded into our heads that we made the most money on used cars.

I figure that they are looking at making at least $8,000 off of you. Just my opinion based on having worked on the other side of this.

Now, reality time. Does anyone here really need to explain to you that it’s a bad idea to have a $580 note for 6 years?

14

NutMagnet, look at this way:

According to your numbers, you need to borrow $30,500 on a car that lists for $30,300. That means you’re borrowing more than the car is worth at full retail! For now, never mind the fact that very few cars bring full retail price. You’re officially upside down in this vehicle before you leave the finance office. Now, consider the loud thump you hear the second you drive off the dealer’s lot. That is the sound of immediate 10% depreciation because now the car is used. You now owe $30,500 on a car that is worth, at theoretical maximum, $27,270. Congratulations, your equity is now minus 12 percent. Assuming roughly the same daily commute figures, four years from now you will be in the exact same situation - a high mileage, 4 year old car on which you owe over $10,000.
And the cycle begins again.

Financially speaking, the smart thing to do is continue driving your current car. With decent upkeep you should expect another 60,000 miles at least. The second best route would be to sell your car privately. You would have 2 payments in the interim, but long term you’ll come out way ahead. Option 3, your proposal, involves bending over and large amounts of Vaseline. Don’t worry about using a water based lube. The dealer ain’t gonna be using a rubber.

15

Man, you’re crazy! You are in debt from your previous car and you want to buy such an expensive new one? :dubious: Why don’t you look for something in the 18,000-20,000 range?

16

I was recently in a similar situation. I bought a new Honda Element, and wanted to get rid of my old Mercury Sable which had high mileage. I got Internet quotes from multiple local dealers for the model I wanted (do this, if you haven’t already – it’s really easy), as well as the invoice price from Kelly’s Blue Book online (http://www.kbb.com). Armed with these, I went to a local Honda dealership to see if I could get a decent price for my trade-in to go with the good Internet price on the Element.

After much negotiating, the answer was no. The private party bluebook on my Sable was $3000, the dealer bluebook was around $2000, I would have taken $1500, maybe $1400. They wouldn’t come above $800. They tried many different ways of spinning the numbers to make it seem like they were giving me a better deal, but the math always came back to them offering me $800 (or sometimes much less) for my trade-in on top of the Internet quote I already had.

Sell your car yourself. Before you go buy a new one. I got $2500 for mine after a few weeks, well above what I was hoping to get from the dealer and without too much hassle. You are then in a much stronger bargaining position to buy a new car without the albatross of a trade-in hanging around your neck. As astro said, dealers have a hard time making money on used cars with high mileage – it’s really not a good place to get anything approaching a decent price. Don’t let your eagerness to get a new car screw you over – be patient and first get a decent price for your old one.

17

Let’s assume you didn’t bargain the dealer down to a lower price. You buy it for $30,300, and pay 4.39% interest over 72 months. That’s 4.39%/12 = 0.366% interest per month. Let’s call the amount you owe on your current car minus the value of your car o. Call the payment you make per month p.

After the first month, you owe ($30,300 + o) * 1.00366 - p
The next month, you owe (($30,300 + o) * 1.00366 - p) * 1.00366 - p
The next month, you owe ((($30,300 + o) * 1.00366 - p) * 1.00366 - p) * 1.00366 - p
etc.

After the 72nd month, you’ve finished paying it off. That means that:

($30,300 + o) * 1.00366[sup]72[/sup] - p * Sum(n = 0 … 71; 1.00366[sup]n[/sup]) = 0

So the total amount of money you’ve paid is ($30,300 + o) * 1.00366[sup]72[/sup] = $39,417 + 1.3 o. The amount that you paid per month, p = ($39,417 + 1.3 o) * 0.00366 / 0.3 is about $480 + 0.0159 o. Under these conditions, for a payment of $580, your dealer is valuing your car for a trade-in at about $6330.

18

D’oh, o is the difference between the cost and the value. So the dealer values your car at $11,500 - $6330 = $5170. And using the same math, if your base cost for the car is $28,300 instead of $30,300, then the payment would be $448 + .0159 per month, so a payment of $580 would mean he values your car at $11,500 - $8,300 = $3,200.

19

Well guys, thanks for all the input.

To answer some of the questions. My car is worth about $13,000 on the street. So I’m close to being upside down.

The reasons I’m even considering buying something is that I rack up miles pretty quick and was thinking of doing something before the 100K mi mark. I need a dependable vehicle, that gets something close to reasonable mileage, that has 4WD to get me up to my house. I know all thses things are mutually exclusive, and the vehicle I’m looking at is a compromise.

I haven’t got my heart set on buying anything, but for the above reasons, I thought I’d start looking.

On the other side, my current vehicle is in excellent shape. I am religious about having it serviced, and it’s been very dependable. I think I’ll be keeping it.

Thanks again for all the advice. Ain’t it fascinating how messing with the numbers in different ways puts things in perspective?