Buying a car

Training 365 minutesbuying a car

You are 30, work as a paramedic and commute across the city for shifts. You earn $3,400 and have $5,000 saved. A coworker has a new car on credit: $620 a month.

Training goal: Buy a reliable car without a debt trap

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Situation

1. A new car at $28,000, or the same model 3 years old for $16,000?

New: no problems, full warranty
A 15-year-old for $4,000 cash
The 3-year-old for $16,000

2. The dealer asks: "What monthly payment works for you?"

Say $300
Negotiate only the total price
Ask for the longest term

3. You put $4,000 down and keep $1,000 in reserve. You borrow $12,000 for 4 years: the dealer offers 11%, your bank pre-approved 7%.

Use the bank's 7% loan
Take the dealer loan, easier paperwork
Put the last $1,000 down too and borrow less

4. You like the car. The seller says it "passed a service check".

Trust it, there is a report
Just run the history report
Get your own mechanic to check it for $120

5. Last step: insurance, fuel, service. How much do you budget?

Just the loan, the rest as it comes
Loan + $220 a month for everything else
The cheapest insurance, the rest later

What you will learn

A 2 to 3-year-old car often gives the best price-to-reliability ratio.
Negotiate the total price and arrange the loan in advance.
Keep all car costs within 10 to 15% of income.

Your real-life step

Add up the full monthly cost of your car or the next one: payment, insurance, fuel, service. Compare it to 15% of income.

Questions and answers

Is it better to buy a new or used car?

Usually a 2 to 4-year-old car: the steepest depreciation is over and plenty of life remains.

How much car can I afford?

A common guideline: total car costs under 10 to 15% of income, and a loan no longer than 4 to 5 years.

How do I negotiate a car price?

Negotiate the out-the-door price, arrive with a pre-approved loan and competitor quotes, and be ready to walk away.

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Numbers are illustrative. A game, not financial advice.