How can I negotiate the best deal when buying a used car?

Ralph Estep Jr.
00:00:00

Have you ever felt that sinking feeling in your stomach when walking onto a used car lot? That anxiety when the salesperson approaches knowing that they may try to take advantage of you?

Today I'm going to share a story of how my client Hank turned his car buying nightmare into a testimony of patience and wisdom, saving over $5,000 on his dream car. How did he do it? Well, stay tuned to learn the biblical principles and practical strategies that made it possible.

How can you negotiate the best deal when buying a used car? That's what I'm going to answer on today's show.

Podcast Announcer
00:00:35

Welcome to the Ask Ralph podcast where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your Host, Ralph Estep Jr.

Ralph Estep Jr.
00:01:04

Thank you for joining me today. I'm excited to share some insights that will help you master your finances from that Christian perspective.

Now, if you missed yesterday's show, it was all about making the most of your Social Security check. And I covered seven practical strategies that could potentially add hundreds to your monthly income. So I'm going to encourage you.

If you missed it, go check it out. Today's listener question comes from Fred, all the way from Atlanta, and he writes this.

Hey Ralph, I'm in the market for a used car, but I'm terrified of making a mistake. The last time I bought a car, I felt pressures and ended up paying way too much.

I know I need to be a good steward of my resources, but I feel overwhelmed by the process. How can I negotiate effectively and ensure I'm getting a fair deal? Well, Fred, thank you for your question. That is a great question.

And the truth is this is the type of thing that causes many of us stress. It is not an easy thing. You feel like you're a sheep among wolves sometimes going on to those used car and for that matter, new car lots.

Like I said, it causes stress for all of us. But I've got some wisdom today that might help relieve some of that pressure.

Now before I get into Fred's question, remember you can submit your Questions go to justaskrath.com submit your question right there and your question may very well be featured on a future episode. You know Fred, your situation reminds me of the book of Proverbs, chapter 15, verse 22.

And that perfectly applies to car buying and it says this plans fail for lack of counsel, but with many advisors, they succeed. So first I'm going to say, Fred, is, you can do this.

Let's get to some practical wisdom, because I want to see you succeed, and I can give you some advice and counsel, just like proverbs calls for. Well, let me tell you about my client, Hank, because, Fred, Hank is the epitome of what you're talking about. Hank came to me a couple of years ago.

He was an overwhelmed father, and he needed a reliable car for his family. Now, Hank shared with me. He said, ralph, in the past, I felt like I was taken advantage of in the. At the car lot.

When he went and bought that used car, he hit him with high payments and he had negative equity. When he went to trade it in, it was a disaster. And he shared with me, Ralph, he said, I really don't know what to look for.

I didn't know the questions to ask. He came into me for some financial counseling. And one of the things we're talking about, I'm not a used car salesman by any stretch.

We were talking about his finances, and he said, ralph, I'm really working to master my finances, and I'm trying to be a good steward, but I also want to make sure I'm getting a good deal. So as with anything, I started with Hank. I said, well, let's pray about it, Hank.

And we sat, we asked for God's guidance, and we realized that this was a money decision that we needed to both align with his values and his purpose. One of the things that Hank and I talked about was understanding God's patience and God's timing.

So we came up with some practical steps, and I wanted to share those with you today. First thing we did, we applied what I call the 10% rule as a pricing guideline. You might say, ralph, what in the world are you talking about?

Well, here's what I'm talking about. In my humble view, your payment for a car should be no more than 10% of your monthly income.

So if you make $3,000 a month, your car payment should be no more than $300 a month. And I said to Hank, I said, that is a great place to start.

So let's start there, because that's going to give you a budget before you even go out to start looking at cars, you'll have an idea of what models you can look at, what years you can look at. And then that moved us right into the second thing. And I encouraged Tank.

I said, research these different cars using Multiple resources and there are a ton of them out there. One of those is Kelly Blue Book. There's Edmunds, there's the Nada Guide, and then there's also Carfax reports.

And we'll talk a little bit about that later. So that's what I said. Let's start with looking at that budget. We decided no more than 10% of his monthly income.

And then we started doing some research about the multiple cars that are out there on the lot. Now here's the key to the whole thing.

I said this to Hank, I said, before you even step foot on one of these car dealers lots, get in touch with your credit union and get a pre approval. Go to the credit union and say, listen, I need to get a new or used car.

And in Hank's case, he was buying a used car and say to them, here's what I want to spend and get them to give you that pre approval. That way by the time you reach the car lot, the financing isn't a part of that at all because that's where the dealers like to play some games.

So that's number three. Get that pre approval so that when you go to the lot, you're not worried about the finance side of that. And here's another thing we talked about.

I told him we needed to have a comprehensive inspection checklist. Again, I'm not a mechanic.

What I'm going to discuss later in this show after talking to a few mechanics and doing some research online, just what things you should look for. So let's get into specifics. So Hank went out to the lot, he found this car he wanted. And on this car there was a sticker price of $22,000.

And Hank said, ralph, I really like this car. But he said, I just feel like it's a little overpriced. So what did he do?

He went back to those market research sites, he looked and what he found was that the maximum value on any of those sites was around $18,500.

So I said to Hank, I said, listen, if you're going to go there to the car lot, the first thing you need to do is stay calm because they're going to put those high pressure tactics on you. If any of you have ever been on those used car lots, man, that's what those folks are good at doing.

And the other thing I said to Hank, I said, you got to be willing to walk away if you need to. So what did Hank do? He went and looked at this car and the dealer was giving him the nine, that you're going this way and that way.

And it came at $22,000 and didn't want to budge on it. So what did Hank do? He walked away. He didn't show any emotion. Now, the truth is, Hank really did want that car.

He thought it was perfect for his family, but he was willing to walk away because he was using that God's timing approach. He knew he didn't want to pay more than 185 for the car because that's what the market said it should sell for.

And at 22,000, that was way over the value. So he walked away.

Well, I guess Hank said to me a couple days later, he said, the dealer called back and said, hank, are you still interested in a car? And Hank said, yeah, I would like to take a look at the car again. That would be great. Again, he didn't show a ton of emotion.

And the dealer said, well, you know, if you would do 18 5, we could do that. And I thought this was clever.

Hank said, yeah, well, you know, I've looked at some other things, and, you know, one of the things I noticed on that car is that the tires looked a little bit warm. So, you know what Hank was doing? He scored a setting a trap. He was playing the. The dealer against himself.

And he says, so, you know, maybe I'm going to continue looking at, you know, I like the fact that you came down to 18 5, but I'm really worried about those tires. Well, guess what happened next. The dealer said, well, let me talk to my sales manager. I'll give you a call right back.

Hang said, it wasn't two minutes, Ralph. Dealer calls back. The sales guy calls back, and he says, guess what, Hank? Hank, I got great news.

We're going to take the 18 5, and I talked to my boss, and we're going to put new tires on the whole car. What a wonderful outcome from that. And see, think about it. Hank used patience. He used research. He didn't let them play games with him.

He got the price. That was a fair value. He even got tires thrown in as a bonus.

So he achieved significant savings through that patience and that understanding and that knowledge. So let's think about what the lessons learned were for. Hank's success came from combining practical knowledge with spiritual wisdom.

He had the practical knowledge. He knew what the car was worth. He knew what to look for in the car. And I'm going to talk about all those things in a few minutes.

But he also used that spiritual wisdom. He used that patience and used that preparation. He talked with counselors.

Now, in his particular case, he talked to me, but his other counselors were those online sites that showed you the value of the car. And all of those things led to a better outcome.

Because like Hank said to me, he said, ralph, I was able to stand firm in my convictions and still get the deal I was looking for. So you've been asking, hey, Ralph, what's your process? Here's my process and here's the things. Like I said, I did some online research.

I talked to a couple of clients and mechanics, and here's the things they told me. So here's what to look for during a test drive.

Now, before you even start the test drive, when you're at the car lot looking at it, check the vehicle history report, visually inspect the car for any signs of damage. You know, go up to the dealer and say, listen, I kind of like this car. It's a cool looking car. It suits my purpose.

What I'm looking for, can you give me a carfax report on the car? And what I have found is most. Now this is on the used car side, new car, there's no reason to do that.

But on the used car side, what I have found in my own life, when I've been working with my children to buy new cars, or used cars for that matter, is most of the dealers are going to give you that carfax report. And if they don't, walk away. Because the truth of the matter is, you want to know what the history was on this car.

You weren't there from when it was born to when it was landed on the lot. So you want to understand what's going on. You can look at it and you can see a lot of visual things.

We'll talk a little bit about those things in a moment. But tell them you want that vehicle history report. It's simple. They go on the carfax.

And I think there may be some other ones, but Carfax is the big name in this. They put the VIN number in and it gives you a report. Now here's the thing I'm going to tell you.

Look at that report and make sure that report matches up with the VIN number.

And also look at the date of that report because I have seen circumstances where they got an old Carfax report, but then something happened between then and when the sales date was. So get that carfax report and visually inspect the car for any signs of damage.

Now here's things you're going to look for when it comes to the doors open and close all the doors. Check to see if there's any loose hinges. Look for any frame damage. Look for rippled, ripped moldings. And make sure that the locks lock.

Make sure there's no kind of faulty mechanisms in the lock. So that's what you're gonna look at on the doors. Now, on the interior, here's the thing I'm going to tell you to do.

Sit in the driver's seat and test all the buttons. Yeah, like a little kid, you know, Start pushing all the buttons and make sure everything is working. Check the switches.

Make sure all the features you're expecting are going to work. Check the headlights. You know, if you're there on the car lot with somebody else, have them stand outside. Check the turn signals.

Check the headlights. Check the rear lights. Check those turn signals. Check the windshield washers or the windshield wipers. Check the washers, too. Check the radio.

Check the power windows. Make sure they go up and down. Do all the things they're supposed to do. So those are the things you're looking for on the interior.

Now, when it comes to steering, again, I am not a mechanic. Turn the steering wheel fully in both directions to check for unusual sounds or resistance.

If it feels weird, there could be something wrong with the power steering, from what I understand. Make sure it's not making any weird sounds or clicking sounds, or make sure it's not hard to pull one side or the other.

So those are all the things you're going to look at before you even start the test drive. Because the truth of the matter is, if this thing's got issues with the doors not opening, and also, you might want to just walk away at this point.

And if the steering wheel feels ugly, I don't think you want to get behind a wheel of that. Let's move on to the second part of that. And here's the thing. I'm going to tell you about this.

Once you start driving it, and if you can go by yourself or ask the dealer to stay at the shop, maybe they've got other things they can handle. If you bring somebody with you, that's fine. But if they will let you go by yourself, that's a great thing to do.

And you'll want to start by just moving it around the parking lot. Make sure the brakes are working right. But then go do some highway driving.

Once you do some highway driving, I say take it to a parking lot and take your time. Listen, the dealer can wait. There's no high pressure. You're the one setting the pace for this.

If that Dealer says, you know, I've got something to do in 30 minutes. Well, maybe you don't want to sell this car, dude, I'll go find somewhere else. So you really need to understand that you set the tone in all of this.

So while you're out on that test drive, and like I said, if you can do it by yourself or bring somebody along that's not the dealer or the salesperson, that's a great idea. So when it comes to the engine performance, listen for unusual noises.

Most of us who have been driving for any time, we kind of have an idea of what it'll sound like. So turn that radio down, turn the heat air conditioning off, and really listen for unusual noises like rattling or clicking or whining.

These are usually signs that there's something going on. Second thing you want to check, and I'm going to encourage you to check the score. You leave the parking lot of the dealership.

Check to make sure those brakes are working. Make sure they're responsive when you press the pedal. Make sure there's no pulling or vibration or any kind of unusual noises.

I know I had a car that the brakes started to fail on, and I. I think it's called when it cuts into the route eroders or something like that. And you can hear, like, a screeching sound in that.

So if you're hearing that, that's a red flag When I'm talking about driving steering. Ensure the steering wheel doesn't vibrate or pull to one side While you're driving down the road. See if it stays straight.

Now, there's a crust to the road, so it might tend to go to the right a little bit, but make sure it doesn't vibrate or pull to one side. Another thing you should be looking for while you're driving is that transmission. Make sure it's got a smooth shifting.

Make sure it doesn't have any unusual noise. If it's jerking when it's going from one gear to other, that's usually a sign that there's a transmission problem.

You also want to look at the electrical features. Like I said, Test all the lights. Check the stereo. Check the power windows. If it has it now, I think most cars have those.

Check the locks and any other electrical components. Make sure they work. And check all the lights. Check the rear lights, like I said, all of those things.

And then what you want to do is when I said pull into that parking lot away from the dealership, and again, take a look at the car's interior. Take a look at Its exterior. Look in the trunk. Look under the hood. Look for any damage, wear, tear or rust.

Now you might say, ralph, listen, that all sounds good. I can do those things, but man, I don't really know what I'm looking for.

So here are some common issues that mechanics that you should look at when you're looking at used cars. One of the big things, worn brake pads. So you want to check for squeaking or grinding noises when breaking. Think about it.

Most of the time, these car dealers are either getting these cars from the auction show. They may have never driven them, maybe a couple, a couple yards or a half a mile to put them on their lot, or maybe they came in on a trade.

Well, the thing is, the dealers don't want to put a lot of money into this used car. They're trying to maximize their return on it. So one of the things they might do is not do that brake job.

So check for that squeaking or that grinding or the noises when breaking. Another thing, look at that transmission again. Look for slipping gears. This is a very common thing with used cars.

Again, if it makes any unusual noises, look and see if there's a puddle.

That's one of the reasons I say to go to a parking lot, park it for a few minutes, and then pull up a few feet and then go look and see is there anything on the ground underneath of you while you're doing that test drive. Again, this is one of those things that are very common with used cars, and that's engine overheating.

So if you're seeing steam or smoke come from the hood, listen, that's not the car to buy. Also, take a feel the hood. Make sure there's no heat spots or maybe there's any unusual smells. That's another one.

Now that one you have to be kind of careful with. One of my mechanic friends told me it could be that they replaced some things and they might have a little burn off period.

So that might be just a question you asked a dealer. Another thing to look for when you're looking at used cars are battery issues.

If the car takes a long time to start, it could be the sign of a bad battery. Again, the dealer doesn't want to spend a lot of money to get this car ready for resale. Look for crust or rust or corrosion.

A crust on the car be a bad thing too, but look for rust and corrosion. Inspect the undercarriage. Now listen, I'm not telling you to put this thing up on a lift. Now if you know somebody could do that.

Some of the Things I didn't say here. But if, you know, if you have a friend who's a mechanic who could.

You could see to listen, could I zip over and could you put this thing up on a lift and take a look at it? If you can do that, that's great. But if you can't, just take a look around and look at the undercarriage. You know, it's not a great thing.

A big guys like us, I don't want to crawl under a car, but it probably makes sense to do it, so.

Or you can buy one of those mirrors that you can extend out to look underneath of it, but look for the undercarriage, see if there's any rust or any signs that there's problems underneath of there. Another common thing with used cars are electric system problems. One of the big things that's expensive to do is if there's faulty wiring.

Like if you're seeing all kinds of weird malfunctioning lights or electrical components aren't working, that could be a sign that there are some electrical system problems. And here you're doing all this because if you identify any issues during the test drive or during that inspection, you can use them as leverage.

You can use them to negotiate a lower price or even request repairs before finalizing the deal, just like Hank did.

You know, Hank played a little game of cat and mouse, if you will, because Hank knew that those tires weren't terrible, but within the next six months to a year, he'd have to replace those. So he understood the cost of those repairs.

You also need to understand state inspection rules where you are make sure that all the things on that car, if they're not going to fix them, are going to pass inspection. Because one of the things you don't want to do is you go to get this thing titled and it can't pass your state inspection. That's a terrible scenario.

And on a lot of used cars, they don't give you much of a warranty. And again, this is what Hank learned. You got to be willing to walk away. It is so easy to get emotionally invested.

You can picture yourself behind the wheel, you driving down the road. This is the vehicle you really want to have. But you got to kind of play the role of an actor here.

You don't want to be too eager, you don't want to be too interested. Now, I'm going to get some action steps in a few minutes, but first, let me ask you this. It's a very blunt question.

Has the Ask Ralph show transform your money mindset? If it has. I'm going to ask you to do me a favor and take 30 seconds to help others. I want you to share this show with other people.

You can do it simply by sending a text that says ask Ralph.com to your friends and family who maybe they need financial guides. Maybe they're thinking about buying a used car or buying a car or one of their kids needs to buy a car.

Just send them a text and say, hey, Ralph, did this show? Just go to ask Ralph.com.

if you're a member of a community on one of these social media sites, text out asgraph.com on that and talk about a success story you found. And maybe say something like, hey, I found financial clarity through faith@asgraph.com tell your family about it.

If you're sharing it with your family, maybe you say something like, this helped me, you know, save money on buying a used car. It helped me, you know, set up an emergency fund. And even if you can't do that, you can expand this impact.

Talk to your financial advisor, your pastor about the show. Bring it up at your next Bible study. And do me a huge favor. If you've got a favorite episode that you've heard, share with loved ones.

Because here's the simple truth. One share could be someone's first step towards financial freedom and stronger faith. Think about it.

Before you were listening to this show, did you have all the tools that you have now? And if you didn't, if you've found those here, it's time to make a difference. So shareasralph.com simple.

Just share ask ralph.com well, now I'm going to give you those action steps I promised. If you're in the market for a used car, here's my eight things that you should do. Let's start off the first one.

First thing you want to do, research fair market value using multiple sources. Like I talked about. There's Kelley Blue Book, Nada, Edmunds, and Carfax. Use those things.

Number two, like we do with Hank, get that financing before you go shopping. Because one of the games that the dealers will play is they'll play games with the financing to make that appeal. Because here's the thing they teach.

I used to run a credit union and I work with my lending officers. People have no concept of the total price of the car.

Now, that said, they have some concept, but what you'll find is they want to find out what your price or what your monthly payment is comfortable with you. That's what they're going to face. This thing on. Well, there's all kinds of games you can play with that.

If you come to me and say, ralph, I don't want to have a payment more than $300, well, I could increase, I could decrease the rate a little bit. I could put you in a longer term loan, see, and I can play, play games with the financing but charge you too much for the car.

So that's the second thing. Secure that financing before you go shopping. Number three, create a detailed inspection checklist.

I think it's really kind of cool to go there with a clipboard, with a checklist. The dealer might say, this guy has really lost his mind. But look, you're the one spending the money. So put that checklist together and check it off.

Go through it piece by piece, like the things we talked about. There's some great resources online. And then what you want to do is focus on the out the door price.

Don't let them play games with, well, this is adding, this is it. What is this car going to cost me? How much money do you need for me to buy this car today?

Now if you've already got that financing beforehand, it really should be pretty simple. Here's the sales price. Write us a check. Get your credit union to wire the money over, whatever that is.

And like Hank learned, number five, be prepared to walk away. You got to use that timing. You got to use that patience. And that's why I say number six is trust in God's timing. You know, use that as a resource.

Be willing to walk away. Let it sit 24 hours. Let it sit 48 hours. There'll be other cars if you say, ah, rev, I gotta have this particular car. You need to take your time.

Which leads me to number seven. And that's practice mindful spending. Look at every single purchase against your values.

You know, maybe you want that fancy jeep with the big tires that you can go off roading in. Maybe that's 3 or 4,000 or $10,000 over your budget. And yeah, you'd love to have it. It's definitely a want, but is it a need?

So that's why you got to evaluate each purpose against your values. And like I said, last but not least, consider implementing that 24 hour rule for any major purchases.

And that helps prevent those emotional decisions. So if you're at the car lot, maybe you say, look, you know what, I'm just out here shopping today.

But you got to have that mentality because here's the deal. That salesperson going to want to keep you there.

They want you to say yes and yes and yes to the point where you're signing the papers and you're driving off the lot. So maybe you just say, look, from the beginning, I am not buying this car today. Maybe you leave home to things you would need to do.

I mean, that sounds like a silly thing, but maybe that's what you got to do. Well, now let's get back to Hank, because I think Hank Hank's story shows us a lot what we can learn if we combine financial wisdom with our faith.

And what Hank was able to do. He was able to make confident decisions that honor both our resources and our values.

And I'm going to encourage all of you to do the same thing today. Now, tomorrow, I'm going to have a special Christmas message where we talk about the true meaning of Christmas for Christians.

And it's going to be an inspirational show. And remember this as I close today, my passion is to help you achieve financial success.

I want to see you live out your dreams and I want to see you grow in your faith. And I know together we can master your finances from that Christian perspective. So as always on this show, stay financially savvy out there.

If you're in the market for a used car, follow the tips I talked about today and have patience and God bless you abundantly.

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