In March of 2004 I had to buy a car. My first car, a Dodge Lancer, was given to me by my dad. My third car, a Nissan Maxima, was also donated by Dad’s Used Cars, which meant the only car buying experience I had was when the Lancer died on Sunday morning at 4 AM and I had to have a car that day. I walked onto a used car lot with my horrific credit and then took it up the ass for the next 60 months. $187.50 for 60 months on a used 1992 Dodge Colt. Oh, yeah she was a sweet ride that got me mad play, yo, especially when I would fly at 70mph down Beverly Glen at 2 am. Cell phone vibration ringers have stronger motors. I had no clue what I was doing; I wasn’t reared around “carfolk”. When dad’s Maxima finally died and I approached the age of 30 I vowed it was time I embraced my inner Angelino and got the car I wanted. (Or rather, the best car I could afford. The car I want is a BMW 645 ci.)

I vowed to do all my homework, use the power of that interweb that everyone likes so much, and do it right. I scored! I bought a pristine 1997 Subaru Impreza Outback for below Blue Book value from a private seller on craigslist, financed it through my credit union, and two years later feel like I still did well.

These are the things I learned that everyone else seemed to know:

1) FIGURE OUT YOUR BUDGET BEFORE YOU START LOOKING AT CARS. There is an irrational part of car shopping: a voice that says “I can totally swing this price” when you´re sitting in a rad car that does and has everything you want (cup holders, testicle heaters, and the awesome windows that drop an inch before you slam the door). It is in that moment that you can ruin your next 48 to 60 months, if not your entire credit rating! Car salesmen are prepared to pounce the moment your irrational mind is fixated on how well the car can pass the $100 bill test. They’re scent trained, like dogs. Long ago car salesman figured out how to address the “I only want to pay $X per month” claim and so they bury their markups in the final purchase price of the vehicle. If you are financing the car knowing how much you can pay per month as well as the interest rate you can get is critical! Whenever you buy a car from a dealer, new or used, you always negotiate the FINAL PURCHASE PRICE – NEVER THE MONTHLY PAYMENTS.

I was able to determine my interest rate by qualifying for a loan before I went looking for cars. Talk to your bank or your credit union and secure your financing first. Your credit score determines your interest rate, and your interest rate dictates your payments. Any deviation from this basic formula of finance is a salesman lying to you. The auto dealer won´t talk to you about interest rates or final purchase price because they talk to the finance company directly – and usually they owned or are owned by the finance company. By taking you out of the financing loop they tweak the final purchase price and make their profit in your long term loss. In order to meet your monthly payment they’ll stretch your loan to 60 months or more, long past the vehicle’s life. The salesmen are instructed to get you into a small room, right after the test drive, and present you with a piece of paper. They draw four squares on the paper – it’s even called “four squaring” in the business. They write what you want to pay in the first box and then start wheeling and dealing with their “manager”. The only people winning this game are the salesman (who makes his margin goals) and the bank (who get your interest dollars). Don’t play their game! Know how much you can spend, factor in all the related up front costs including the taxes* and license fees, and don’t give the salesmen the tools to take advantage of you. All they want is to get your signature on a stack of documents chaining you to their finance company, their margins, and their name. Once you leave the dealership they don’t give a rat’s ass about your monthly ability. That’s up to you and the well armed repo man. For a wonderful expose on the car sales business I highly recommend this article, “Confessions of a Car Salesman” from, written by someone who worked undercover as a car salesman at multiple dealerships. (More on Edmunds below.)

*You have to pay sales tax even on a used, privately sold vehicle. When you go to the DMV to register the car you will pay a sales tax on the final negotiated price (reflected in the bill of sale). This can be a lot out of pocket if you´re not prepared for it.

My father-in-law steered me towards his car broker. Car brokers know the current model lineups as well as any special incentives that may not be publicized. They are also able to get better prices because they’re paid by the car dealers to move inventory without affecting your final purchase price. Finding a good, trusted broker will help tremendously in searching and pricing. You can also buy from them with confidence, but you may have better luck looking for used cars on your own. The broker steered me towards a Honda that I didn’t realize I could afford – but declined because I wanted a zippier car. Even a car broker will need to know what you are going to spend, so the best thing you can do is determine your financial ability before ever sitting in a car.

I got a loan from my credit union (better rates than a dealer would ever give), found out what interest rate my credit rating would yield, and worked from there. It made my decisions much easier as I could quickly rule out cars that were simply out of my price range. I love to drive, but I refuse to go broke over a car.

In brief you need to determine and factor the:
a) interest rate for your loan (cars older than 5 years may add more interest, cars over 100,000 miles also will raise this rate)
b) final negotiated price of the car
c) how much of a down payment you can come up with to offset the final negotiated price (many banks require a minimum of 10% down)
d) sales tax
e) license fee (the DMV charge to register the vehicle)

A note about leasing:

This online tool was invaluable for figuring out how much the car would realistically cost. This calculator checks loan vs. lease rates: 

When I was looking at leases, the calculators at

were a great help to get a pretty good idea of my overall payments. The most helpful thing about that site is it unveils the mystery ”money factor” cost, which is the depreciated value of the particular vehicle at which you are looking. Leases are determined by how well the car will hold its resale value after you’re done leasing it, which drives up the monthly cost and mileage overage. Your credit also determines this, but those penalties get buried in the interest rate. The dealers will also lower the monthly lease cost by lowering the allotted miles in the terms. $0.15 per mile may seem low, but let’s say you agree to a lease that caps your mileage at 5,000 miles per year, a “commuter car”. You’re likely to go at least 5,000 miles over. That’s $750 per 5,000 miles over. The longer the lease, the higher your likely overages. Watch those numbers!

2) DO YOUR HOMEWORK. Every car that caught my fancy I looked up. There was quite a variance between Edmunds ”True Market Value” pricing and the Kelley Blue Book price, and since my bank would use the KBB to determine value I used Edmunds for specifications and reviews. The site gives detailed information about the vehicle including road tests and interior measurements. This was invaluable in comparing the hundreds of models of cars available, when test driving all of them was impractical. It also gives the JD Power report (if available) as well as average-Joe customer reviews. It took about 1/2 hour for every car I was seriously interested in, and after a while I was getting better at ruling out cars quickly before spending the time to go over them (i.e. which cars hold their value longer, which makers had ”trouble” years, etc.). Like anything, building a working knowledge of something helps you make an informed decision. It also helps narrow what you are looking for.

Use ! Get the specifications, use the editor´s reviews, and read up on cars!
Edmunds Used car lookup tool
Kelly Blue Book, the de facto standard tool to determine a car’s value

3) ONLY USE THE CAR DEALERSHIP FOR THE TEST DRIVE. Use the internet for everything else. Car salespeople are sleazier than even their reputations bely, and when you´re spending less than $20,000 on a car you get the new guys in dumpy suits who are clearly being broken in. Read the undercover article for the life of the car salesman for more info, but trust me, the sooner salesmen and their managers are removed from the car buying process the better life will be for customers. My phone is still ringing with calls from slavering salesmen who won’t go away. Even the “no haggle” process has haggle in it! They can lower the value of your trade-in (if you have one) and thus get more from you out of pocket. The Scion is a good example of a no-haggle car, where the Toyota dealership (Scion is a Toyota mark) hands the sales off to the fleet salesperson. It makes for a more pleasant experience in the test drive phase, since the salesperson isn’t going to siphon gobs of money from you. But believe me, they still want the sale!

4) IF BUYING FROM A PRIVATE SELLER GET THE CARFAX REPORT ON THE VEHICLE. Don´t deal with someone who won´t tell you the VIN (vehicle identification number) of their car. The CarFax report will tell you the actual mileage on the car when last it was registered, in what states the car has been registered in, how many owners the vehicle has had, if there are any red flags for mileage or odometer roll-backs, and more. The cost is about $25 for a month of lookups and it’s well, well worth it. craigslist is chock full of people selling salvaged cars – cars that were wrecked, had their title retired, and then were pulled out of the junkyard and rebuilt for sale. These often have undetectable stress fractures in the frame, mismatched parts – Frankencars you don’t want! The first car I ever bought was from a dealer who had welded two cars together to make one cheap one! I only found this out a year after purchase when a friend noticed the metal on the trunk frame was wholly different from the metal behind the door panels! 

5) GET IT INSPECTED INDEPENDENTLY. If you are looking at used cars from private sellers (and craigslist.orgwas the BEST place to find a used car for me) find a mechanic who will look it over. Get them to tell you what service needs to be done BEFORE you buy. This is something more than just a “car friend” can do. You want an independent mechanic with a portable computer that can read the computer in the car to report service histories and incidents. A good mechanic will look for those mismatched Frankencars and also determine if the car has been chipped, had its odometer rolled back, and identify potential major service problems in the car’s future. Any used car carries risk and for less than $100 and an hour of your time you can eliminate almost all the doubt. You’re about to spend thousands of dollars on a car on which you will entrust your life – don’t cheap out for $100! My father in law just purchased a used Prius and there were a number of service points that would be impossible to determine without professional diagnostic equipment. The more electronics get integrated into cars the more specialized diagnostic tools are required to determine the car’s overall health.

6) BE NICE TO PRIVATE SELLERS! Most private sellers are just normal people looking to get rid of something that’s now a liability. Watch out for scams and rip offs, but being nice will often usurp the ”first come, first sold” mentality on a good find. I wasn’t the first person to look at the car I bought, but I was by far the nicest. (It didn´t hurt that my wife has a Subaru wagon and the seller wanted to sell to a Subaru home.) Make sure you create contracts as you go. The DMV will require a bill-of-sale besides just the title, so make sure you get everything in writing. (A bill of sale looks just like a receipt, with the seller and purchaser contact information on it, the date, a sales price, the thing you are buying, and both of your signatures at the bottom.) My bank would not finance a car unless it was a) smog inspected, b) had an in-state registration that would not expire within 60 days, and c) was selling around or below the Blue Book value. Make sure the private seller has all of these things in place, otherwise you will be paying for it (and paying and paying and paying).

My seller had Oregon tags. Once I determined I wanted to buy the car I took the vehicle to a smog inspection station and paid $60 to have it smogged in California. The information was sent to the DMV instantly. I generated a bill of sale between myself and the seller, which we both signed and witnessed. I paid her 10% of our agreed price. I took the bill of sale to the DMV that afternoon and registered the car in my name, paid the tax and license fees for the car, and received a California registration. I took the registration to my bank, who then issued my seller a check for the remaining balance. This is how nice she was – she trusted that I would come back with a check after she had already signed the bill of sale! Becaue my bank required the car to have California registration I had to register the car *before* the sale was complete. The seller took a huge risk (though we signed another contract that stipulated everything), and I got a great car.

(Since buying my car I discovered that I could have saved myself even more time by doing all of my DMV transactions at AAA. As a AAA member you have access to the full services of the DMV without the grotesque lines.)

Don´t stop looking until you find the perfect car that meets your budget and driving expectations. With so many cars on the road, and so many vehicles coming off leases, there is every car available for every budget and every person. Make a realistic wish list of everything you need in a car and you will find it. I despise shopping, I hate the hassle of looking for the right thing, and it took me a week (about 40 hours of homework, phone calls, and test drives) to find the perfect fit.

Here, then, is a bulleted list of the process:

– Determine your budget: final negotiated price (financed amount + down payment) + sales tax + license fees
– Do your car homework:
– Once you find a good car have an independent (not the seller’s) mechanic look at it and verify the condition.
– Verify the seller has everything needed to do the sale (clean title in their name).
– Create a bill of sale, run all the facts over with your bank or finance company, contact AAA or the DMV for an appointment.
– Buy your car!

Update, January 2007:
I leased my first vehicle – a 2007 Audi A4 2.0T Quattro. Audi was running a lease special trying to get people to consider the Audi lines as compared to the much more popular BMW 3 series and Infiniti G35. The special as advertised was no security deposit, no down payment, with destination charges and first lease payment due at signing; lease payments advertised at $359 per month. Now, this was an outstanding deal and I had only just begun to consider leasing a new car. However, after doing some rapid research I found the Audis were a spectacular car at a great price and ran my ass over to the dealer. I took a test drive and loved the car. Since the advertised special was for a specific model series and package there was no haggling, no negotiation, and no pain involved. Also, in the last several years my credit rating had improved dramatically and so I wasn’t worried about getting approval. (The giant advantage of paying off two car notes is that there’s few better ways to boost your credit rating than a repaid car loan.) They didn’t have the color I wanted, but found it in their lot in San Diego. I signed the paperwork and paid $1500 – the destination charge, taxes, license, first payment, etc. After a week there still was no car delivered, and instead of getting angry I told the general manager that I was fine with the delay. They would just have to refund me a week of my lease payments. Ten minutes later my salesman called back to offer me the Quattro (all wheel drive) version of the car (one from their existing lot inventory) at no additional charge! Once I had the new car I put a “for sale” sign up in my Subaru window and posted it on craigslist for $6,000. After a half dozen phone calls and two weeks I found a buyer who paid $5,000 cash. We went to AAA and completed the sale in less than twenty minutes.

More lessons learned:
1) having good credit from repaid car loans gives you a distinct advantage mentally and financially. You can walk away from their shitty deals – or qualify for the really good ones offered to qualified buyers.

2) The tipping point for great customer service is $30,000. The buying experience of a >$30,000 car is night and day from the used car lot. They kept me comfy, they spent a half an hour going over every last feature of the vehicle, I received no less than 3 customer service follow-up calls, and when I came back to have the iPod interface installed they detailed my car gratis.

3) With good credit, knowledge of your limits, and research in hand, you, the buyer, have all the control. The dealership wants to get rid of the cars taking space in inventory. Every car on the lot is a liability against their profits. They want to turn the table on you in any way possible to leverage your want of the car as a psychological ploy to get you to accept their terms. Even though this was a fixed-price situation I was ready to walk away at any point if it didn’t feel right. Knowing I had solid credit, knowing the terms were exactly what I wanted, and knowing that they were motivated to make the sale meant I could apply pressure to get what I wanted. Ultimately, I did even better (a $2,000 feature upgrade) and I absolutely love my car.