In the past I’ve written about how we get by using only one vehicle – something I’m proud of and it’s saved us thousands over the years.
Unfortunately our schedules have changed and now it’s become almost impossible to car-share.
Related: Financial Streaks I’m Proud Of
So we decided to bite the bullet and *gasp* buy another vehicle. We bought a Toyota Rav4 – something that is practical but not too expensive.
I weighed the pros and cons of buying another vehicle, and ultimately for us it came down to convenience.
Here are a few ways I saved money on the purchase.
New vs. Used
To keep costs low we decided to buy used instead of new. We priced out a new SUV at approximately $35,500 including all taxes, fees, etc.
The used one we bought is two years old with about 30,000 km and is $28,000 – very comparable features and same model as the new one.
New vehicles depreciate at a higher rate and I’m okay with that since we plan on keeping our vehicles for many years, but the total cost would have been substantially higher for a new vehicle.
We saved about $7,500 by purchasing used rather than new.
Buying From a Dealer
In the beginning of the search I checked out a few vehicles listed privately through online classified sites like Craigslist and Kijiji.
Some of the vehicles were decent, and some were in horrible shape, but ultimately there was always an element of unknown when buying a used vehicle online – we wouldn’t be able to tell for certain the history of the vehicle or what it had been used for.
We checked out a local dealer and they had a decent selection but their prices were a bit higher, and they also had to charge GST on the vehicles – a tax rule that is 100% unfair, in my opinion.
Even though the dealer prices were higher we were able to negotiate the price down. Dealers sometimes have sales incentives, and this one had an incentive where every vehicle was marked down.
I took it a step further and negotiated it down even more than the sale price. The dealer was asking $31,500 (plus GST) but I managed to negotiate it down to $28,000.
Another benefit of buying from a dealer was the add-ons that can be thrown in.
We were hoping to find a vehicle that had heated seats (for the cold winters) and a trailer hitch so that we could eventually tow a small tent trailer – two things the vehicle we were interested in did not have.
I knew there was a big difference between what the dealer charged a customer and what their cost was, and I used that to my advantage.
I managed to get 3 key add-ons valued at $2,500 thrown in at no additional cost by simply negotiating and stating the types of add-ons we wanted (but the vehicle didn’t have).
Financing vs. Cash
As you probably know, I’m not a big fan of any type of consumer debt – car loans included.
But I wanted to enquire with the dealer about financing rates to see if it would be worthwhile to obtain financing rather than paying cash.
It turns out that the dealer is able to offer much lower rates on new vehicles (around 3%) rather than used vehicles (6%).
The exact interest rate depends on your credit score, but the salesperson said the difference is mainly because the new vehicles are financed through Toyota (while the used vehicles are financed by the big banks).
If we went the financing route, the total interest would have added almost $4,500 to the cost of the vehicle.
I decided to pay cash instead and save on interest costs. I could have financed it and used the money to invest instead, but 6% interest adds up fast.
Tips on Negotiating
Throughout my vehicle search I learnt a few tips on negotiating that can help anyone save big:
- Don’t become emotionally attached to a vehicle. The second you do that, you’ll likely overpay.
- Be willing to walk away. Before we settled on $28,000, I had walked away from the deal 4 times. Each time the dealer came down even more on price.
- Don’t be afraid to ask for add-ons. I did, and I managed to get a lot more than I expected.
- Go for the extras. I also managed to get some free oil changes, roadside assistance and a free tank of gas – all because I knew these were things they added to other vehicles (for no extra cost). A dealer is much more likely to give you these for free than the equivalent in cash off the price.
Conclusion: I saved thousands on our vehicle purchase by negotiating effectively, paying cash (to avoid a high interest rate) and getting additional add-ons that we wanted.
Do you have any other tips to save on a vehicle purchase?