Car Buying Guide - VII

Cars are a depreciating asset... a rapidly depreciating one at that.

Buying a car is not investing. It is not an investment.

Oh, to be sure, you'll be 'investing' much of your hard earned money into your car over the years to come, but buying a car is not an investment.

Buying a car too soon can cost you a lot of money. I don't mean in the calendar year. I mean falling victim to all the new styles and marketing ploys car manufacturers and car dealers throw at you that stimulates you into buying a new car well before what you owe on your current ride catches up with what the actual value of the car actually is.

In car buying vernacular, when you owe more than your car is worth you are 'upside down' in your car. You're 'flipped'.

These days, believe or not, the average person ends up rolling about $2,000 of negative equity into their new car when they trade.

In other words, if you're looking at a $20,000 car and your car is worth $8,000 and your pay-off on your loan is $10,000 then you are going to be buying a $22,000 dollar car.

When the car dealer says they are going to 'pay off' your loan, they are really only rolling your negative equity from your old car into your new car and burying you even deeper in your new car.

Now, here is the extremely important point to keep in mind about our example above and why it is beyond important that you put forth a concerted effort to get the best car deal you can.

If you are bound and determined to roll negative equity into your next car purchase (which is a mistake in and of itself), then you better darn well drive a hard bargain and work every penny you can.

Here's why.

First, if you pay the sticker price of $20,000 on your new car, you just over paid for the car itself right out of the gate. I will guarantee you that the market value of that car is not $20,000!

And we haven't even added in the $2,000 you still owe on your trade!

Remember, in our example you owe $10,000 and you traded it for $8,000... because the dealer is kind enough to 'pay off your old loan'.

Before the ink even dries on your new car contract you are in a deep financial hole with your new car.

You'll really need to plan of keeping your new car around for quite awhile because you will have to drive it for a long while before you get anywhere back to even money... or at least to a point where you can even trade out without significant financial contribution on your part.

Be sure to stop by and check out the details of the whole car buying process and my complete car buying guide.