Test Drive Your Car Payment: A 90-Day Plan for Buying Smart

Purchasing a vehicle is a significant financial decision that requires careful planning and research. In this episode, Kerri Smith, South Carolina President of Self-Help Credit Union, shares valuable insights and practical steps to help listeners navigate the car buying process. Learn how to determine an affordable payment, research vehicle options, understand financing, and work with dealerships to make an informed purchase.

Links:

Self-Help Credit Union

Kelly Blue Book

NADA

Transcript

Sponsor: This episode of Simple Civics: Greenville County is sponsored by Self-Help Credit Union. Self-Help is a family of member-owned, mission-driven credit unions, a non-profit loan fund, and a policy advocacy organization. They work every day to expand ownership and economic opportunities for all. The mission is large, but Self-Help believes that much of it is accomplished by small acts: a member's first bank account, a loan for a small business, helping families buy their first car or first home, or reduce high-cost debt. Together with more than 188,500 members around the country, Self-Help Credit Union is increasing ownership, creating jobs, revitalizing neighborhoods, and building stronger communities. To learn more and to find a branch near you, visit self-help.org.

Katy Smith: You've heard of test driving a car to be sure you like it. No one wants a lemon. But what about test driving a car payment to make sure you don't sour your financial well-being? Well, I'm Katy Smith with Greater Good Greenville. And on this episode of Simple Civics: Greenville County, we'll share with you an approach to getting a new car that I am so excited about. It can get you that new car, but in a way that won't leave you financially hurting. You need to hear this, and you'll hear it from an expert, Kerri Smith, South Carolina President of Self-Help Credit Union. Kerri has a great plan for you that you can start today and 90 days from now you can end up in a car that's quality, that you can afford, and that won't take you from your other financial goals. So it's a 90-day test drive and you can do it. Kerri, I am so glad we're here today to talk about getting a car and how to do it well. I know that a lot of times I'm sure you've seen folks who are so excited to get that new car, even if it's new to them. But before the new car smell even wears off, people might find they have made a mistake. What are some of the mistakes you have seen people make when they rush out to get a car?

Kerri Smith: Well, Katy, first of all, car buying is probably one of the most stressful things that a person does. And it's one of your largest expenditures that you make in your life, other than buying a home or starting a business. A lot of times, what we know is autos are machines. They're not going to last forever. And often, what we find is people end up needing a car because it breaks down, transmission goes out, engine goes out, large expenses, and then they're stuck. So I think the first thing for folks to think about is if you have a car now, make sure you're realistic on its lifespan. Because you never know from day to day, even if you take very good care of your vehicle, it could happen. So always thinking about that and maintaining the one that you have if you have one. Again, tires don't last forever. Batteries don't last. Brakes in particular don't last. So we have to think about our transportation and be proactive about it. But the biggest mistakes that I've seen folks make is they buy on impulse or they buy in that emergency situation where you don't have the time to sit and look at your wants and your needs for a vehicle.

Katy Smith: I'm sure you've seen so many mistakes, unfortunately, made with car purchases. Can you give us one or two examples of mistakes that you've seen?

Kerri Smith: Yes, we were working with an individual that was wanting to buy a home. And they had been saving for a while. They were working on getting their credit situated to purchase their home and their car broke down. And the first thing they did is they went out and purchased a brand-new vehicle. And unfortunately, because they financed a car and their payment was so high, it pushed them out of home ownership for at least two to three years. Because once they purchased the vehicle, they couldn't sell it to pay off the loan. They were upside down. So they owed more on the car than it was worth. To see that American Dream kind of be postponed for a couple of years was sad because the family had worked so hard up to that point.

Katy Smith: Well, we don't want that for anyone listening. So if someone thinks it's time for them to get a car, what would you advise they do now so that in 90 days they can make a good decision?

Kerri Smith: Well, there are a couple of steps. If you have an older car, I would say, or if you don't have a car, I would say the first thing you want to do is really start looking at what you can afford. And how you can do that is a lot of times we say to ourselves, "Oh, I can afford a $500 car payment." So I recommend to everyone to test drive that payment for three months. And why I say three months is because for the first month, you might be able to juggle a bill here or there. The second month, you can juggle another one. But by the third month, you'll know whether you can afford that. So if you put away $500 into a savings account, and you do not touch it, and even if you're just close to taking it out, that means you can't afford a $500 car payment. And it's better to know it then than after you've gotten into a contract.

Because I can tell you, if you go into a car dealership, the first thing they're going to ask you is what kind of payment do you want? Now, what's scary about that is because they can probably get you to that $500 car payment, but it's the difference of your car loan being paid off in five years, six years, seven years, or eight years. So the amount of interest that you'll pay for seven years or eight years is huge for that car. And as it devalues over time, you never get any equity in that car.

Katy Smith: Okay, I feel like we need to split this up into two parts. So part one is you say, all right, I think I can afford a $500 car payment. You're saying, okay, go open a savings account if you don't have one, or if you have one, start putting away month one, month two, month three, $500. If you, without any stress at all, can do that, then yeah, you can afford $500 a month. Part two then is thinking about the terms of that loan that you might enter into to help finance the full payment of the car. How do people go about teasing that out? Because it gets really complicated fast.

Kerri Smith: Yes, it can. And that's why starting out by knowing what you can afford. The great thing about that too, is that three months, if you've saved $1,500, that can be a down payment for that car. You could use it as your car maintenance fund after so that you can buy your tires or whatever. So it sets you up. But in that three months, your real education, you'll be doing your research on the type of car that you may want to buy. What I find is a lot of times people say, well, I want this high-end car and what you're buying has a very high expense to maintain that car. And what I mean by that is a lot of the larger luxury type cars or SUVs, the tires, instead of being $200 a piece, they're going to be $400 a piece. And the battery, a car battery for a sedan may only be $250. But if you have like I have a Dodge Charger, my battery is $400.

Headlights, there's a lot of the higher-end cars, a headlight is not just replacing a bulb, it's the whole light fixture. So you're going to spend instead of $75 for a bulb, you're going to spend $400, $500 for that headlight. So the same thing for the brakes and same thing for any kind of maintenance, your oil changes. If you have a big V8, like my Charger, I take six quarts of oil instead of five. So instead of costing $70 for an oil change, it costs me $125. All those things you have to consider before you buy the car and so you're going to do that research. You're going to look at really what do you need and what do you want and when I talk about that it's do you have family? Do you need to be able to get children in and out in car seats? Do you need a truck because you're hauling stuff? Wants and needs. Same thing with, do you need autonomous driving or do you just need cruise control? So in all of these different features of a car, is it really, do you need them or do you want them? And so you want to spend that time thinking about that.

Katy Smith: All right, so we're going to… we're saving our money during that 90-day period. We're researching the car that we need and then thinking about what we might want and what that might cost, not just in the initial purchase, but over the long term of maintenance and replacement. What else do we need to do during that time?

Kerri Smith: The next thing you want to really think about is if you do have a car that you're trading, you need to know what that car is worth. So there's a lot of resources, whether it's NADA, whether it's Kelley Blue Book, they all have value where you can go and find out what your car is worth before you ever go to a dealership. And the cool thing is, you can sell it outright if you want. You can look at places like Carvana and CarMax and other dealerships will buy your car, whether you buy their car from them. And really understanding what that asset you have is worth.

Katy Smith: The fact that if you have a car that you're going to sell or trade is a reminder that you have the power. And when we prepared for this, Kerri, you reminded me that, sure, you can go into any dealership and they might say, oh, is this a trade-in? And might wrap it up in the purchase of your new car. But they're really two separate transactions that people need to remember. Can you share that with folks?

Kerri Smith: Yes. And that is one thing because a lot of folks will get caught up in the dealership with the finance person. And the way that it's done, they can give you, they may give you more on your trade, but then you're not getting as much off of the car that you're purchasing. So if you treat them as totally separate, then you're not going to see that shell game of it's increased here and decreased here and that kind of thing. So my suggestion and the way I've gotten the best deal is I either sell it outright or I'll sell it or get what another car dealer would give me just for my car and then take that to the dealership when you go to negotiate for your new vehicle.

Katy Smith: Okay, so then that step is figure out what your current car is worth and sell it or at least be armed with information if you're going to do a trade-in.

Kerri Smith: The next step would be researching the car that you want to purchase. The make and the model. And you want to look at, use all consumer reports, look at all the reviews about different vehicles, look at recalls, what kind of recalls have those different types of vehicles have. And what we know is that typically a sedan, a four-door sedan, so that can be a Toyota Camry or a Ford Fusion or something along those lines. Generally, those are going to be much more cost-effective and have better reliability, because that is generally what automakers spend a lot of time on, because that's what they sell the most of. So they're going to be more reliable. And generally, they're not going to be as expensive to maintain. But there are some exceptions to that rule. So really, I suggest for folks too, if you don't or if you've never driven a particular type of car, go test drive. Don't go when you're ready to buy or rent a car from a rental place and try it out and see if that particular make or model works for you.

Katy Smith: That's a really interesting idea to rent a car. And I'll underscore what you say when you go into a dealership. People are going to say, oh, you know, so what are you thinking? And I mean, isn't it OK to say I'm not buying a car for 90 days? I'm just here to start thinking. And they'll use that movie phrase of, "What can I do to get you in this car today?" And you can say nothing, nothing, because I'm test-driving my payment. We're test-driving our payment by saving each month what we think we can do in a car payment. But there is more to that actual purchase. So I'm thinking that's the next step is how am I going to finance the payment of this car? And what do I need to consider in terms of using my bank or using the dealership? Can you give us some information on how to think that through?

Kerri Smith: Well, thank you for asking that question, because most banks or credit unions, you can go in and they can actually tell you what the value of a new car is or a car that you're looking at, a make and model. Just like you do on your trade, you can go into the credit union and they can even pre-approve you prior to ever going shopping. And so we do that a lot with our members. They come in and we tell them you can afford $25,000. This is what your payment would be. And this is the value of the make and model that you're looking at purchasing.

We'll give you that sheet, and you can go to the dealership and use that tool, that value. And you can say, I've already got my financing. All I need is I just want to purchase the vehicle. And again, it takes out all of that high pressure, sometimes negotiation at the dealership. But it also gives you the opportunity to really understand and know what that payment is going to be. And I will warn folks, sometimes, and we're starting to see it again, with 0% interest offered on new cars. I want to warn people sometimes, and this is a lot, we find it more often than not, that on 0% interest, there's a rebate involved in that vehicle. So that may be $5,000, $2,000, $5,000, $10,000 rebate. If you do 0% interest, you don't get your rebate. They're paying the lender their interest up front is how that works. So in fact, when we've done the calculation, it's actually cheaper to take that $10,000 reduction in the price of the car and pay a 6% interest rate, you end up paying less, than if you did 0% and not get that rebate.

Katy Smith: If you're hearing this and you're feeling intrigued but a little confused, I think the big takeaway is your credit union or your bank can be a really good thought partner with you. They've been through this hundreds of times and can help equip you with information to make a good decision.

Kerri Smith: Absolutely. And what we found is once… we've had individuals that bring us a buyer's order and we've actually discovered where somebody's trade-in didn't get put on the buyer's order. So they were not getting credit for their trade. So it is good to have somebody else kind of look at it on your behalf and give you the tools that you need to make good financial decisions.

Katy Smith: Okay. So people have worked through the steps. They've figured out what they can afford and they've saved that up for 90 days. They figured out what they're doing with their current car if they own one. They understand their financing because they've talked to their bank or their credit union and know their plan there. Figured out what car they want to buy that they can afford and that has maintenance that they can handle. It's time to buy. What last words of wisdom would you give folks or caution as they go about that process?

Kerri Smith: The Internet is a wonderful thing. And there are great sites like AutoTrader and there's Cars.com and CarGurus and all of those where dealers and individuals advertise. Some of the caution I would give people about, one is to make sure they're legitimate, check the dealership, check their reviews, and make sure that they are operating in a safe and sound manner. And then also, I would say, be cautious of sometimes dealers that buy here, pay here places, because sometimes their inventory is just straight from auction and not necessarily certified or it's all as is purchase. And a lot of them will advertise no interest. But what we found is the car price is generally anywhere from $3,000 to $5,000 more than the car's worth. And so that's why it's so important to know and get values and understand what that car's really worth before you sign on the dotted line.

Katy Smith: That's great, Kerri. Well, I am really appreciative of all of this great information. And now you listening have a plan. So if it's time for you to get a car, you can work this plan for three months and get one that will put you safely on the road and get your bank account in a better position than it may have been in without this advice. So thanks so much, Kerri, for all you do for our listeners and for the members of Self-Help Credit Union.

Kerri Smith: Thank you, Katy.

Catherine Puckett: Simple Civics: Greenville County is a project of Greater Good Greenville. Greater Good Greenville was catalyzed by the merger of the Nonprofit Alliance and the Greenville Partnership for Philanthropy. You can learn more on our website at greatergoodgreenville.org.