Helping Kids Prepare Financially for Driving and Car Ownership

The following post is by MPFJ staff writer, Laurie Blank.  Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.

One of the biggest parenting – and child – milestones is when your child becomes old enough to start driving on their own. Driving and car ownership are big responsibilities in many ways. Along with the responsibility to drive safely on the road, kids need to be taught the financial costs of driving and car ownership as well. Here are some tips on how you can prepare your kids for the financial impact of owning and driving a vehicle.

Calculate the Costs with Them

It’s important to teach your children a good deal ahead of when they get their license that driving and vehicle ownership costs money. When they become old enough to get their learners permit, sit down with them and start having discussions about what kind of car they want to drive, the costs of purchasing the car, purchasing gas, the cost of car maintenance and repair and the cost of insurance.

Since you’re spend-tracking (you are spend-tracking, right?), go over your own transportation costs with them so they can get a real-life idea that driving and car ownership costs money.

Don’t Pay for Everything

This is just my personal opinion, but I’m a huge believer in having kids pay for at least part of their transportation costs, even while they’re still under eighteen. Kids tend to hold more respect for that which they’ve worked hard to pay for.

Whether it’s a car, a college education or whatever, there can be a lack of understanding with kids regarding the work that it took to be able to pay for those things. When you give some or all of the responsibility for paying for car costs to your child, you help them to appreciate the privilege of driving, to learn real-life lessons about how the world works and you help them prepare for the transition to independent adult.

Set Rules for Driving Preparedness

It’s helpful when kids and parents have a mutual understanding of how vehicle ownership and driving responsibilities will work in your home. For instance, if your child wants to have their own car, show them how to set some money aside for a car maintenance/repair fund. Make sure they have enough money saved for an insurance deductible in case of an accident.

If your child will drive a family car, set clear rules about when they can use the car, when they can’t, and who will pay for what portion of gas, insurance, etc. It’s important too to have a clear discussion about what the consequences will be if the house driving rules are broken, who will pay the fine if your child gets a ticket and so on. When your child knows clearly how the rules work beforehand, there will be less pushback when a consequence needs to be administered or when they’re handed the bill for the increased insurance premiums due to getting a speeding ticket.

Other Driving and Vehicle Ownership Suggestions

There are other responsibilities that go along with driving besides the financial ones. For instance, one of our house rules is that we don’t push our kids to get their license right at the legal age of sixteen, instead allowing them to determine when they’re emotionally ready for the responsibility. It’s important to teach your children these rules as well:

  • Never talk, text or browse on your phone will driving. Pull over in a safe place if you have to make a call or text
  • Obey all traffic and driving laws at all times (this will be easier for kids if they see their parents doing the same)
  • The better you take care of your car, the less it will cost you
  • Make sure to insist that those who ride in your car wear seat belts at all times and stay calm while on the road so that they don’t distract you as you drive
  • Always be attentive, cautious and defensive when you drive, watching out for other drivers who may be distracted or aggressive
  • Avoid confrontations with other drivers by being polite on the road and heading to the nearest police station if there’s trouble
  • For tips on what to do if your vehicle breaks down on the road, check out this AAA Auto Checklist.

Driving and car ownership are big responsibilities, both financially and otherwise. The more you can teach your kids ahead of time on how to be prepared for those responsibilities, the better they’ll be able to handle all of the tenets of driving.

How about you all? What other suggestions do you have for teaching your kids about driving responsibilities?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/statefarm/7979445278/

Buying a Car 101: What You Need to Know

buying-a-car-my-personal-finance-journeyThe following post is by MPFJ staff writer, Melissa Batai.  Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.

I hate the whole car buying process.  From haggling to sitting in a dealership for hours, I just hate it.  That’s probably why my husband and I have not bought a car since we bought our current car 12 years ago.  However, the time had finally come when sharing one car was no longer working for us, so we set out on a search for a second vehicle.

Although our search lasted only two weeks, the entire process was annoying and stressful.  We did learn a lot, though.  If you plan on buying a car anytime soon, let me share with you what we learned.

Cash Is Not Always King

The old rumor used to be that you’ll pay less for a car if you pay cash.  While it is true that you’ll pay less for the car because you won’t be paying the interest over the life of the loan should you finance a car, paying cash won’t give you a lower price at the dealership.  When I asked one salesman about this, he said that dealers now prefer that you get a loan through them.

Why?  When you get a loan through the dealership, “an auto dealer actually acts as a middleman for car lenders.  To make money off the loan, some dealers will then offer you an interest rate higher than what they are paying the actual lender—or the financial institution that is backing your loan.  This rate increase is typically called the ‘dealer markup’ and can be an additional 3% in interest—significantly increasing the cost of your car.  This is perfectly legal most of the time, with only a few states limiting how much a dealership can markup rates” (Fox Business).

Know Your Credit Score

Before you even set foot in a dealership, make sure you know your credit score.  The higher your score, the more power you have to get very low interest rates.

Get Pre-Approval First

An easy way to learn your credit score is to go to your bank and seek pre-approval for a car loan before you begin your car search.  The bank will run your credit report and tell you how much you’re approved for.  This will give you a baseline number when dealing with the dealership.  It will also help you determine how much your monthly loan payments will be at different price ranges.

For instance, my husband and I were approved for by our credit union for a loan at 4.5% interest, which was more than we needed to pay.  Dealerships we visited offered us 3 to 3.5% interest rates, which we knew were a better deal than we could get at the credit union.

Know What Monthly Payments You Can Afford

I was surprised that our credit union pre-approved us for a loan amount with monthly payments higher than we felt we could comfortably afford.  Instead, we choose a car that was $6,000 less than our pre-approved amount—at that price, we could comfortably afford the monthly payments.

Just because you’re pre-approved for a certain amount doesn’t mean you need to use the full amount.

Don’t Negotiate Based on Monthly Payments

Every time we stepped on a car lot, we were always asked, “What is the monthly payment you’re looking for.”  Not, “How much do you want to spend for this car?”  Most Americans already have debt, so they’re comfortable evaluating the price of the vehicle based on a monthly payment amount, and the sales people use that to their advantage.

If you negotiate based on the monthly payment, not the overall price, you’re giving the salesman a tremendous amount of leverage.  “A dealership can easily meet your maximum monthly payment by stretching financing out over an additional year instead of actually reducing the price” (Money).

You may be surprised, as I was, to find that now banks and credit unions are willing to offer up to 72 month loans for used cars!  Am I the only one who thinks that’s crazy?!

Check the Blue Book Value

Once you have a car in mind, make sure to check the Kelly Blue Book value, either at home before you ever step foot on the lot or on your smartphone while walking around the lot.  My husband and I always searched the Internet for cars we wanted to look at in the dealership before we went on the lot.  At home, I checked the Kelly Blue Book value of the car we were interested in.  This let me know if the car was priced fairly or not.  It also helped me consider how much room I had to negotiate the price.

Be Aware Online Prices Are Not Always As They Seem

This was probably the biggest lesson I learned from our car search.  Internet prices are subjective.  We drove two hours to a dealership because we were very interested in a car that was in our price range and had fairly low mileage.  We took a test drive and were ready to buy the car.  When we sat down to negotiate, imagine our surprise when the dealer tacked on an additional $2,700 in “dealer extras” that were not listed as part of the Internet price.  That’s not even including the additional cost for plates, title, etc.

What were the dealer extras?  Applying a special exterior coating to keep the paint from fading or peeling and a special coating inside on the upholstery and flooring to repel stains.  We called foul and left the dealership.  That was a whole day wasted from what I called false advertising.

When we called the next dealership, we were on to this game.  I asked if the Internet price had any additional fees added on.  It didn’t.  That dealership was upfront with their Internet pricing, and we ended up buying from them.

Negotiate Up from the Dealer’s Cost, Not the Sticker Price

When you begin negotiating, you have a powerful tool if you don’t start your negotiations based on the sticker price.  Money states, “Consider starting around the invoice price, or the price a dealer pays the manufacturer for the car.  Edmunds.com notes that a popular strategy is to ask to see the dealer’s invoice and offer an amount, say $500 over that.  Invoice forms can be difficult to read, so spend a little time looking over one before testing this strategy out.

“While getting a price at or below invoice is ideal, be prepared to spend an amount somewhere between the sticker and invoice price.  Ideally, you’ll at least pay no more than the average sales price you were supposed to look up on sites like Edmunds and Kelly Blue Book.”

Don’t Be Afraid To Walk Away

People always say, “Don’t be afraid to walk away,” and I found that to be true.  I couldn’t believe how many sales people would call us at home and continue to negotiate.  I wish that they wouldn’t say, “final offer” when it’s not really their final offer, but keep in mind if you walk away, you likely still have room to negotiate.  The sales person will likely be calling you to further negotiate.

Car buying is not fun for me, but I wish it had been easier.  With these tips, you can hopefully have a smoother, less eventful car buying experience than we did.

How about you all? What other tips would you add to help make the car buying experience smoother?

Share your experiences by commenting below!

****Photo courtesy https://www.flickr.com/photos/rubelroy/9096822638/

The Introvert’s Guide to Negotiating Car Sales

The following is a guest post by Kat Tretina. Kat is a freelance writer who became obsessed with personal finance after realizing how ridiculous her student loans were. She has her own site at www.ktretina.com. Enjoy! 

When you’re an introvert, the thought of negotiating on anything can be terrifying. Facing off against a car salesman ranks up there with undergoing a root canal without anesthesia. But if you don’t negotiate, you will end up paying thousands more. Luckily for introverts, there is a way to negotiate effectively and get a great deal, without leaving your home. You’ll be in and out of the dealer within a half hour driving your new car.

We’ll cover the process so that you will be prepared for your next car purchase.

 

Do Your Research

This plan only works if you know what you want. If you think you want a sedan but aren’t sure what make or model, this process won’t work. You need to have a specific car in mind. Go onto sites like Kelley Blue Book to see what other people in your area have paid for the model you’re looking for. Kelley Blue Book will show you what a great deal looks compared to a poor one. This will give you a gauge of what to shoot for during negotiations.

For this example, we’ll use a basic Nissan Versa (see below for screenshot). From this you can see that MSPR is 12,835, but people are not paying close to that. Instead, a fair price is considered to be between $11,573-$12,182, with the average at $11,878. We’ll be looking to beat that.

 

Plan Your Targets

Next, find dealers in your area that stock the car you want that have a decent reputation. I recommend identifying at least 5-10 dealers. Then pour yourself a cup of coffee and get ready to spend some time on email.

Send each dealer a note with this script:

“Hi there,

I am interested in buying the 2016 Nissan Versa, model S. I will definitely be buying it one way or another on Saturday, but I’m looking for the best deal in the area. Can you tell me what your best out-the-door price is—inclusive of all fees?”

You will get very prompt responses. Some will try to call you; tell them you prefer to keep things over email. Others will try to talk about monthly payments or financing and some will decline to negotiate over email at all, so scratch them off the list. But several will get back to you with a price. Go over each offer to ensure the price is inclusive of all fees.

Once you have a few offers, send a note to each dealer in turn. Tell them what the best offer is and ask them if they can beat it:

“Hi there,

City Nissan said they can give me the Versa for $11,800 with everything included; can you give me a better deal?”

At that point, some dealers will bow out. But others will come back with a lower offer, in which case you repeat the process again with the other dealers until everyone has bottomed out. At that point, you should be at the lowest end—or even lower—than the best price Kelley Blue Book listed.

 

Time to Pick Up Your Car

From there it’s very easy. Let the dealer know you’re on your way so they can clean up the car, print off the email with the final price you agreed to and stroll into the dealership. Show whoever comes to help you the email and they will connect you with their sales manager.

If they try to change anything you agreed upon—if they claim the car isn’t in stock, they have a similar model with certain upgrades, etc—you are to stand by that email and walk out if necessary. You have an offer in print, so this rarely happens at reputable dealers, but you should be prepared in case of surprises.

Once you know the car you want at the price you agreed on is there and ready, then you can discuss financing options if needed. Again, be careful here that they stick to the out-the-door price you agreed on and ensure they don’t add on extended warranties or service packages. Keep saying no until all of the paperwork is done.

With all of the negotiation and prep work out of the way, you should be in and out of the dealership with your new car in less than an hour. Congratulations! Despite a desire to hide from negotiations, you successfully argued down the price and got a great deal. This is a great way to buy a car without the hassle and stress of a high-pressure salesman.

How about you all? What have you found is the best approach for negotiating when  buying a car?

Share your experiences by commenting below! 

How to Buy a Car From a Car Rental Company

car rental my personal finance journeyThe following is a post by MPFJ staff writer, Kevin Mercadante, who is a freelance professional personal finance blogger for hire, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

Most people think that there are two places to buy a used car – a used car dealer or an individual. But there’s actually a third, and that’s a car rental company. They sell thousands of cars each year, offering many of the same advantages that you get in working with a car dealership, except you’ll usually pay thousands of dollars less for the car you want to buy.

We’re going to cover the basics of buying a car from a car rental company. We’re going to use Hertz as an example. Hertz has a dedicated web page for car sales, appropriately titled Hertz Car Sales. From that page, you can browse hundreds of cars in your area that are being offered for sale. Within 100 miles of Boston, Hertz has over 1,400 cars available, but you can pick any large city near you.

Lower Prices than Used Car Dealers

Car rental companies are not car dealers, so they aren’t looking to maximize the profit on the sale of their cars. They also don’t have commissioned sales people who need to be paid out of the proceeds. They mostly want to sell off their large fleets of existing cars to make room for newer models. Car rental companies generally use a car for two or three years, then it’s time to replace it. All of that works to your advantage when it comes to price.

Most of the cars offered for sale on the Hertz Car Sales page are one or two years old, and typically have between 30,000 and 60,000 miles on them.

Some examples of what’s available:

  • 2014 Volkswagen Jetta SE with 46,000 miles, $10,375
  • 2013 Chevrolet Cruze LT, 56,000 miles, $9,475
  • 2015 Chrysler Town and Country Touring Van, 40,000 miles, $21,779
  • 2014 Ford Fiesta SE, 41,000 miles, $8,900
  • 2014 Honda Accord Sedan LX, 42,000 miles, $14,700
  • 2014 Hyundai Elantra SE, 48,000 miles, $10,475

If you click on the link for each vehicle, you’ll be looking at a page that looks very similar to what you will see on a dedicated used car dealership page. They list all of the details of the car, including options, and provide multiple photos of the vehicle. You can also book a three day test rental, ask a question, or apply for financing – all on the same page.

Wider Selection than Used Car Dealers

Used car dealers typically have small numbers of cars of a certain model and make. Selection is limited by what ever type and number of vehicles that come to the lot. Car rental companies however buy fleets of cars. That means that they may have dozens of similar makes and models of the same car, almost the way new car dealers have new cars.

That means you will have more options than you will have with a used car dealer. If you don’t like the color, you can choose another (though admittedly, car rental companies have limited color selection as a general rule). Don’t like the sound system in one car? Move on to the next.

Car rental companies are almost unique in their ability to offer multiple options on used cars within the same make and model. The Hertz Car Sales page conveniently groups similar makes and models in the same place, so you can choose the car you like best.

And if you don’t see the option package in the make and model that you want, you can wait a few days. More inventory is always coming in.

Rent2Buy – A Chance to Test Drive the Car You May Buy

Hertz has a program called Rent2Buy that gives you a three day trial period to test drive the car. You rent the car for three days at the going rate, and if you decide you like the car, you can buy it. The three day rental charge will be waived upon completion of the sale.

This is a big advantage. Test driving a car for 15 or 20 minutes, as is the custom with used car dealers, is not nearly enough time to become familiar with how a car runs and feels. But with three days, you’ll have a much better idea if the car is right for you. You can even use that time to have the car thoroughly checked out by your mechanic to see if there are any hidden flaws. In fact, Hertz recommends that you do just that.

Warranties and Extended Warranties

Just as is the case with used car dealerships, cars sold by car rental companies come with remaining factory warranties. So if a car is two years old and has 40,000 miles on it, and the manufacturer warranty is seven years or 100,000 miles, it will be good for another five years or 60,000 miles, whichever comes first.

With Hertz, all vehicles come with a 12 month/12,000 mile powertrain limited warranty. And you can purchase extended protection plans from the company as well.

Yes, You Can Even Get Financing

Car rental companies don’t extend financing directly, but much like car dealerships, they work to match you with lenders to get the best rate and loan for you. Hertz even has an auto loan calculator tool on the site.

And once again, you can apply for financing directly from the Hertz website. The financing and all the paperwork will be handled online, which will also reduce the tension that often comes from face-to-face negotiations.

Accepting Your Car as a Trade-In

One other point worth mentioning: Hertz will accept your current vehicle as a trade-in toward the purchase of one of their cars. This is one of the primary reasons car buyers go to used car dealers, so that they can trade in their current vehicle hassle-free, or not have to sell it themselves.

The Hertz site doesn’t give details as to the terms of trade-in acceptance. For example, they don’t list any limits as to age, condition or mileage. But if there are any limits, you can always sell the car to CarMax (trust me, they’ll buy a car in any condition, year or mileage!) or a used car dealer in your area that buys cars even if you don’t by one from them.

So there you have the basics on buying a car from a car rental company. We’ve used Hertz as a model, but you can find similar opportunities at other car rental companies. Check them out when it’s time to buy a new car, I think you’ll be pleasantly surprised.

How about you all? Have you or someone you know purchased a car from a car rental company? What other tips do you have for purchasing a car from a car rental company?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/44603071@N00/8135713685/sizes/q/

7 Ways to Maintain the Value of Your Car

car-my-personal-finance-journeyThe following is a post by MPFJ staff writer, Kevin Mercadante, who is a freelance professional personal finance blogger for hire, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

Even if you aren’t a car buff, you have a vested financial interest in maintaining the value of your car. At a minimum, you’ll need to either trade it in or sell it to provide at least part of the down payment on the next car that you will buy. You will want to keep the car in top shape, so that it will command its maximum value.

Age, condition, options, and mileage all figure significantly in determining the resale value of your car. You can even check how much impact each will have on your car’s value on websites such as Kelly Blue Book and Edmunds.com. You can run different value scenarios on either site to determine the value of your car, whether for trade-in or for sale to a private party.

With that in mind, here are seven ways to maintain the value of your car.

1. Keep to the Recommended Maintenance Schedule – and Keep Records

Your car owner’s manual should have a maintenance schedule, that will let you know when it’s time to change the oil, change the filters, have the brakes checked, and perform more serious maintenance. You should follow the schedule closely. Not only will it keep your engine running more smoothly, but it will prevent more severe repairs that can result from neglect.

In addition, the better the car runs, the more resale value it will have, particularly if it is more than a few years old. You should also keep a file with all of your maintenance records. A prospective buyer would be interested to know that the car has been well cared for.

2. Fix Whatever Is Broken as Soon as Possible

One of the unfortunate realities of automobile ownership is that problems don’t get better with age. Little problems can become big problems, and big problems can also have a negative effect on other systems in your car.

For that reason, fix whatever is broken as soon as possible. That will prevent the domino effect of car repairs that often causes the owner to sell the vehicle prematurely.

3. A Little Wash and Wax Goes a Long Way – And So Does Periodic Detailing

The appearance of your car will have a major impact on its resale value. All other things being equal, the prettier car will sell faster and for more money.

Much as is the case with buying a home, buying a car is largely an emotional decision. A person might make the choice to buy your car just because it has more curb appeal.

In order to have that curve appeal, it’s important to keep up appearances with your car throughout the time that you own it. Have the car washed and waxed regularly, so that with the paint job will get maximum protection from the elements. And having the car fully detailed at least once or twice per year will help prevent discoloration, wear and tear, and the accumulation of dirt that could make a car look a lot older than it really is.

And here’s another bit of maintenance advice I was given by a mechanic – if you live in a area that gets a lot of snowfall, have the undercarriage of the car washed a couple of times a year. Road salt can corrode the undercarriage in a few short years, causing serious damage.

4. Keep Your Mileage to a Minimum

In some cases, mileage plays a bigger role in the resale value of your car than the age does. For example, a 10-year-old car with 80,000 miles on it may have more market value than a seven-year-old car with 120,000 miles.

This creates a compelling reason to keep your mileage to a minimum. The average driver will drive between 10,000 and 15,000 miles per year. To the degree that your vehicle reflects higher usage, the value will drop according.

Get in the habit of consolidating trips, alternating vehicles, renting a car for long trips, and keeping casual cruising to a minimum. All of these habits can chop a couple thousand miles per year off your odometer. And that will make a big difference when it comes time to sell the car.

5. Drive It Easy

Cars have an uncomfortable habit of reflecting their owner’s driving patterns. Drive a car hard, and it will look the part. Drive it easy, and it will reflect more gentle ownership.

Let’s face it, not only does hard-driving cause parts and systems to wear out more quickly, but it often result in more dents, dings, cracks and scratches too.

Do your best to drive within speed limits, go easy on your brakes, and be careful where you park your car. All can have an impact on how well your car ages. You want to make sure that happens gracefully.

6. Give Your Car Periodic Facelifts

Maybe once a year, take a stroll around your car, and look at it as if you were going to buy it. Are there scratches or dents? Worn carpet or seats? Do the speaker buzz when the radio is on? Are the wheel covers cracked? Are any light bulbs out?

None of these items may bother you as the owner of the car. After all, none affect the driveability of the vehicle. But a buyer will look at each of those, and give them exaggerated importance. As the saying goes you are what you drive, and no one wants to think of themselves as tired and worn out, as reflected by the car they own.

Do this critical inspection once a year, and fix those small items that will likely infuriate a potential buyer. By doing it periodically, you can minimize the cost. But if you wait until just before you’re going to sell the car, it could cost hundreds more.

7. Use Your Garage for it’s Intended Purpose

I don’t have any hard and fast numbers here, nor do I know if a poll has ever been taken on this issue, but I’d be willing to bet that at least 50% of the people who have garages use them for some purpose other than storing their vehicles. Extra storage space is a common usage, as is a play area for children, or even use as a workshop. Some people even convert the garage into extra living space, which real estate agents always advise is a bad move (but that is a topic for another article!).

But if you have a garage, and you still park the car in the driveway or on the street, you are exposing it to the elements. That means scorching sunshine, whipping winds, rain, snow, hail, and even falling branches. At a minimum, that kind of exposure will gradually dull the paint job on the car. Worst-case scenario, it can result in very noticeable damage that will hurt the value of the car.

If you’re fortunate enough to have a garage, by all means, park your car in it. It’s a completely passive way to improve the value of your car.

Maintaining the value of your car is an ongoing activity. Put these strategies into use as early in your car’s life as possible. It will pay off in the end in the form of a higher resale value.

How about you all? Do you have another tip for maintaining the value of your car? What do you do to keep with the upkeep of your car?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/greggjerdingen/14924958287/