Ep 19 - The 10 Rules of Not Getting Screwed When Buying or Leasing a New Car

Buying a car is not just a consumer choice.

It's a high-leverage financial decision that echoes through your budget, your net worth, and your mental bandwidth for years.

The average car loan now stretches beyond 70 months.

And for many households, it's their second largest expense after housing.

So this isn't just about driving.

It's about designing the next five years of your financial life.

Hello, friends.

This is Tyler Gardner welcoming you to another episode of your Money Guide on the Side, where it is my job to simplify what seems complex, add nuance to what seems simple, and learn from and alongside some of the brightest minds in money, finance, and investing.

So let's get started and get you one step closer to where you need to be.

Today's episode focuses on something that impacts almost every single one of us at some point in our lives.

The buying or leasing of a car.

And how, if we don't understand the money and power languages of buying or leasing said car, we will, bluntly, get screwed.

This episode will help you take back the power and learn the financial language that you need to know.

But let's get something straight right from the start.

This is not one of those episodes from another financial boomer voice where I tell you that you'd be a ding-dong to buy or lease a brand new car.

I'm not here to guilt you into endlessly sifting through sketchy ads on Craigslist posted by user263 Hemi4Life, or to pretend you should be thrilled driving a 12-year-old Civic with no backup camera and three hubcaps.

Personally, I love cars.

Specifically, I love new cars.

And because I myself am a fickle ding-dong, I love leasing new cars.

I know, I hear you all saying this guy can't possibly be a financial voice who has any understanding of how finance works.

But I'm just letting you know in advance, I've spent real money on cars and I enjoy them thoroughly.

Not because it's the mathematically perfect financial move, but because it genuinely brings me joy.

Every time I drive a car I love, I feel better than when I am not driving a car I love.

Even though I know this is personal finance sacrilege, including, but not limited to, how I'm about to present this, I believe buying a car or even leasing a car is a type of investment.

It is an investment in my experience.

I drive every day.

I travel.

I take meetings on the road.

I take my dogs on car rides just for fun to get them out of the house.

And driving a car that is quiet, reliable, and let's be honest, a little fun and maybe even fast, well, that improves my quality of life in a way that no spreadsheet can fully explain.

It is also one of the only things in life that I've decided to spend real money on, so I can usually get away with it without entirely breaking the bank.

So it should be clear, this episode is not about talking you out of buying or leasing a new car.

It's about making sure you buy it or lease it the right way with the right knowledge, with strategy, strategy, not emotion.

Because if you're going to spend real money on something that depreciates, aka not an investment, even though I just said it was, you owe it to yourself to make sure you don't get taken for a ride in the process.

And before we jump in to the 10 rules that I have created to help you always get the most bang for your buck at the dealership and to understand all of their endless jargon and nonsense, I have one small favor to ask of you today.

If you've been enjoying the show, it would mean a lot to me if you left a quick review.

These reviews help more people find us and they make this endeavor 100% worthwhile.

And if there's something you're not loving about the show or you'd like to see more of, please and always feel free to shoot me a note directly at socialcapconnect at gmail.com.

I read every message.

even if I can't reply to all of them, and I internalize the feedback quickly.

Remember, this show is for you, so let's make it as great as we can together.

Buying a car should feel exciting.

For most people, it marks a fresh start, whether you just got a new job, you're growing a family, or you're splurging on a well-earned upgrade.

But what should be a straightforward transaction, as all too many of us know, has quietly, well, loudly, become one of the most financially dangerous moments in modern consumer consumer life.

According to Kelly Blue Book, the average price of a new car in the U.S.

reached $47,000 in 2024.

That's not a splurge.

That's a down payment on a home, a year of college, or 10 years of compound interest gone in one whimsical afternoon.

And it's not just the sticker shock that gets you.

It's the back-end financing, the upsells.

the depreciation, the insurance products, and the fine print that is designed to make you feel like you're getting a deal when you're actually giving one away.

Today's episode is your defense plan, and as always, I have done my best to make this episode about the timeless principles that will be as true today as they will be in 10 years.

We'll walk through the 10 most common traps and slip-ups people make when buying or leasing a new car, and how to avoid every single one of them.

From financing hacks to timing strategies to what never to say when you're actually on a dealership lot, this is your guide to walking in prepared and walking out without regrets.

Because in a game this expensive, the winner isn't the one with the nicest car.

It's the one who didn't get screwed.

So without further ado, the 10 rules of car buying or leasing according to, well, me, Tyler, your money guide on the side.

Rule number one: never

go to a a dealership.

Email, email, email.

The moment you physically step onto a dealership lot, the power dynamic shifts drastically.

They have done this thousands of times.

You haven't.

The salesperson is trained to build rapport, guide the conversation, and keep you at the dealership until you have been grounded down to a fine mess of impatience and anger, until you're so ready to leave that you will buy anything they offer at any price just to get your license and keys back.

Trust me, I've done that.

That's why, without a doubt, and if you learn nothing else from this episode, the smartest way to buy a car starts by not going to a dealership, but by emailing several dealerships.

Why?

Because email flips the power dynamic.

It removes pressure, buys you time, and most importantly, creates a paper trail.

You want everything from the start in writing.

The VIN number, the out-the-door price, that's including taxes, tags, and fees, any applicable rebates, and the exact financing terms.

This isn't just about transparency.

It's about leverage.

When it's in writing, they can't wiggle the numbers later once you get to the dealership.

And here's the real advantage.

Email lets you shop multiple dealers against each other without driving all over town or falling for one hard sell.

Here is the template of the message you are going to send to as many dealers as you'd like.

Hello, I'm comparing pricing across local dealerships for insert the exact make and model you'd like.

If you can beat this price or offer better terms, please let me know, and I will look forward to working with you.

Dealers will respond to this type of message and their response will most likely always be, well, hello, we would love to share our prices with you and we think you will be really happy with them.

When can you come in to set up a meeting and discuss?

Nope.

Email back and make it clear that you're not coming in and this is a transaction that will begin and end via email and via paper trail.

And if they tell you they don't quote over email, A, that's not true, B, that's not your dealership.

Oh yeah, and C, they lost your business.

Trust me, I bought my last three cars by doing this, and though many dealerships pretend they won't do this over email, yes, they will, and the good ones do.

Those are the ones that got my business, and hence eliminated all negotiation nonsense when I went to get the car.

The competition for your business alone gives you the upper hand.

You're no longer the lone buyer walking into their territory.

You are now the informed customer playing them against one another from a position of strength and from a position of emotional detachment, which will always be a good thing when we're making financial decisions.

Rule number two,

never talk monthly payments.

This is the oldest trick in the dealership playbook.

get you and keep you focused on the monthly payment and they control the rest of the math.

As I've said in some of my content before, if you were to give me two minutes and a financial calculator, I'll have you out the door paying $1 a month for whatever car you want, and I'll still find a way to win because the monthly payment means nothing.

And that's too bad because most of us don't walk into a dealership saying, I want to pay $37,800 for that car.

We walk in saying, I can afford $600 a month.

And that's exactly what we end up sharing with the salesman first, and it's exactly how we end up overpaying.

According to the Consumer Financial Protection Bureau, dealerships frequently manipulate loan structures to lower the monthly payment while inflating the overall cost through extended loan terms, hidden fees, or padded interest rates.

Additionally, dealerships can and do lower the monthly payment by asking for a higher down payment, offering you less for your trade-in, or by asking for a higher residual payment at the end of the lease term.

Let's take a quick look at the math.

A $40,000 car at 4.9% over 60 months costs you about $752 a month, and you'll end up paying around $45,000 over the life of the loan.

But that same car at $650 a month might sound like a deal.

Until you realize the dealer has stretched it to to 84 months at a higher rate, like 7.9%,

and now you're paying over $54,600.

That's about $9,000 in additional cost, all for a lower monthly payment.

And that's literally just scratching the surface of ways to get the monthly down.

This is why you will always hear car dealers lead with the following question.

What are you looking or able to spend a month?

The second you say that number, they win, you lose.

And dealers love this model.

The longer the term, the more interest they earn, and the easier it is to get you to say yes.

But you're not buying a payment plan, you're buying a car.

Remember, a payment plan is just a delivery method.

Your job is to make sure the product itself isn't overpriced.

So keep your eyes on the total number, not the monthly illusion.

Rule number three, just say no once you're in the finance room.

So, you think the negotiation is over once you agree on the out-the-door price.

Well, it isn't.

It just moves into a different room.

One with lower lighting, fewer windows, and a job title you didn't expect.

F and I, or finance and insurance.

And hint there's a reason that the finance folks at dealerships are often paid more than anybody else.

This is where dealerships make their real money, not off the car, but off of you and your fear.

Once your guard is down and you believe the negotiation is over.

According to the National Automobile Dealers Association, FNI products now account for over 25% of total dealership gross profits.

That's not a side hustle.

That's their business model, and you're getting taken.

Here's how it plays out: you're tired, you know, because you made the mistake of going to the dealership and now you've been there for six and a half hours.

You've test-driven the car, negotiated the price, maybe even celebrated a bit because you finally locked in a number.

Then the finance manager starts sliding papers with small text across the desk.

Extended warranties, gap insurance, paint protection plans, theft deterrence, key key replacements, VI etching, all sold with urgency and fear tactics.

If you think I'm kidding, just say no immediately and see how quickly they try to convince you that you're making the biggest financial mistake of your life and are going to total your brand new car on the way out of the lot.

This has happened to me multiple times.

Suddenly, your $40,000 car is $44,000 and climbing.

You've walked into a coffee shop, bought a $4 drink, and left with a $1,200 mug.

And note, if you truly want gap insurance, which is the insurance that covers the difference between what you owe and what your car is worth if totaled, which yes, can be a decent size gap due to the immediate depreciation of the vehicle when you drive off that lot, check with your auto insurer first.

Geico, Progressive, State Farm.

Those companies will often offer gap insurance for a fraction of what the dealer will charge, but they know most people don't go in that prepared.

The rule here is simple.

If you didn't plan to buy it before you walked in, you don't need to buy it now.

Say no, clearly and repeatedly.

And you're not being rude, even though they will make you think that you are.

You're being smart.

The FI office isn't where you protect your car, it's where you need to learn to protect your wallet.

Rule number four: buy a car that is already on the lot.

Here's a little-known truth about how dealerships actually work.

And most people do not know this.

Every car sitting on their lot is not an asset.

It's a liability to the dealership.

Because most dealers don't actually own their inventory.

They finance it through what's called a floor plan loan.

which accrues interest monthly that they have to pay so long as the cars sit on their lot.

And just like you don't want to pay interest on your loans, neither do they.

According to Automotive News and Cox Automotive, dealers typically pay between 1 and 2% in monthly interest on unsold vehicles.

That means a $40,000 car could be costing them $400 to $800 a month just to let it sit.

Think about that.

When they say they just can't find a way to reduce the car's price by 500 bucks, yes, yes they can.

And at the right time, yes, yes they will.

That ticking clock is your negotiating leverage.

This is the same as buying a house that's been listed for months.

The dealership is not thinking about the same profit margin anymore.

They're thinking about how do we stop the bleeding?

And if that car is already loaded with options or painted a less popular color, even better.

You're their chance to move stale and pricey inventory.

So you can start by asking the salesperson directly, what's been on your lot the longest?

Which VINs have the most aging days?

And do you have any floor plan inventory coming up on its 90-day deadline?

Again, if they're good folks wanting to do good business, and many of them are, they'll tell you because they want to move that inventory.

This isn't just about price.

It's about motivation.

A freshly arrived custom ordered car has no urgency attached, but one that's been racking up carrying costs for weeks, that's a deal waiting to happen.

Rule number five, bring your own financing, but be strategic about this one.

Before you step into a dealership, and again, after you've locked in a price via email, get pre-approved for an auto loan.

It's not just about locking in a good rate.

It's about walking into the dealership with leverage.

Without pre-approval, you're flying blind.

Whereas with one, you've set a benchmark and you've done what we need to continue to do by changing the power dynamic.

You could start by trying your local credit union or a reputable online lender.

According to BankRates Auto Loan Rate Tables 2024, credit unions consistently offer interest rates that could be one to two percentage points lower than national banks and dealer arranged financing.

And here's the quick math for you to consider.

On a $40,000 loan, the difference between 5.5% and 7% over five years could mean saving $1,200 in just interest.

That's just for showing up with your own financing.

But here's one interesting and nuanced twist.

Once you have that pre-approval in hand, let the dealer try to beat it.

Why not?

It's not a trap.

It's a tactic.

Dealers have access to very captive lenders like Honda Financial or Toyota Financial.

And sometimes they're given incentive money from the manufacturer to secure financing in-house.

I once had a dealer ask me straight up if they could beat my 3.5% financing, would I finance with them?

I said, yeah, of course.

And they offered 2.9%.

And off I went with my new Subaru WRX when I was going through my I Wish I Was 16 again phase.

I told you, I love cars.

I just felt a little odd in that one at 27 years old.

If the dealer knows they have to beat your pre-approval to earn your business, they might lower the rate, knock money off the car, or throw in at least a couple extras just to win the deal.

You've taken what was once their leverage and you've turned it into your own.

One key here is to separate the car price from the financing conversation.

Lock down the out-the-door price first,

then talk about how you're going to pay.

Whether you go with your pre-approval or the dealer's offer, you win either way because you controlled the terms.

Rule number six, do the depreciation math.

Now, here's where we get into some more of the emotional components behind buying a vehicle.

Most people don't buy a car.

They buy a feeling.

That fresh off-the-lot smell, the untouched seats, the upgraded trim package.

Trust me, I get it because I do it every three years.

And while that's fine in theory, it comes at a steep, often invisible cost.

Depreciation.

Remember, even though I'm defining the buying or leasing of a car as an investment in experience, it is not, by traditional financial language, an investment because it depreciates immensely the second you drive off the lot, sometimes as much as 20% in the first year and up to 60% in the first five years.

So what does that mean in real numbers?

A $50,000 SUV might be worth just 20,000 bucks five years later, even if you've taken great care of it.

That's $30,000 in evaporated asset value, and most buyers never see it coming.

They're too focused on the monthly payment, the color, or whether Apple CarPlay comes standard.

So just ask yourself this.

Would you invest $50,000 into something guaranteed to be worth $20,000 in five years?

And if so, what would make it worth it?

Now, this also doesn't mean new cars are always a bad deal.

Sometimes they make a lot of sense for people.

You get a full factory warranty, predictable reliability, and immediate availability of whatever vehicle you might want, especially in tight supply years.

If those things matter to you, great.

Spending money, anytime and always, is about values, not dollars.

Find what you value, name what you value, spend the money accordingly, or you're going to die with it.

So one strategy is you could look for nearly new models, cars that are one or two years old with low mileage and clean history.

That way, someone else has taken the biggest appreciation hit, and you still get many of the benefits of a relatively new car.

That's why most finance experts will tell you that the sweet spot is a three-year-old car that still runs well and has low mileage.

Rule number seven: this is a big one: separate deals

always,

Because here's one of the biggest mistakes buyers make.

Walking into a dealership and saying proudly, I'm buying a new car, I'm trading in my old one, and I need financing.

Well, congratulations.

You've just handed them control of three profit centers at once.

The smarter move?

Separate every deal completely.

We've already been over the importance of starting first and always from negotiating the out-the-door price of the new car.

That's the full amount, including taxes, tags, and fees.

And again, we do that via email.

We get it in writing and we lock it in.

Now, even via email, do not, do not, do

not mention you have a trade-in.

Why?

Because just as we saw with ways they can screw you by focusing on monthly payments, if they know you're trading in, they can and often do inflate the value of your car to make you feel good and proud while quietly patting the price of the one you're buying.

Or worse, they'll lowball your trade completely and act like they gave you a deal elsewhere.

It's literally shell game math, and you lose every single time.

So we want to start by focusing on one shell at a time.

Once you have the OTD price locked in, then go get your financing quote.

And then finally, if you want, bring up the trade-in.

This isn't some dink move on your part.

It's as crucial as PEMDAS was to your order of operations in high school or middle school math.

I don't know how smart you are.

Whenever you PEMDOS to last.

And what most people miss is you don't have to sell your used car to the dealership.

The dealership knows that most people do prefer the ease of offloading the car immediately so that someone else has to deal with it and they capitalize on that.

Often, however, you'll get a much better deal selling privately or through a platform like CarMax or Carvana.

Even if you do trade it into the dealer, coming in late with that information gives you an edge.

It's no longer part of the main negotiation.

It's an afterthought you can use to your advantage.

And if you ever want to see how true this is, just realize how few dealerships will actually purchase your used car after you've already locked in an out-the-door price.

They no longer have as much of an incentive to do so.

Remember, dealerships make money by bundling many deals together.

You protect yourself by breaking them apart.

Rule number eight, or should I say myth on this one.

The myth is that leasing is the worst thing you could ever do with your money.

I'm going to show you why leasing can be fine so long as you speak the language.

Leasing gets a bad rap in personal finance circles, and often for good reason.

It's easy to get into, harder to understand, and downright punishing if you break the rules.

But if you're the right kind of driver and you understand the math, leasing can actually be a smart financial move.

Here's when leasing makes sense.

You actually drive fewer than 12,000 miles per year.

You like driving a new car every two to three years.

That's me.

And I prefer the no-cost exchange at the end of the term versus the hassle of buying and selling a car every few years.

Or you're using the car for business and can write off the lease on your taxes.

In these cases, leasing can give you predictable costs, full warranty coverage, and no long-term ownership headaches.

But you need to speak the language.

And here are three terms that you need to know, and most people don't.

One, the capitalized cost.

It's the the sale price of the car.

They just call it something different.

You can negotiate this just like a purchase, and you should.

Number two, the residual value.

This is big for leasing.

This is what the car is expected to be worth at the lease end.

It's what I would pay if I wanted to buy it at the end of the lease.

The higher the value is, usually the lower your lease payment is.

And number three, and perhaps the most important to me that really most people don't understand, money factor.

This is where they get most people.

Why on earth do they use language like this?

I'd like to say I don't know, but I do know, because it's the same in finance, to confuse you into making costly mistakes.

The money factor is the lease's interest rate expressed in pure gibberish.

To convert it to an APR, you multiply it by 2,400.

So if you're staring at a money factor of 0.0025, that's a 6% APR.

Leasing, as I noted, isn't always a bad deal.

In a high interest rate environment, like we've seen post-2022, lease deals can be artificially sweetened by manufacturers.

Automakers even often subsidize leases through their captive finance arms, like Toyota Financial, Ford Credit, offering below market money factors.

or inflated residual values.

That means you can pay less monthly because they're eating part of the cost cost to move inventory.

In contrast, loan rates from banks or credit unions might sit at 6% to 9% APR, making traditional financing more expensive.

And if you're thinking of paying cash, that's fine.

But remember, if the lease is already heavily subsidized, it might actually be cheaper to lease and invest the difference, especially if your cash is earning 5% plus in a high-yield savings account.

or you have a long time horizon and you're comfortable investing in the markets.

Leasing isn't always a bad deal.

It just requires real math.

You need to compare the total cost of leasing versus the total cost of ownership.

And I hope the above terms have given you a sense of how you can do that.

Rule number nine, back to the emotional component.

Do not, do not, do not buy a car when you need a car.

I know that sounds very counterintuitive.

The dealership, even via email.

They can smell you coming if you are in the market for a certain car and only that car and you want it right now.

The moment you let that emotion take control, you've lost.

Urgency becomes your enemy and the dealer's best friend.

The more desperate you are, the less they will negotiate.

You'll accept a higher price, a worse interest rate, just to get the vehicle you want.

Again, it's the same in home buying.

There's a reason, if you work with a buyer's agent, that when you go into a home showing, they tell you to shut your mouth.

That is why smart car and home buyers plan months in advance.

You remove the emotion.

I have emails into several dealers right now.

I told you, I love cars, asking them to let me know when they can hit a certain price on a certain vehicle that I want.

I don't get a lot of bites, and that's okay, because I don't need a car right now as I still have a year left on my current lease.

But if I start now, I cast a wider net, and who knows when one dealership might want to move that one vehicle at a certain time.

I will outweight them, and I'll do it from the comfort of my own home.

Also keep in mind, the car you want will always come back around.

Don't ever let them tell you this is a limited offer and you'll never see this model again.

New models roll in, incentives change, leases get returned.

You need to be able to walk away if the deal is not right for you.

And we finally made it to rule number 10.

Don't buy until THEY NET TO SEL.

We've already touched on the fact that cars on the lot cost the dealership money via interest.

And you already know you shouldn't buy a car when you need one.

But here's the second half of that equation.

Wait until they need the sale.

Dealerships don't just make money on cars.

They make money on hitting certain targets.

This isn't a myth.

They do have monthly quotas.

They do have quarterly incentives.

They even have year-end manufacturer bonuses.

And when they're behind on those targets, the pressure's on from corporate.

And that's when real deals can actually appear.

According to J.D.

Powers Dealer Incentive Calendar 2023, the best days to buy a car are the following.

The last three days of the month.

The final week of the year.

major holiday weekends like Memorial Day, Labor Day, 4th of July.

And missing those targets doesn't just mean less revenue for dealers.

It can mean forfeiting tens of thousands in back-end bonuses.

And if selling you a car at a break-even price helps them hit their number, they will do it.

Again, I've done this and it works.

The key is don't be in a hurry.

Wait until they're in a hurry.

This is when you want to show up.

But again, only after doing the homework.

Start your email negotiation early, gather quotes, confirm availability, then walk in at the end of the cycle with your pre-approval ready and your trade-in kept to yourself.

Here's a quick closing thought for you.

Buying a car is not just a consumer choice.

It's a high-leverage financial decision that echoes through your budget, your net worth, and your mental bandwidth for years.

The average car loan, wait for this, now stretches beyond 70 months.

And for many households, it's their second largest expense after housing.

So this isn't just about driving.

It's about designing the next five years of your financial life.

And unfortunately, for the most part, car dealers have maintained the power in this relationship because most of us have completely normalized always and forever having a car payment.

So let's commit to slowing down, playing the long game, removing the emotions, and making sure we learn the language.

Huh, that sounds a lot like investing in finance too.

Again, I will never tell you not to buy a brand new car, but I will always encourage you to spend on what matters most to you and do it in a way where you are, from start to finish, in full control of your transactions and ultimately your wealth.

Thanks for tuning in to your money guide on the side.

If you enjoyed today's episode, be sure to visit my website at tylergardner.com for even more helpful resources and insights.

And if you are interested in receiving some quick and actionable guidance each week, don't forget to sign up for my weekly newsletter where each Sunday I share three actionable financial ideas to help you take control of your money and investments.

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Until next time, I'm Tyler Gardner, your money guide on the side, and I truly hope this episode got you one step closer to where you need to be.