Written by North Carolina Treasurer Brad Briner
I have a confession to make: I am not a car guy.
I can discuss investment portfolios, interest rates and pension liabilities for longer than most people would consider healthy. But if you open the hood of a car and ask me what I am looking at, I will confidently say “the engine” and hope you change the subject.
That may help when buying a car. Cars inspire strong emotions. Personal finance generally works better when those emotions remain in the passenger seat.
A car is necessary for most North Carolinians, but it is also one of the largest expenses in a household budget. The goal is not to buy the nicest car a lender says you can afford. It is to buy a dependable car that meets your needs at the lowest reasonable total cost.
We are going to go in depth on each phase of car buying throughout the newsletter – but here some great rules to begin with:
Never negotiate based only on the monthly payment
A salesperson may ask, “What monthly payment are you looking for?” That sounds helpful. It is also a little like a magician asking you to watch his left hand.
Almost any car can be made to fit a monthly budget if the loan lasts long enough. A $600 payment for five years and a $600 payment for seven years sound identical —except the second one includes 24 additional opportunities to deduct $600 from your account.
Instead, ask four questions:
What is the total out-the-door price? How much am I borrowing? What is the annual percentage rate? How much will I pay over the entire loan?The monthly payment matters. It just should not be allowed to hide everything else.
Set the budget before you shop
Start at home. Do not begin by wandering around a dealership waiting for a vehicle to speak to you. Vehicles become remarkably persuasive when they have all the latest features.
Also, do not empty your emergency fund for the down payment. Owning a car without enough cash to fix it can be financially dangerous.
Shop for the loan separately
If you plan to borrow to make the purchase, seek pre-approval from a bank or credit union before visiting the dealership. That gives you an interest rate and loan amount to compare with the dealer’s offer. The dealer may beat it, which is great. But without another offer, you cannot know whether the financing is competitive.
Negotiate the vehicle price, financing and trade-in separately. Combining everything into one monthly number makes it difficult to see where you are getting a good deal and where you are not.
Consider used — but inspect it
New cars offer warranties and the latest features, but they generally cost more and tend to lose value fastest in their early years. A reliable used car may let someone else absorb some of that depreciation.
But “used” does not automatically mean “bargain”. A cheap car that immediately needs a transmission is simply an expensive car in disguise.
Review the vehicle’s title and history, check its identification number for unrepaired safety recalls and have an independent mechanic inspect it. A vehicle-history report is helpful, but it only includes events that were reported. Cars, like some teenagers I know, do not always provide a complete account of where they have been.
If the seller will not allow an inspection, you should probably move on.
Read before you sign
The finance office is often where an apparently completed deal add on extended warranties, service contracts, theft protection, paint protection or something miraculous involving the air in your tires.
Some add-ons may be useful, but none should appear without your informed agreement. Ask whether each product is optional, what it costs and what it actually covers. If it is added to the loan, remember that you will also pay interest on it.
If the numbers change or you feel pressured, leave. Walking away is the buyer’s most powerful negotiating tool — and, unlike undercoating, it is free.
Finally, once you find a safe and reliable car, keep it. Frequent trading means repeatedly paying transaction costs and absorbing the early years of depreciation. After the loan is paid off, continue putting part of the old payment into savings for repairs and your eventual replacement vehicle.
I may never become a car guy. That is all right. You do not need to understand every part under the hood to make a sound financial decision.
Know what you need. Compare total costs. Shop for financing. Read the contract. Be willing to leave.
The best car is not necessarily the one that turns the most heads. It is the one that gets you where you need to go — without driving your financial plan into a ditch.
Brad Briner was elected North Carolina Treasurer in 2024 after working as the co-chief investment officer for Willett Advisors and has held positions at Morgan Creek Capital, the UNC Management Company, ArcLight Capital and Goldman Sachs. He started writing “Bottom Line with Brad” as a way to educate North Carolinians on complicated financial matters in the Department of State Treasurer’s monthly “Finance Fridays” newsletter. The column is published in partnership with Chapelboro and is not a sponsored series.
Chapelboro.com does not charge subscription fees, and you can directly support our efforts in local journalism here. Want more of what you see on Chapelboro? Let us bring free local news and community information to you by signing up for our newsletter.
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