Used car prices are high right now, but you can still save money

After years of faithful service and zero mechanical issues, we said goodbye to our low-mileage 2008 BMW X3 last month and purchased a larger, 2018 sport utility vehicle. By buying a gently used vehicle, we saved 45 per cent off the original price, and still got another year of warranty plus maintenance. And, we saved money in other areas by following these frugal principles for buying a used vehicle.

Is now the right time?

When my husband tried jamming another car seat into the back of our X3 early this summer, we knew our days with it were numbered. The car seats barely fit, and there was no room in the trunk for the expanded stroller attachments for all the kids. But that wasn’t the only factor driving the decision to replace the vehicle; peace of mind around reliability was huge — how long until my faithful friend would give up on us as we headed into its 14th winter... and what if it stalled out on the highway with our kids in the back?

We knew the purchase had to happen at some point. In fact, we’d postponed it in 2020 amid the pandemic uncertainty. So, when the exact model for the replacement vehicle we wanted finally popped up this summer at our local dealership at a fair price, we did the deal despite prices for used cars being higher than in the past. The need was there.

If you’ve been noodling on a new-to-you vehicle purchase, ask yourself if you really need to do it now or if it can wait. Demand for used cars continues to soar in Canada as we emerge from the pandemic, and that means prices are a bit higher. If you need to go ahead, like we did, roll up your sleeves and get ready to negotiate.

Negotiate where you can

There are several points for negotiation other than price (some are dependent on if you’re working with a dealership):

• Winter tires, mats and other add-ons: What can be included for the same price?

• Maintenance: Can this be covered for a set period?

• Warranty: Can this be transferred to you and extended?

• Cash incentives: If applicable, can it be increased?

• Financing/leasing terms: Can the interest rate be reduced or payment terms made more flexible without added costs (also applicable if you’re arranging your own financing through the bank)?

• Trade-in value: If you go this route, ensure you’re negotiating for top value, which means you’ll want to have done your research on what your current vehicle is worth.

On trade-ins, you can almost always make more money selling your vehicle yourself versus trading it in. But this has to be weighed against the time you have available to get the vehicle ready for sale, posted and then court interested buyers.

For us, with a growing family and busy work schedules, it didn’t make sense for us to sell privately. So, we traded in and focused our negotiations with the dealership on the trade-in value plus add-on perks.

Know the fair market value for a quality vehicle

It doesn’t matter what kind of car you want to buy, or whether it’s a purchase from the dealership or your favourite second-hand car site like AutoTrader or Kijiji, be well informed about what the current market value is for the make and model of the vehicle you want.

If someone is selling the car you want at a steep discount, be skeptical. There could be a history of accidents, issues with the mechanics and more. And, if they’re asking more than it’s worth, you can always present them with a competitive offer and hope that they price-match, but don’t overpay in an already hot market.

I compared the price of our new vehicle against other dealerships and private sellers.

Yes, it’s OK to buy the car you want, but be financially responsible in the process

Can you afford the car you want? A great way to tell is if you’re leasing or financing, tally up all the costs associated with the vehicle — monthly payment, insurance, gas, car washes, etc. — and the total should be 10 per cent or less of your take home pay. This is for your household, by the way. So, if you have two cars, you’re looking at the grand total of costs relative to your total household income.

In our case, we paid cash. Knowing that the vehicle replacement was on the horizon, we supercharged our savings over the past 2.5 years and earmarked the money for this deal. This strategy is simple to implement — automated savings into a high-interest savings account every week will do the trick, and squirrel away lump-sum money too, like your tax refund.

The decision to pay cash or to finance a new vehicle will likely come down to what you can afford and what alternatives you have for your money. At the heart of the purchase though, look at the full price, not the payment, and find savings where you can. That might mean shopping around a bit more and adjusting your expectations. A used car transaction that you can well afford will feel much better than one you can’t. And, as I always stress, pressure test your purchase against your budget before pulling the trigger.

This article was originally published in The Star. Lesley-Anne Scorgie is a Toronto-based personal finance columnist and a freelance contributing columnist for the Star.