Save Thousands of Dollars when Buying a New Car

zero day finance volkswagen beetle

When it comes to buying cars, people tend to splurge. A lot. The average new car price is $33,560. Car loans used to be 36-48 months, now 60-72 month loans are becoming more commonplace. Purchasing a car at this price and financing it for that long will cause significant financial stress. If you can “afford it,” you’ll be paying out $500/month for several years. If you can’t afford it, you’ll be in even worse shape. This guide will help you keep the price of a car as low as possible, and give you some tips along the way depending on your situation. Especially if you have a modest income and want to retire.

Buying New

I know a lot about the buying process for new cars. Because I bought a new car with very little down, and financed it for 60 months. Oops. I was young and stupid. I did make a few very good decisions that saved a lot of money. I’ll help you learn from my mistakes so you can spend as little money as possible on your new car.

Some people don’t think that buying new is a good idea. If you’ve ever made your way to r/personanlfinance, they’ll tell you to stay away from new cars. Even if you make $200,000 per year, those people will tell you to buy a $3,000 10-year-old used Honda, bless their souls.

Set a Budget

The first thing you need to do is set a budget. For each person, this will be different. Since you’re buying new, you won’t find many cars for less than $14,000. Be realistic, pick a maximum price, and actually stick to it. I would recommend setting a budget less than the average new car price. There are plenty of cars that will cost you $25,000 or less. Such as my beauty, the Golf GTI.

zero day finance golf gti

As a rough estimate, these are my suggested maximum purchase prices based on your pre-tax salary:

  • $50,000 salary –> $12,500 purchase price
  • $75,000 salary –> $18,750 purchase price
  • $100,000 salary –> $25,000 purchase price
  • $150,000 salary –> $37,500 purchase price

I use a very simple formula: the purchase price of a new car shouldn’t exceed 25% of your pre-tax salary. For this calculation, I assume that you will put 20% down and finance the remaining 80% using a 36-48 month car loan. If you have enough cash saved up, you can opt for something more expensive, but don’t go crazy.

The reason I make this price suggestion is it will keep you out of debt. Something that pains me every month in the Zero Day Challenge is that I pay $475 for my car loan. I’m more than halfway there, but saving an extra $475 per month for 5 years would have put me in a much better financial position. Sure, on a $50,000 salary you can buy a $25,000 car, but those $450 per month payments will really start to suck, especially for 5 years.

If you make less than $50,000, don’t be too concerned. You can find solid used cars for $8,000 – $10,000 (think 2012 Honda Civic) and it will have a fairly minimal impact on your budget.

Research, Research, Research

The next thing you need to do is research different cars that you are interested in. And don’t start with luxury cars like BMW or Audi. Yes, they look nice, but they’re very expensive. They also play a few tricks on you. For example, the BMW 2 series starts at $33,150 which is less than the average new car price. But that doesn’t include destination fees or an automatic transmission. Plus, their base models don’t come with a lot of the tech that we’ve come accustomed to. Plus, you’ll be using synthetic oil ($100+ oil changes), premium gasoline, and inflated service costs.

When you start your research, figure out what type of car you need. Do you have a family of 4 and want an SUV? Maybe you want something a bit smaller like a hatchback. Sedans are popular, and so are subcompacts. Regardless of the type, look at what different companies offer. If you are trying to save money, you want to stick with Asian brands such as Honda, Toyota, Kia and Hyundai.

Their cars are typically a bit cheaper to buy, cheaper to maintain, and have very good reliability. People used to complain about the quality of American and German cars, but they have significantly closed the gap (these brands are bit more expensive as well). I try and push people to buy hatchbacks. The reason being they comfortably seat 5 people, often have 40 – 50 cubic feet of storage space when you fold down the rear seats, are very easy to park, and are fairly cheap. Plus I own one :).

Don’t Be Afraid to Test Drive

Anyway, now that you’ve picked what type of car, go to a few dealerships and test drive your options. Lets say that you are looking at hatchbacks. Go to Honda and check out the Fit and Civic Hatchback. Toyota offers the Yaris and the Corolla iM. Hyundai even offers a hatchback variant of the Elantra and Accent. Go on multiple test drives if you have to. It’s fun to do, and you really want to enjoy your car.

As an aside, you can turn test driving cars into a fun date. Head over to your nearest Mercedes dealership, and see how one of those cute convertibles drives. You won’t spend any money doing it, plus its very fun.

Cost Benefit Analysis

Okay, so now you have a list of cars that you’ve test driven. It’s time to pick which one is the right option. Write down all of the cars that you like, and write down their prices. If any of them are over your budget, cross them out. Out of all the remaining cars, start going over standard features, option features, and trims. This can get complicated, as companies like Honda have something like 6 different trims for their Civic.

Deciding between which car can be tough, so take your time. At some point, you will come to a decision that works.

Time to Save some Money

Who likes saving money? I like saving money! The next step is to go to TrueCar. If you’ve never heard about them, TrueCar is a service that will get you an extremely good price on a car. Let’s say that we decided on the Honda Civic Hatchback. We’ll head over to TrueCar and see how much money we can save.

zero day finance true car

When you go to their website, you enter the car you want, pick trim and options, and they give you an estimated price In this case, they predict that you can get the car for $20,116. Now, you can do a few things at this point. You can go to a dealership and ask for the True Car price, and they’ll probably give it to you. You’ll save money and almost always pay less than the MSRP.

But… we’re trying to save money here, so we can be sly. When you are on this page, you can opt to submit your personal information: name, phone number, and email address. If you do this and click submit, your phone will start ringing within a few minutes. Dealers will call you, asking you to come in.

What I did was tell them to email me, and I negotiated over email. I actually pit all of the dealers against each other, and got the lowest price possible. When I did this, I got a 2015 Golf GTI 4-door DSG for $24,400. The MSRP for this car was about $27,700, but it was really $28,520 because of their destination fee. By spending a week negotiating, I saved more than $4,000.

Plus, I didn’t need to talk to anybody. I negotiated via e-mail. After agreeing on a price, I walked into the dealership, signed a piece of paper and drove away with my car.

Bonus Savings

Now, there are ways to get even better prices. If you don’t know it, car dealerships get bonuses for moving a certain number of vehicles per month, quarter, and year. If you purchase your car at the end of the month, quarter, or year, you will get a better price. I bought my car at the end of November so they actually lowered the price by an extra $100 below what we negotiated, and threw in about $400 worth of extras if I signed that day.

Saving money when buying a car takes a little bit of planning, but definitely worth the extra time. But don’t be fooled: I may have saved $4,000, but I also spent $24,400. Plus about $2,000 in taxes, and $2,000 in interest. Ouch! I should have opted to fix my Mitsubishi Galant GTZ for $3,000 and saved an extra $25,000. With market gains, this would be worth closer to $35,000 if invested month over month.

Hopefully you learned a few useful pieces of information for the next time you buy a new car. Make sure to set a budget, do your research, and be a bit sneaky with your negotiation strategy.

Good Hunting,


You may also like...

10 Responses

  1. Zed says:

    Nice points, as usual. Not as extreme as financial samurai with his 10% rule, but that’s okay. 🙂 I also learned the hard way to not buy too much car. In fact it was also a GTI! It was probably about 40% of my gross pay!

    • David says:

      I agree with FS with respect to the ideal price of a new car. But it’s only idea when you already make 6 figures, putting you in the +85th percentile. But going for 25% of your gross pay with 20% down is pretty realistic. If you opt for the $25,000 car you’ll end up financing about $21,000 and payments will be around $350 – $400 a month. A bit tough, but not killer on that income.

      Also, I love my GTI. It was either that or the Subaru BRZ, and I made the right choice.

  2. These are great tips regardless if buying new or used. Our household income is over $150, we live in a low cost of living area, but I would die before spending $25K on a vehicle, used or new. Still great tips on how to save money. is another great resource for sampling and comparing market car values. It incorporates the Kelly blue book values as well.

    Wow, I love the fun date idea!! Man, I know it’s kind of wasting people’s time, but you could even be up front about it and tell them you have no intentions of buying. They’d probably take you for a spin anyway. Guarantee they’ve sold new cars on many a test drive.

    • David says:

      Thanks Chris! Everyone has different wants and needs, and this is pretty realistic, no-BS advice that most people can follow. You can also tell the car salesman that you are only test driving, and are making a decision between here and X, and that you want a 30 min test drive to see how the Mercedes GT drives 😉

  3. J Savvy says:

    I feel you on the expensive car payments… Bought a new Toyota Tacoma when I got my first salaried position and paid the price for it! Eventually paid it off, but those payments were very annoying over the years.

    My favorite advice is to have a budget and stick to it. Dealerships will always try to sell the monthly payment to you – what’s an additional $75-$100 a month for this car instead??

    I fell for that, when I should have stuck to my top line budget instead. I like the 25% of pre-tax salary rule of thumb you used. At that level, you are able to purchase a car you enjoy, are comfortable in, and is reliable. Sure, there are always cheaper cars out there. But finding a solid car you could drive for 7-10 years or more without it having any issues can be worth the extra money.

    • David says:

      That was my point, I wanted a guide that most people could follow and realistically get something. I feel bad not having a good process for people who earn less than $50,000 per year. But to be honest, financing tens of thousands of dollars just won’t work for them which sucks. At least there are plenty of gently used vehicles for realistic prices.

  4. Ugh, people spend a stupid amount of money on cars. My new ratio is no more than 10% of my gross pay to the purchase of a car. Ideally in cash, but it’ll take some time before we get to the point where we have that much EXTRA in cash to make it happen.

    Thankfully I think this car should last us another 5-10 years if all goes well. Good tips here!

    • David says:

      Thanks Dave! Car prices are just really high in general, especially for a depreciating asset. I think 10% is closer to ideal, but that means you can’t buy a car unless you make $180,000+ per year, and you’re a 1%’er at that point.

  5. Good tips.I also bought a new car (almost 7 years ago) and have never regretted that decision. Maybe it’s not what you’re ‘supposed’ to do, but it gives you peace of mind knowing you’re unlikely to have a big repair bill right away. I was able to get a good deal on last years model (bought at the end of October) and got financing at 0%. I’ll tell you, it sure is nice not to have a car payment but it was never I haven’t sworn off buying a new car again at some point in the future.

    • David says:

      I’ll probably always buy new to be honest. My car payment will be up in about 2 years, then I’ll just start saving for repairs / next down payment. I’m hoping to get a solid 10 years out of this car which should be realistic if I keep taking care of it.

Leave a Reply

© 2017 · Zero Day Finance

%d bloggers like this: