Buying a vehicle can be a very difficult experience. New or used? Buy or lease? And prices are through the roof since the pandemic. Today, Paula Christine is joined by Nelson Cypher of Dick Scott Motor Mall to tackle some of these complex questions, including:
Nelson also explains the current car market, identifying your needs vs wants when it comes to a vehicle, and what a dealer has to do with your trade in to get it ready for the next owner.
More info:
Nelson Cypher's phone number: 517 245 0941
Nelson's Email: nelsoncypher@dickscott.com
Contact Paula Christine:
Website:http://paulachistine.com/
Email: paula@paulachristine.com
Paula: Hi, I'm Paula Christine, and welcome to Beyod the Paycheck. Living paycheck to paycheck and struggling to get ahead really sucks. What if you could take control of your money and have that life you dream about? I know you're saying yeah, right. But it can happen, with knowledge and commitment. That is my goal. To provide you with the knowledge to take control of your money. It's up to you to make the commitment. So today I've asked Nelson Cypher from Dick Scott Motor Mall to come in and talk to us about cars. I know I need to renew my lease in March of next year. So I'm on that debate.
Do I buy it outright? Do I just get into another lease? Do maybe I look at something used? All those questions go through everybody's head every time that they have to purchase a car. So I've asked Nelson to help us break it down. So welcome Nelson.
Nelson: Hi, Paula. Glad to be on.
Paula: Let's just get right into it. So when I'm considering buying a vehicle, what do I need to know in the beginning? Like how do I determine what's the best payment plan? All those things for me?
Nelson: So it is good to do a little preparation. If you're on a website for a dealership, there are payment calculators. And it's good to know what a person can afford. And one of the things that you wanna look at is your debt to income ratio.
What you earn, what kind of money you have at your disposal, but you want to figure out what your bills are. So when you add up your mortgage, your rent, your car payment, your credit card payment. Those things should be somewhere in a range of 36% to 42% of what you earn on a monthly basis.
And that's really probably the best way to go into it. You're gonna combine that with your credits more, and that's gonna give you where you stand as a consumer.
Paula: I wanna actually go two different parts here, but the first one since you brought it up and then we'll go back to that. Things to consider. How much does my credit score factor into my payment?
Nelson: Well, your credit score has a lot of bearing on it because the banks do look at it and they break it down in increments. Above 800 is typically considered excellent 700 to 800, it's very good. A mid, upper 600 to 720 is not bad.
And then you start to slip into where you're gonna see a higher rate of interest, or you might not meet the lender's standard for their approval.
Paula: The lower credit score, the higher my interest rate will be?
Nelson: That would be considered. Yes.
Paula: Okay. So let's go back to things I should consider when I need a vehicle, but it's not just about monthly payment.
I mean, there are a lot of other costs that go into purchasing or leasing a car. Such as insurance, registration. Can you talk a little bit more about that?
Nelson: Well, sure. So when you're going to get a car, you wanna look at how much it is gonna cost you. Your registration's an annual fee set by the state you live in. Your taxation on a purchase is a one time thing or on a lease.
It's on your monthly payment or any money you're spending. As far as insurance, you should always contact your insurance carrier. And give them an example of the car you're considering. They will let you know what that premium is gonna be. Cause that's a big thing. If you're not prepared for a change in your monthly, that's gonna come back to you.
Paula: How do you factor in maintenance? I know with a lease, you typically have oil changes, but there's a lot that goes into maintenance today.
Nelson: So maintaining an automobile. First thing we think of is the usual oil change, tire rotation. But you do have to start considering that as you own a car beyond 30,000 miles, 40,000 miles, that you're gonna get into expenses like tires and brakes, and other wearable items, depending on where you live, and the harshness of the conditions those things are gonna come into play.
A new car will have a warranty against workmanship or defect for the first 36,000 miles, for three years typically. And then you have to start considering that you're obligated to those expenses.
Paula: Yeah. I wish they'd go back to the warranty. That was like five years. That would be really nice.
Nelson: The major components are warrantied for five years or 60,000 miles. That's your engine, transmission drive axle, four wheel drive. Those don't typically fail. It's the other stuff that you want to be thinking of?
Paula: So I talked about in the beginning that I needed to make a decision in March. If I'm going to either buy, lease again, or consider looking at a new car or a used car. Let's just break those down. So what are the advantages and disadvantages to buying a new vehicle?
Nelson: Well, when you're buying new, you're the first owner. You get all the advantages, all the benefits of a brand new car with brand new components and a full warranty.
So you get the best part of the automobile. When you look at buying a used car you're thinking most of the time that I'm saving. The price of admission is less. Purchase price. You can try and calculate your depreciation based on how long, how far you drive. And that's a consideration, regardless if you're buying or leasing.
Paula: How do you calculate your depreciation?
Nelson: Well, you think about how long you're going to wanna keep the car and how many miles you plan on driving it. And there are charts for vehicles, but you want to stay ahead of the curve. Typically, it takes about 80% of the loan before you're even in the vehicle.
Wow.
So if you're buying a car or 60 months, you're gonna figure that you're gonna be about 50 months into it before you're even in the vehicle payoff versus value.
Paula: Wow. Did not know that.
Nelson: And part of it is how a person views the automobile ownership. Most people grew up where they owned their automobile. They didn't think about leasing it because leasing, they felt had restrictions where ownership meant that they could do with the car if they please, but the longer you go financing. We don't finance for three or four years anymore. So the longer you have it you're back to those expenses.
Paula: It's difficult today. I know. People are looking at 60 and 72 months. I don't even know if you can go longer than that, to be able to afford a car today.
Nelson: 84 months has become more common plates than it once was.
Paula: Jesus.
Nelson: Spreading it out so far.
Paula: But then, if you think about that, if I'm gonna have to make a car payment for 84 months before I really completely own it, it's mine. Wouldn't I be better off to lease and I get a new car every couple years.
Nelson: In a lot of cases you would, and that goes back to having the new car more often. Sometimes your work dictates that you own a newer car or have a newer car at your disposal. Leasing gives you options because you can build it around the number of miles you plan on driving and be able to take advantage.
Getting a nicer car than you might normally consider because the bank does put the focus on a better trim package than if they were just retailing to you. Yeah. Those are all things that are important. And if you like the carefree thought of I'm just gonna turn this thing in, in two or three years, the lease is the better way to go.
Paula: You ever recommend somebody buying their lease? Like, cuz I know there's a price on my contract that I can buy that car in March preset. Do you recommend people do? I mean, cuz I really love my car.
Nelson: Yes. Buying your car can be a good thing because if the car's value is even, or greater than what you owe, you're getting a great deal on a car you know everything about. You've already had it for a prescribed number of months. If the vehicle has been reliable to you and you know what you can pay for it so that you can kind of build your payment around that. You always wanna sit down with your dealer and do an option review. And that way you can compare your purchase option price to what you could have next, and if your car has equity, like it may have now, the market is a little bit different than it's been over the last however many years. So your lease vehicle may be worth more than what your buyout is and you can apply that equity towards your new car.
Paula: Interesting. I know that car sales has changed in the last couple of years, too, inventory.
Nelson: Mm-hmm.
Paula: So it is a whole different world, I think, than what we looked at pre COVID.
Nelson: It is, it really is. And the price of vehicles are going up sharply and we don't know where it's gonna end up right now.
Paula: Yeah. And I know this isn't in your area, but you buy a new truck. It's like $70,000 for a new truck.
And I mean, $70,000 is a lot, if you can't even, you know what I mean? And you don't even own a home. God, it just seems so crazy. The pricing of cars today.
Nelson: Well, the average price of cars has gone up considerably from the mid thirties to now the mid forties. And you're right. A lot of people drive a truck. And even a modest truck is well over 50, on its way to 60,000 right now. And yeah, they can go a lot higher.
Paula: So, I mean, if you're thinking about that, I'm a young person I'm in my twenties, I wish, but I was in my twenties and I need to get a vehicle. And I don't wanna get a payment for 84 months. So I can't afford to buy a $40,000 car.
I mean, what am I supposed to do? I look at a used car. But then how do you know you're getting a good used vehicle? And at some point, I mean, I don't know. I guess I struggle with talking with my kids about cuz my daughter needs a car right now. What's best for her. I keep telling her to lease.
Nelson: Yeah. Well a lot of it's gonna come down to needs and wants and it's so easy to want the best or the nicest or the one that somebody else has. But when you get down to it, you really want to outline the absolute necessities. How many people are gonna be riding in it?
Who are they? Are they children that are small now and may not be small in a few years? You want to consider what you absolutely have to have in your vehicle. And then you look at your budget. And as far as going a used car route, there's so many things available to us now, whether it be Carfax or some of the other history reports that can give you a background on that car before you consider it.
So what you might be looking for. You're not buying something that's really a big secret in the way it could have been years ago.
Paula: That's good, but it really I wanna go back to the days where you could pick up a nice used car for $5,000. I mean, that just doesn't happen anymore.
But then again the average, I don't know what the average cost to buy a home is today either. So everything's getting more expensive.
Nelson: It is. It is.
Paula: So let's talk about trade-ins for a second. How is that determined? I know there's the Kelley Blue Book and other services out there, and I know you take it into the dealer. Give you a valuation of your car, but how is that really determined?
Nelson: Okay. So your car has a value based on its age, miles, features. And then also we're gonna look at that background, check that history report, and we're gonna be able to tell if the vehicle has been in a minor scrape or a more serious accident, and you're gonna appraise the vehicle accordingly, the blue book and so forth is a guide.
And it's helpful. It's helpful not only to put the car in the market, but also when you're borrowing money or maybe you have an insurance claim, you do wanna know roughly what your car's value is, so that you're getting what you deserve, but people have to take into consideration reconditioning.
I like my car and I know everything about it. The average reconditioning here at our store is about $2,500.
Paula: What do you mean by reconditioning?
Nelson: When we put the car through our safety inspection. Typically the car's not being traded in with brand new tires, brand new shocks and struts and brakes and so forth.
Maybe there's an underlying mechanical problem and we're gonna need to address those things before we put it out on the lot for sale. Every vehicle needs a detailing. So they get a scrubbing and a cleaning and that's all factored in. So as nice as your car is, you have to look at it from the standpoint of the next purchaser, how they would view it.
Paula: Hmm. Interesting. I always wondered how you guys factored in that $2,500. I mean, that makes a lot of sense. Now, when I think back to my trade-ins before, when I thought it was worth more than it was, but he didn't realize that you had to put so much cost in it to get it ready to selling it. Interesting.
Nelson: Might just look like a little scratch, but it may be more than that when it comes time to make it right.
Paula: Oh God. I just got into a, like backing out in a parking garage. They have to have those poles there, and they happen to have to be orange and hit one. So. I was really surprised at how much it cost to fix that ding in my door. So the price of getting a car fixed, you think it shouldn't cost that much, but it actually costs quite a bit.
Nelson: Yeah, it does.
Paula: I think, honestly, I'm gonna have to say this. You're amazing. I don't know that I've ever dealt with a car salesperson like you before you. I don't know. I wish I would've known you years ago when I started buying my first car, you're very knowledgeable and I feel very comfortable. That I would go in there and that you would help me make the right decision, but how do you choose a dealership?
How do you know that the people working there have your best interest, especially being a female. Lots of times we're overlooked when it comes to buying a car. So how do we choose a dealership?
Nelson: Well, you bring this to something I say quite often, and that is our image is perpetuated daily and you're right.
There are places that take more consideration for the client than others. What I would always say is this, if you get a recommendation from a friend or a coworker family member that you know, says, Hey these are the people I go to. And I bought repeat business from them. That's a pretty good lead.
The other is when you go on a dealer's website, there are reviews out there. Some are Google, some are cars.com. There's any number of things. And there are people who were actually took the time to fill out a survey or went on to express their feelings about a vehicle or their vehicle purchasing their salesperson. That's a pretty good way to put together your next place to do business.
Paula: Well, referrals are the key. I have enjoyed talking with you today. Thank you. I really, really appreciate you answering all of my questions again. I wish I'd met you years ago. How can people get ahold of you?
Nelson: So people can call me at the dealership. My direct line is 517 245 0941. They can email me at NelsonCypher@dickscott.com. That's NelsonCypher@dickscott.com. I'd be more than happy to provide any assistance to anybody who is interested in looking into a vehicle or just talking about their next vehicle.
Paula: Great. I so much appreciate you Nelson. Thank you so much for being here with us today. And if anybody would like to get ahold of me, you can email me at paula@paulachristine.com. Or visit my website at paulachristine.com. Oh, by the way, there is a tool out there, a resource that you can look, if you're trying to figure out your monthly payment, we do have a budget worksheet that you can download and get started on creating your budget.
Thanks again, Nelson.
Nelson: Thank you, Paula. It's been a pleasure.