Buying a car? How to get a deal without drowning in debt

And speaking of cars, some people might be in the market for a new car. And there's some good news for people who are looking to buy stuff. But there's also some bad news, depending, I guess, how you look at it and what people need to know. So Justin Farmer joins us now. You know everything about business. And so a lot of people talk about, I'm setting you up a lot here, I guess. But obviously with people in the market, it's kind of tough with this new report that came out. There's a lot to consider, isn't there, when you talk about buying a car? And so people, one of the first questions we get, even savvy people, folks who might have done great in life financially, a lot of times they'll call my clients and they'll ask, when's the good time to buy a car? Well, here's the good news. October, November are, when you look at the data, historically the best time of year to buy slightly used cars. New cars, you want to look at December. Bottom line is when you're talking about October, November, December, the dealerships are trying to clear that 2026 inventory because the 2027s started arriving in August and September. They got to clear the way. So historically, you can get a better deal if you're shopping for a new car, new to you car in the fall. But you have to be careful. And so what do you have to be careful about? What should people know? Tyler, this is the crazy thing. The average car payment now in America is nearing $800. It's at $787 is the average car payment, okay? And then here's really something to be concerned with. More than one of every four loans, more than 25% of the loans right now in America are 84 months or longer. That, folks, is seven years. Seven years to finance a car is a terrible financial decision. I'm sorry to be that blunt, but that's just a fact. So most people we know fall sort of out of love with their new ride within about three to four years. So if you have a seven-year loan, which is more than double three years, of course, then you've kind of been out of love with that car or driving it around. And inevitably, you know what people do? They trade it in. And then they're upside down on the loan. I really like my 2012 car right now. It doesn't even have 100,000 miles on it. that's why I don't have to pay. It's all paid off. Well, you're smart. I mean, the $787 average for a new car payment and people are doing that $787 and then end up being some of them with loans that are seven years. Exactly. That is wild. It is. $787 is what I think when I paid for my first apartment to rent back when I was in college. For sure. I mean, it's a high number. Look, Americans love their cars. It's in our DNA. It goes back to post-World War II in Detroit, and all that. And so the cars are getting better and better. The tech is getting better and better. And there are a lot of fun. Cars are great. And we get enamored with them. And there are commercials on constantly. So there's nothing wrong with wanting a car. What can really put you in financial trouble is making some bad choices around how you acquire that car. The best kind of car payment is no car payment. What I always ask my folks is this. When you're thinking about a car, is it a want or a need? If it's a need, okay, let's discuss the smartest way to buy that. If it's a want, it's a depreciating asset. This is a hunk of metal. So why would you sacrifice your freedom and your future self's happiness over a hunk of metal and glass and Bluetooth? I think it's a bad choice if it's just a want. Stick in the vehicle you have. It's a lot cheaper to fix it up, get rid of those door dings than it is to go start a brand new loan. What about people who are underwater? Because unfortunately, as we saw in that first graphic, people are underwater on their loans for their car. Well, this is why you have to stick in that vehicle unless it's just an absolute lemon or a wreck. Because if you're underwater, let's say that you want to get rid of your car and buy a new one. Let's say that you owe $25,000 on that vehicle, but you take it to the dealership and they say, hey, we're only going to give you $20,000 for it. you are five grand in the hole. So you either have to write a check for $5,000 to start a new purchase, or even worse, they roll that 5K into the purchase price of that next vehicle you're after, and you're financing that probably for a second time. So here's what you do, Tyler. If you're going to go finance a car, I recommend 48 months or less. If you have to push that out to 60 months, 72, or God forbid, 84 months, you can't afford it. What are the other smart ways to shop? Get pre-approved. So go to your bank or credit union, find out, hey, I can get a car at a six and a half percent interest rate over four years, and then take that to the dealership and make them beat it. And the second one, focus on total price. Let me tell you what car salesmen love to do. Hey, Tyler, what is it that you're looking to pay per month? And you say 500 bucks. Well, then they now have a target. They're going to get you knowing at $500, they can sell you a car. Well, they'll just make the loan longer, the length of that loan longer, because you're focused on the monthly. Instead, focus on the total purchase price, because that in the end is what you're on the hook for. Well, and they also can do, because when I've gone new car shopping, used car shopping, when they ask you that question, they can also maybe not find it incentive because the dealership could end up making more money and give you something. So there's that chance that they end up just doing it for a business perspective for themselves and the commission they'll get. Oh yes. I mean, I, you know, this is a whole nother topic about human psychology and what motivates us, but I think you understand when you walk into a car dealership, they are interested in their benefit, not yours, right? It doesn't mean that they're bad people. It's just, they're in a business and they are there to make money. And so they're going to make every dime that they can off of you. Here's something I want you to consider. Another question I get all the time is, Justin, should I buy new or should I buy lightly used? And the answer is, it depends. Most of the time, I'd say 70% of the time, try to buy a car that's two to three years old that's been taken care of and someone else has paid all of that depreciation. Maybe 20 or 30% of that car, the depreciation, someone else paid for it. Then you go pick up that car and then ostensibly you drive it. I'd recommend for eight or 10 years. Like you, you're smart. Now, there are exceptions. About 30% of the time, you'll see dealers, the manufacturers, have financing deals. 0.0% right now on some General Motors trucks, whether you're talking about GMC or Chevy. It's 0.0%. Then you really got to run the math because then it starts to make, there's an equation there that six percent on used may actually be more expensive than zero percent on new so that's where you've got to do the math and look use ai to help you do the calculations i'd recommend that well justin i appreciate you joining us to talk about this anytime i think a lot of people especially since this is a good time to buy the used cars and then a couple months during the holidays buying that new car so uh good advice for people to be aware of so that they don't fall victim to maybe having a super long car loan. Justin Farmer, thanks so much. Thank you.