Auto Financing – Episode 159

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[00:00] Alright, if you’ve been putting off car shopping because it sounds like a whole thing, buying your car online on AutoTrader makes it way easier. Like almost easier than ordering your coffee easier. Really. You can shop tons of cars online, compare prices, check financing and trade-in options, all from wherever you are. And if you want to start online and still go to the dealership for a test drive, you can do that too. Really. What I like is the flexibility. Start online, finish at the dealer, or the other way around. Your info stays with you, so you’re not starting from scratch. Plus, you’re working with local dealer listings, so there are real people behind the scenes. And when you’re ready, you can pick it up or have it delivered.

[00:44] So whether you know exactly what you want or you’re still scrolling trying to figure it out, AutoTrader’s got options that fit how you want to buy. Buy your car online on AutoTrader. Really. Welcome to the Prosperity Podcast. Fresh, alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your hosts, best-selling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome back to the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we have the president and founder of Partners for Prosperity and best-selling financial author, Kim Butler, with us today. And today we’re going to be talking about auto financing.

[01:38] And I would say that very few people in this world go without financing a car at some point in their life or, you know, maybe you finance several cars, but the information she can share with you today will change the way you finance the next one. So welcome, Kim. Well, thank you, Todd. Absolutely. Issue for everybody, all stages of life, and it’s an important one because we do spend a massive amount of money on vehicles over our lifetime. And there’s nothing wrong with that. They get us from place to place. Do you know what? In about two weeks, I get to ride in an auto-piloted Tesla. That’d be great. You have to get a video of you sitting in the backseat, reading a book while it’s driving you around.

[02:28] Yes, I’m so excited. I attend Peter Diamandis’ Abundance 360 event. And we just got an email yesterday that invited us to have a ride in an auto-piloted Tesla. And I’ve always wanted to ride in a Tesla anyway. So that’ll be a fun thing to do. However, as we look at the amount of money that we spend on cars, obviously reducing that amount by little bits here and there can be very, very valuable. One of the things that our family does is we always enjoy high-end cars and we always buy them at the two-year-old mark or even sometimes one-year-old or sometimes even three years old. But getting a brand new car is a treat. I know that. And I’ve certainly bought a brand new car. But we found that you can save a good $20,000, $30,000 off the ticket price of a car

[03:22] if you can get and the higher-end cars have the longevity to stay really new if they’ve been well cared for, whereas maybe the lower-end car is not so much. And obviously, you’re not going to save as much on a lower-end car that’s one or two years old. But even your Hondas and Toyotas, and my family is a Toyota fan. My dad will never drive anything. But we would often buy them one or two years old as well. And those can be great, great deals. But the additional key is how you are financing it. So one of the important things to remember is that there is often a rebate out there. And there’s a lot of $3,500 rebates right now here at the beginning of 2017 as we’re recording this. And so you want to be aware of that.

[04:11] But understand that there is usually one or the other transaction that can occur, not both. And that is you can either get the rebate of the $3,500 or they will offer what they call zero percent financing. And in our Busting in the Interest Rate Lies book, we go over this more thoroughly. But I’m just going to say that zero percent financing is not zero percent financing. Now there are occasions when that’s not accurate. In other words, there are occasions when zero percent really is zero percent. For example, right after 2008 and the entire debacle that occurred there right after 9-11 and the debacle that occurred there, there were some true zero percent. But typically what the car dealerships do is they add the interest, the total interest

[05:03] to the price of the car. And then they tell you that you’re getting it at zero percent interest. So let’s say you’re going to buy a $30,000 car. And let’s say that the total interest over a typical loan is $3,000, then they will just call it a $33,000 car at zero percent interest, which is not accurate. And the only way to get clear about whether or not they’re being honest is to have at your fingertips a financial calculator. A regular calculator is not going to help you get to the bottom of this issue. And so you can get financial calculators on any app. If you turn your iPhone sideways, your regular calculator turns into an HP12C. Those are kind of tough to use if you don’t know what you’re doing.

[05:55] Truth Concepts, of course, has an Android app and will have an iPhone app here fairly quickly. But there are other financial calculator apps that you can get that are easier to use that don’t act like HP12C that you have to really know what you’re doing to get your information out of it. But what you do is you put in the true price of the car. And the way that you get that true price is you ask the seller of the car what you could buy it for if you paid cash. In other words, if you literally gave them cash or wrote a check, in other words, did not finance it. So in that instance, they would, it might take some doing, it might take some back and forth and send the guy back to his manager, et cetera.

[06:38] But they would have to tell you that that’s a $30,000 car. Then you put that information into your calculator and you say, okay, I’ve got a $30,000 car, but they’re telling me that my payment is, let’s say 300 a month and it’s over, say, four years, or you’d want to do 48 months in this example. Then they can, then the calculator can calculate for you what the true interest rate is that they are charging you. And I have a funny story. We have had clients, knowledgeable clients, smart people, be so swayed by that 0% interest rate that they would make a higher payment to get the quote zero to the car financing company, then the bank was offering the higher payment to the car financing than the bank because the bank was honestly

[07:41] calling it 5% or whatever the interest rate was. So you really have to be aware of this. It’s a tricky area. And I’m sorry to say that frankly, the car dealerships are being dishonest when they say that they are financing things at zero. And so it’s something that you want to be able to get to the bottom of. I wish I could give you the websites, but you can go online now and there are actual websites that will show you the exact price of any car. You just type in the model and the options and it’ll tell you exactly what it costs. You don’t even have to go back and forth with the dealership anymore. Awesome. Yes, absolutely. I was going to say, I know I just talked for a long time there. Surely you have some insights to help us with and that is a great one.

[08:31] I think probably just putting the make and model into Google would get it for you pretty quickly and it will absolutely help in your negotiations. In fact, I’d use your smartphone and show it to the guy you’re talking to and say, look, I know this is the information, be straight with me here. And they’re definitely getting better. The Saturn dealerships, those supposedly have, I don’t want to call them honest or dishonest, but telling the whole truth, we’ll use it that way. So you’ve had some experience with this. What additional insights do you have? Unfortunately, Saturn doesn’t exist anymore, but it was a good idea. There you go. Yes, I did forget that. No, I’ve bought and sold a lot of cars.

[09:20] And it is getting better. And I think the one thing that I want to point out is that you want your car dealership to be profitable, you want your car manufacturer to be profitable. You just want full disclosure. We’re not trying to say we want to make them lose money. We just want to know the truth. Yeah, very, very well said. And full disclosure and the whole truth is what we should be seeking there. And yeah, we want them to be profitable or they’ll become the next Saturn. Right. And that doesn’t do us any good. One of my favorite cars in the world. And I know they’re gas guzzlers is I loved my, I had a couple of hummers and, you know, there are no more hummers and I’m sad. Yeah, yeah. An iconic car for sure.

[10:07] So one other thing that I want to cover on this podcast is the idea of leasing. So typically leasing is just going to add to your car costs. The exception would be a business owner that could truly deduct the lease payments thoroughly and properly because they had a very high business use of the car and lease payments. Your accountants typically will tell you can enable you to deduct more of your car more easily than if you’re purchasing it, where you have to keep track of a little bit more information to get it done. I know that there are some great apps out there for keeping track of car business mileage. Like you, I can’t quote the source, but I saw one the other day that you have running and literally I think via maybe GPS, when you get in the car,

[11:09] you just click either business or personal on the app and it’ll tally the mileage for that trip and then give you a printout or the ability to have proof for the IRS, you know, someday they’ll go all online too. But until then, give you the ability to have a printout or proof that you had a certain number of business miles per year. So that’s a handy thing too, is to grab an app. But back to the leasing, when you lease a car, there’s an additional party involved, a financing company, often in addition to the car financing company. And so you have to know that there are other hands in the pot and consequently somebody else making money on the transaction. So as a general rule of thumb, we don’t recommend leasing, but again,

[11:56] there’s some exceptions on the business side. I think the other thing to talk about is how often you’re trading cars out and to the degree, you know, depending on your mileage, your use of it, the care of it, et cetera, if you can just extend your car another year, every single time you’re trading cars out, or maybe another five years, depending again on use and everything else, you will spend less money over your lifetime on vehicles. Now in five years from now, this entire podcast could be completely irrelevant because we may have self-driving cars and you may be able to rent the car you want for the night and, you know, owning a car will not be the issue that it does have in our lives right now.

[12:38] But literally most families spend millions of dollars on vehicles over their lifetime, not only the cost of the car, but also insurance, of course, fuel for it. We use the word fuel in our family because we have diesel trucks. So it’s not always just gas. And of course, all the tires and wear and tear and, you know, other things that we buy for it and handling deductibles when necessary, et cetera. And I’ll just maybe wrap this up. I’m sure you may have some additional things, but on that note for the insurance, you absolutely want to make sure that you have high deductibles. As soon as you have a savings account with at least a couple thousand dollars in it, get your deductibles to be high because that will

[13:27] cause your premium to be lower. And yes, it’s a bummer if you get in an accident, you got to write a thousand dollar check instead of 250 bucks or whatever it is. But having those high deductibles and again with leases, sometimes you’re limited on how high having those high deductibles over your lifetime will absolutely save you a lot of money. Awesome. Well, just a few things I want to add before we do wrap up is, you know, again, when you’re talking about the leasing, you need to be very careful about overage on the miles because that can save back in any money that you think you saved on the leasing. You can eat up by going over the miles. It’s very expensive. Also, look back in our previous podcast and you will see some

[14:12] discussions on umbrella policies that fit in here as well. Wouldn’t you agree? Absolutely. Yes, yes. And then finally, I’m going to share with you a tip from my accountant. I am not an accountant, but when you are a business owner, your first trip of the day in your car is not supposed to be tax deductible. So let’s say that you drive 50 miles to your first appointment. That first appointment is technically not deductible. What he suggests that you do is that you get a PO box down the street from your house. And the first trip that you make in the morning is you drive to your PO box. You’ve now qualified as your first trip. The trip from the PO box to your 50 mile appointment is now tax deductible.

[15:02] Your last trip of the day is not tax deductible. Therefore, your last trip of the day is back to your PO box. And then you go, you go to the PO box and the last trip of the day is from the PO box to your house. So you are maximizing the amount of miles that you can deduct. Again, was a good tip for me, helped me. Hopefully it will help you. Great idea. I had never heard of that. I love it. And definitely worth the little bit of extra cost and time to get the PO box and have that deductible trip. Great thinking. Very cool. Super. Well, this is No BS Money Guy Todd Strobel for the Prosperity Podcast. Thanks again to all our listeners. Special thanks to Kim Butler and we’ll see y’all again real soon.

[15:50] Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.