30 Years in 30 Days • Year 5: Are Car Buyers Smarter than Homebuyers?
When you make a large purchase, do you focus mostly on the total purchase price or your monthly payment cost?
Related and recent articles
(Full list of “30 Years in 30 Days” Series articles available at bottom of this article.) • 30 Years in 30 Days • Year 10: A Tale of Two Eras — Home Buying in 1972 and 2023 • 30 Years in 30 Days • Year 9: Visualizing Savings — Mortgage Charts that Matter • 30 Years in 30 Days • Year 6: Mortgage Power Play with a Single $100 Extra Payment • 30 Years in 30 Days • Year 3: Early Extra Payments Are Magical • 30 Years in 30 Days • Year 2: Rapid Progress on the 30-Year Mortgage • 30 Years in 30 Days • Year 1: Starting Strong on the Mortgage Journey • Kickstarting “30 Years in 30 Days” — Decades of Mortgage Wisdom in 1 Month • A Friend Texted to Ask “Who I Favored” for 2024 butHated My Answer • Has U.S. Healthcare Really Become a Mob Protection Racket?
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Think about this piece of wisdom about buying a car.
Negotiate the price of the car first before you discuss how you might pay for it and what the monthly payment would end up being.
That’s because at the end of the day, what you as the buyer should care most about is the purchase price of the car.
As LendingTree explains:
At the dealership, ask to see the out-the-door price for your desired vehicle. A car’s out-the-door price is the total price of the car, before financing, including any taxes and fees. Also ask to see an itemized breakdown of the costs so you can see how the dealer arrived at that figure.
It’s important to focus on the out-the-door price since some dealers may get you to focus on other metrics, like the monthly payment amount. In these cases, dealers may use the monthly payment to fit your budget, though this may mean extending the length of your loan. This can lead to you paying more money in interest in the long run.
By concentrating on the out-the door price, you can stay focused on the total cost of the car and lowest price the dealer is willing to sell for. (“How to Negotiate a Car Price: 5 Tips to Succeed” • LendingTree • Nov 03, 2023)
Focus on purchase price, not the monthly payment number
There are plenty of financing tricks you can do to decrease the size of the monthly payment, including getting a longer-term loan.
If you make a $48,000 purchase with a 7-year car loan instead of a 5-year car loan, then yes, your monthly payment will be less for the longer term loan…but you will pay a lot more when you factor in all the extra interest that comes with the longer-term loan.
Why does the car dealership try to get you to focus on the monthly payment instead of the purchase price?
The dealership does it because they make more money that way, and they do it by maximizing the total price you pay.
They do this through a variety of tactics, including (1) getting you to agree to a higher purchase price as well as (2) signing you up to as long-term a payment plan as possible.
Both of these tactics can substantially increase dealership revenues and profits.
So the dealership tries to get you to focus on the monthly purchase price because the difference between, say, $655 and $678 doesn’t sound like much of a difference, so it’s easier to get you to agree to that higher price.
But if you were instead conscious of the fact that the $23 difference in monthly payment (in my fictitious example here) might actually represent more than $1000 difference in purchase price, then you may well push harder for a better deal for yourself.
And if you’re actually going to fight for a better deal, there’s a good chance that you might get that better deal.
But if the car salesperson can keep you focused on the monthly payment, there’s a good chance that you will agree to the higher price.
Bottom line
Savvy car buyers know that their smart play is to negotiate the actual purchase price of the car before having any real conversation about how they might pay for it.
And in 2023 when the average price of a new car is $48,000 (according to Kelly Blue Book), it’s especially important to be smart in all aspects of buying a car.
Here is how buying a house is different than buying a car.
These days it’s common enough for car buyers to know that they should first negotiate the car price before they talk about how they’re going to pay for it, whether they will pay with a loan or in cash, and whether a loan might originate from the dealership or elsewhere.
This is how savvy car buyers negotiate a car purchase, and many people do buy cars this way.
The difference between buying a car and a house.
Most people buying a house focus primarily on their monthly mortgage cost — not the total cost of the house.
They almost never look at the total cost of the house — i.e., adding the total interest cost to the “official” price of the house.
It’s so much more common for homebuyers to (1) allow the home selling ecosystem to distract them from the total purchase price so that (2) they (the homebuyer) will only focus on their monthly payment and what they think they can afford there.
This maximizes profits for everyone else in the “homeselling” ecosystem at the expense of the homebuyer.
So at least in terms of price, car buyers have their “eyes on the prize” while homebuyers…well…they don’t really do that very often.
And that leads to a conclusion that car buyers are indeed smarter purchasers and negotiators than people buying a house.
That’s the answer to today’s question, “How Is Buying a House NOT Like Buying a Car?”
But it doesn’t have to be that way.
Still, there is one more thing we should ask.
One last question for you to ponder
If it makes sense for a car buyer to think about their purchase in terms of the true purchase price and to negotiate based on that — which yes, it does!— then shouldn’t it also make sense to do a house purchase the same way?
Think about it.
The average new car price in 2023 is $48,000 in the US.
The average house purchase in 2023 is $431,000, which is 9 times the size of the average new car price.
If it makes sense for a smart buyer to negotiate the thing that matters (the total purchase price that you will end up paying) when you are buying a car, then doesn’t it make 9 times as much sense to negotiate that same way when you buy a house?
Thank you for reading, subscribing, clapping, and sharing — I appreciate your time and attention.
Related and recent articles
• 30Y in 30D, Y16: The Total Cost of Ownership of Your House • 30Y in 30D, Y15: Simple Question, Complex Answer — The True Purchase Price of Your Home • 30Y in 30D, Y14: What Kind of People Are Getting Loans for Houses Right Now? • 30Y in 30D, Y13: What Does It Take to Pay Off a 30-Year Mortgage in 15 Years? • 30Y in 30D, Year 12: CBS News’ Version of (Not) Helping You Save on Mortgage Interest • 30Y in 30D, Year 11: Dream Home or Financial Freedom? Rethinking the True Cost of Stretching • 30Y in 30D • Year 10: A Tale of Two Eras — Home Buying in 1972 and 2023 • 30Y in 30D • Year 9: Visualizing Savings — Mortgage Charts that Matter • 30Y in 30D • Year 8: The Mechanics of Mortgage Interest — What Really Matters • 30Y in 30D • Year 7: The Big Payoff of Early Extra Payments • 30Y in 30D • Year 6: Mortgage Power Play with a Single $100 Extra Payment • 30Y in 30D • Year 5: Are Car Buyers Smarter than Homebuyers? • 30Y in 30D • Year 4: Accelerate Payoff Via Extra Monthly Payments • 30Y in 30D • Year 3: Early Extra Payments Are Magical • 30Y in 30D • Year 2: Rapid Progress on the 30-Year Mortgage •30Y in 30D • Year 1: Starting Strong on the Mortgage Journey • Kickstarting “30 Years in 30 Days” — Decades of Mortgage Wisdom in 1 Month • A Friend Texted to Ask “Who I Favored” for 2024 but Hated My Answer • Has U.S. Healthcare Really Become a Mob Protection Racket?
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