Buy Used Rental Cars

Q.What I am wondering is how do people afford to buy new cars? I am a professional software developer... I make a very good salary. I've got a mortgage for a nice, but reasonably-priced house, no credit card debt to speak of, no current car loans (we managed to buy our used cars with cash), and a stellar credit rating (I can qualify easily for low interest rates... even the 0% ones). I am now looking to find a new car that's large enough to stuff a family of four in (two adults, one toddler, one baby), but small enough and gas-efficient enough for a commuter. I am also looking for something that is reliable and that has a warranty. My past experience is that if I buy used, I am just buying someone else's problem. Unfortuantely, that has happened a number of times to me, so I really don't want to buy used again. I am also not wanting to have a car loan of longer than 3 years. There is something unsavory about paying on a car when the warranty has already lapsed. So, I started looking around for a car that would fit all of those requirements. I have come to the conclusion that a car that is about $20,000 would do. After calculating the payments on a 3% (and even a 0%) 3 year loan, the payments are in the $500 to $700 range! Now, we don't spend frivilously (not too much, anyway), and we keep a tight budget, but that isn't anywhere near what we could afford to add to the budget. What is concerning is that just about everyone we notice has the same type jobs, approximately the same housing, and same family size, but have one (or two) new cars. How do they do it? Are they running up personal credit for the daily things so they have funds to pay for car loans? Are they extremely long loans (or leases)? Any insight on how the average family swings this is greatly appreciated. If nothing else, perhaps it will open my eyes to better ways to manage my finances.

A.They do it by not wanting a new car every two or three years. You buy an inexpensive new car (preferably a Toyota that holds it's resale value extremely well), pay it off - and keep it a few more years. Save the money you would make payments with. When you get ready to sell that car and buy a new one after 7 or 8 years, you can make a big down payment on the next car with your savings. Do it again, and you can buy the next car for Cash if you want. That's an important part of it: If your car is nice and you have the service records, Always sell your old car yourself private party, and buy the new car "Out the Door Price" so they can't play the numbers game with the "low monthly payments" and useless undercoating and paint protection. You always lose somewhere on a dealer trade-in, there are too many ways they can hide the actual (lower) figure in the paperwork. The dealer has to pay you wholesale to make money reselling the car retail - or be able to still make money above the going rate if he wholesales it out to a used-car lot. They can tell you you're getting $10,000 for the trade-in - they just charge you that much more for the new car to make it work out even out for them. Look around and find a place that sells used rental cars, usually affiliated with a larger car rental firm like Budget or Hertz. They keep the cars in the fleet for 9 to 18 months, and sell them with low miles and most of the factory warranty left - and they have been maintained. (This is why the rates at "Rent-a Wreck" and other local firms are usually so much cheaper, they keep cars in their fleets for several years, rather than turning them over to have lots of Brand New cars.) The teenagers with the Brand New baby Mercedes are probably leasing them - it's basically a 3-year rental, the monthly payments are lower but you get no equity in the car. You only turn it in at the end of the term, and pay any penalties for over-mileage. If you want to buy it, you can buy it at a specified price - or you may be forced to buy the car if you go way over on the mileage, and the penalties are too steep. Though you do get the responsibility for any damage and the maintenance on a leased car - which the over-extended people hard pressed to make their lease and house/apartment rent payments often don't do. This is how you sludge up a motor - it doesn't belong to the lessee, so they don't have any reason to get the maintenance done, the car gets turned back in 36,000 miles later with the factory oil (turning into pudding) still in it. This is why a lot of premium cars are now being leased with "periodic maintenance included", so it gets done and the car will have some resale value. Personally I wouldn't buy a lease return car for that exact reason - unless the leasing company can provide complete maintenance records.

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