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The Only Rational Way To Buy A Car

Fellow Riskologist,

When you’re not busy bursting through personal barriers by traveling to crazy places, doing epic things, and generally making your life more awesome, you’re probably doing pretty normal stuff like going to work every day, buying groceries, and hanging out with friends.

In fact, you probably spend most of your time doing normal, mundane stuff. That’s why the actions you take in your average, everyday life are so important. By changing the little things you do you lay a foundation for changing the way you do the big things.

It’s only through many small, deliberate steps that a marathon is run.

And one normal thing you’ve done before and will likely do again is buy a car. For as normal as it is, it’s surprising how incredibly bad most people are at making smart decisions when doing it.

Did you know the average American spends more than $9,000/year to own a car? Isn’t that just incredible? What could you do with an extra $9,000/year? I’m sure you can think of better options than driving around, stressed out.

In an article I wrote about how to buy car insurance like a Smart Riskologist awhile back, I revealed that my car actually pays me to own it, thanks to a little car sharing scheme I take advantage of here in Portland.

Of course, this is only possible because I took a disciplined approach when I bought the car. If I’d paid too much or bought the wrong one, I wouldn’t have achieved that.

So today, I want to share with you some rules and strategies for how a Smart Riskologist can buck the trend of feeling like you either have to give up driving and adopt a spartan lifestyle or dump tons of cash down the drain every month to keep up appearances in your new luxury SUV.


Rule #1: Take The Car Off The Pedestal

This is less of a problem throughout the world, and more of a problem specific to North America. We’ve somehow decided a big chunk of metal with some moving parts is considered a status symbol that others are allowed to judge us by.

If you don’t have a really shiny and fast one, you’re not as cool as someone who does. This is ridiculous. If you want to get ahead in life, it is mandatory that you look at your vehicle as a utility, just like you look at your electrical service or your water and sewer.

If someone came to your door selling premium electric service with shinier electrons, would you upgrade right away for the status with your neighbors, or would you tell them to get lost?

Your toaster runs just fine on “normal” electricity. You’ll get to work, fetch your groceries, and even pick up your wife/kids/date just fine in a normal car. You might not be cool, but you’re a hell of a lot smarter. And the smart ones always win in the end.

Take the car off of the pedestal and start looking at it as a way to actually make your life easier than as a way to make it look better.

With that out of the way, you can make intelligent choices about how to buy your next car…

Rule #2: Set Your Maximum Budget Before Shopping

Before you even start looking, decide how much you’ll spend.

Most people do this wrong. They tell themselves, “This is how much I want to spend on a car.” Then, they go look at cars that cost that much and end up paying twice as much for something “better.”

“How much do I want to spend” is the wrong question.” As a Smart Riskologist, your answer should always be $0. You should always want to spend $0 on something silly like a car. So, the question is pointless.

Instead, ask yourself: “What is the largest number of dollars I will trade for a trusty hunk of metal?”

Then, internalize that number and ninja chop yourself in the neck each time you consider spending more.

A few rules of thumb on picking your maximum budget:

  • Make it lower than you think you can afford. You’re smart, you’ll figure out how to get what you want for less.
  • You should easily be able to double it. That doesn’t mean you’re going to! It means that to be able to truly afford your car, you should easily be able to buy two of them. If you can’t, your number is too high.
  • This is for a cash purchase only. That means you’re going to the bank, withdrawing cash, and handing it over, never to be seen again. No loans, no leases, no creative financing. Cash only!

Rule #2: Search for a Used Car From A Private Party

Here’s a sampling of ways you can buy a car, ordered from Most Terrible; I Can’t Believe You Just Did That to I Guess That’s Acceptable.

  • Lease a new car from a dealership.
  • Buy a new car from a dealership with financing.
  • Buy a new car from a dealership with cash.
  • Buy a used car from a dealership with financing.
  • Buy a used car from a dealership with cash.
  • Buy a used car from a private seller with cash.

To practice truly Smart Riskology, you should be looking for a used car on Craigslist or other places where owners list their private cars for sale, like AutoTrader.

For decades, we’ve been lead to believe buying new makes sense because your car comes with a warranty and the auto industry is so competitive there are all kinds of great deals on brand new cars.

It’s all a ruse. Look at the depreciation scale for any car ever manufactured in its first five years, and you will see how wrong this is. If you buy a new car, you will effectively be throwing handfuls of dollar bills out the window every time you drive it.

The cost of new car depreciation
Image courtesy of kirigin.com

That’s not what smart car buyers do. Instead, they let someone else throw handfuls of dollar bills out their brand new car windows and catch them by driving behind in their gently used car.

In addition to buying used, you should look first to buy from a private seller. You’ll almost always get a better deal because private sellers:

  1. Do not have to make a profit on their car to make a deal.
  2. Are not as good at negotiating as car salesmen.

One major myth of buying used from a dealership is that you receive some sort of extra warranty or “return period” if you don’t like the car.

Except in extremely rare cases where it’s stated up front, this is never the case. You receive no extra protection buying used from a dealer, and you’ll almost always pay more to keep the lights on, pay the admins, and make a profit.

You’re also at a great disadvantage in negotiation. You may negotiate for a car once every five to ten years. The salesmen at the lot do it multiple times every day.

You’ll fare better negotiating with someone who’s just trying to get rid of an extra car or is hoping to make a little more than what the dealer offered them as a trade-in. And they’re likely to know more about the real history of their car which plays to your favor.

Rule #3: Choose A Reliable Used Car Using These Guidelines

This is where the process breaks down for most people. They’re on board with the smart car-buying strategy, and then they realize they’re going to have to do some work and rely on knowledge they may not have yet to pick out a good deal.

So, they get scared and move onto a less profitable strategy.

Don’t let this be you! Don’t get discouraged! Even though I highly recommend never owning anything you can’t fix, for a small fee you can borrow all the expertise you’d ever need to smartly pick a reliable used car. Thus, Guideline #1 of buying a used car:

Build A Relationship With A Mechanic Before Looking For Your Car

Before you even start looking for your car, set up a relationship with a mechanic close to you who can check a car before you buy it.

Just get on Yelp, find a mechanic with a high rating, and pay them a quick visit. Let them know you’re looking for a used car, and you’d like to bring anything you find into their shop for a pre-purchase inspection.

The typical cost is anywhere from $50-100, but it’s well worth the time and cost to have an expert look over a complex machine before you spend a bunch of money on it.

When you visit the shop, ask the mechanic if there’s anything specific you can look out for in a car before bringing it into them. For instance, if you live on the East Coast of The U.S., corrosion under a car is a big concern because they salt the roads in the winter.

If you want to save a little money, you can even negotiate a bit with your mechanic. One option is to ask for a volume discount. The more cars you bring in for inspection the cheaper the cost should get each time. Of course, you don’t want to have to look at 10 different cars before buying one, but it’s good protection.

Another strategy would be to ask to use the cost of your inspection as a credit against future repairs at their shop. You probably won’t get the whole cost, but you may at least get a partial credit.

Side note #1: Every used car will have some sort of problem. Don’t discard a car just because something shows up on your pre-inspection. Ask your mechanic about the severity of the problems they found. If they’re minor, use them as a negotiation tool for lowing the price of the car. If they’re major, consider moving on.

Side note #2: A decent mechanic will also have a subscription to Carfax—a service that instantly provides the detailed history of a car—and they’ll run the report for you when you bring the car in. At $40 a piece to buy them yourself, this is a good value.

Buy A Popular Car

Remember, the way a Smart Riskologist gets ahead in life is by eschewing unnecessary convenience and fixing things herself.

By buying a car that’s popular in your area, you can rest assured anytime something goes wrong, a spare part from a junk yard will be very easy to find. It’s also a testament to the general reliability of the car if there are a lot of them around.

I own a Subaru. Here in Portland, driving a Subaru is like owning a pair of shoes. Everyone has one, and it’s not an exaggeration to say that you can find at least two of them parked on every block of the city.

This gives me a lot of assurance that when something goes wrong with the car—and it will, just like any car new or used—I can find parts for it. Even if I choose not to install them myself, I can get the parts cheap and deliver them to a mechanic for installation.

Buy Low Mileage, Even For A Slight Premium

If you’re mechanically inclined, you can get away with buying a car with very high mileage, but for most of us with basic mechanical skills, it’s better to look for a car at the best price with low mileage.

Kelly Blue Book is a good resource for getting a ballpark estimate of a car with any given mileage. Try plugging in several different mileage amounts keeping the other criteria the same to get an idea of how much a car’s value should depreciate as you add more miles.

Highway Miles Are Better Than City Miles

Not all miles are created equal. One instance where you can actually get a better deal with a higher mileage car is if you can find out how the car acquired the miles.

A car with 100,000 miles that was a daily commuter and grocery-getter for a family of 5 going through stop and go traffic in a busy city every day is generally going to have a lot more wear and tear than the same car that was driven by a traveling salesman who put all the miles on the car by driving on the freeway between cities.

The first instance is hard on a car. The second is fairly light.

Consider A Branded Title

When I bought my most recent car a few years ago, I decided to try an experiment: buying a car with a branded title.

When a car has a branded title, it means it’s been declared “destroyed” at some point by either the DMV or by an insurance company.

There are lots of way a car can get a branded title: If it’s been totaled in an accident, was flooded, turned up stolen, or a number of other ways. The general advice is to avoid a car with a branded title like the plague. “You never know what could have happened to it! You’re just asking for trouble!”

As a result, the cost of a car with a branded title is typically at least 40% less than a comparable car with a clear title. In my case, the car I bought had been totaled in an accident.

Here’s something a lot of people don’t know, though: It doesn’t take much to “total” a car these days. Relatively minor accidents that anyone with a bit of time and effort could fix send perfectly good cars to the scrap yard.

It’s important to know how the car obtained its branded title, though. In my case, the car had been in a rear-end collision and then purchased at auction by a private party who repaired it. I was able to Google the VIN number and find pictures of the car at auction which verified the extent of the damage and that the airbags had not deployed.

I also found a small dent in the frame near the back of the car, which can cause problems with alignment, so before finalizing the purchase, I ran the car down to a tire shop and had them actually perform an alignment on the car to make sure it could still be aligned properly. That was an extra $70, but worth it to know my car wasn’t going to need a new set of tires every three months.

Feeling confident about the damage and the soundness of the car, I made a hard negotiation, got a great price, and bought it without hesitation.

So, it takes some extra homework to properly buy a car with a branded title but, if you’re up for it, you can save a lot of money.

Do you have rules for smart car buying? How would you make sure you got a great deal?

Yours in risk-taking,
Founder, Riskology.co

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What smart people are saying about this...

  1. Buying that kind of cars in not risky. Its safe. So where is the adventure? The stamima to work harder and be a better person to pay for it?
    Am i wrong?

    • I don’t get any extra value from an expensive car over an affordable one, so I have no motivation to “take a risk” on an expensive car or work harder to achieve one.

      I prefer to focus my speculative risk-taking on more meaningful pursuits. ;)

  2. I went looking for a ‘beater’ pickup truck to share ownership with a friend across the street to use for those days when you just need to haul something big or ugly, like a refrigerator or junk to the dump. Craig’s list got the job done although it took about 3 weeks of looking but only a few actual trips. The one we found was listed at $2000 with 235,000 miles, a white king cab Chevy 1995 Silverado full size bed. $100 at a local mechanic told the story and revealed the cost to make it road worthy (~$600 if all work was done, although the shop gave a quote of $2100!). A search on Google found a car fax service for $1.00! The search was clean. Negotiation got the price to $1400, and a friend did the essential repairs and cleared the check engine light ($10 gas cap) and straightened the steering for about $400. We are now the proud co-owners of Casper, the Friendly truck. A few lessons: share the cost – insurance was the hardest part since agents mostly won’t consider shared non-family ownership, but we got it down to $400/yr; search for low cost car fax services; diligently search roadsides and the internet – many good deals were seen on used car websites but the costs varied all over the place and usually higher; do homework on road worthiness of a model – some truck engines last a long time if treated well; and hang in there, give it time.

    • Fun story, Mike. I’m assuming you must live somewhere where a car-sharing program is not in place. Otherwise, I would think letting someone else own it and just rent it a few times a year would be a cheaper option.

      Are you worried at all about the truck sitting idle for most of the year?

      • Chattanooga has little established yet for car sharing and nothing for beater trucks. A google search for co-ownership has several examples of others doing the same in the US, with valuable lessons for those considering it themselves, as well as examples of ride sharing and other schemes for renting. The truck is pretty busy, mostly due to my partner using it frequently in his business. For that reason we are considering renegotiating the annual cost allocation. We made a contract envisioning multi-family ownership with a website but simplified to just us 2 at the end. $40 per use is our starting point for loaning Casper out but that can have drawbacks for liability, so we’ll just let him go for filling the tank ($$ ).

  3. Thanks for this article, Tyler. I’m looking to get a car soon “the right way”, since I did it the wrong way in the past. My mom financed a used car for me from a dealer after my paid in cash car was totaled and we received money towards a new car from our insurance. I paid on the car for 3 years and it was a burden. My mom passed away this past July and the car and loan were both in her name. I decided that it made sense for me to let the car go back to the bank, since it would not affect my credit and take the loss of the money I put into it. Maybe that doesn’t sound completely like the right thing to do, but after losing my mom I didn’t want to go through the process of getting the title and loan in my name, paying more a month on the loan, or trying to sell the car. So now I’m carless, but I have the opportunity to save money and buy a car in cash from a private seller.

    • Hey Elise. So sorry to hear about your mom. :(

      Deciding whether to let the bank have the car back or keep paying (if you can afford it) probably depends on how much was left on the loan. But, either way, it sounds like you’re headed down the right track, and I hope you’ll update us with your story when you get your next one!

  4. I am looking for another car since insurance company declared my car total after the car being rear-ended. It is a 2002 Sabb with over 180,000 miles.
    The metal of the rear bumper was pushed in and bend ($2200 to $2800) and the flex pipe was damaged ( $250 to $300 )

    Please advice!

    • Hi, Ann. Sorry to hear your car got totaled. It sounds like it wasn’t your fault, though, so that’s good!

      What you should do next depends on a few things:

      1. Do you have a loan on the car?
      2. Where do you live (rules are different in different states)?
      3. What is the payout the insurance co is offering you?

      Those and a few other factors will determine what the best course of action is.

  5. I usually buy a car that is still under the manufacturers warranty, which means it is a year or so old. If bought from a dealer, I can be assured that they will fix everything that is wrong prior to selling it since they will get paid under the warranty. This gives me a little more comfort that I won’t have any near-term issues, but if I do, I’ll still have the original warranty to fall back on. On top of that, I am able to get a low mileage, newer car without the full showroom price.

Founded with love by Tyler Tervooren

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