December 2019

I am very fortunate that my parents provided me with my first car (classic “hand-me-down from my dad who’s using this event as an excuse to buy a BMW” situation), a 2004 Acura TL, and then used my remaining college fund money to lease my next car, a 2017 Acura RDX.

In short, I’m lucky – very lucky – that I’ve made it all the way to age 25 without having to pay for a vehicle.

The downside of this? Having to reconcile how absurdly expensive it is to buy a car, pay for insurance (although I’ve been doing this since graduation, still a bit late compared to some of my high school friends whose parents laid down the law earlier), and keep up with maintenance.

This post is not intended to be an exhaustive, best practices guide to car buying – but rather to show an honest look at buying a car as a solo female and the experiences and choices I encountered. I answer questions that I had at the beginning of the process (even the “obvious” ones!) in the hopes that someone else who doesn’t know where to start can have a little guidance.

That said, let’s get going!

My lease on the RDX comes up in February – and while I love the car and would like to keep it, the residual value (essentially, what the bank determines your car is worth when the lease ends) is around $23,000. What does that mean? Effectively, that my parents generously leased me a car that I can’t comfortably afford.

How much car can you afford?

According to this article from Money Under 30, the rule of thumb is that you shouldn’t spend more than 35% of your annual income on a car. They call this the “one-size-fits-all” rule, but it made me realize – non-judgmentally – that most of us drive around in cars that we can’t technically afford “comfortably.”

To contextualize this, the article makes the example that someone driving a $52,500 should make at least $150,000 a year.

They also noted there’s a “frugal” rule of thumb – which made me chuckle, because I think a lot of Americans would consider 35% a conservative amount. This rule says only 10-15% of your annual income should go toward a car.

This more frugal standard means that someone making $80,000 would pay no more than $10,000 or $12,000 for their car.

The moral of the story here, for me, was that a combination of societal pressure to keep up and the auto industry’s advertising makes us feel like we can and should spend a lot more than what makes sense for us.

I don’t want to be driving around in my 401(k), but I also can admit that I like nice things.

My approach

Rather than settling on a budget at first, I backed into the overall price by determining how much I wanted to spend per month (or rather, the maximum I was willing to spend).

I knew that I didn’t want to spend more than $300 per month on a car payment. Anything more than that felt irrational and uncomfortable for me.

I used this handy calculator on BankRate.com that allows you to plug in different principle loan amounts, loan terms, and rates to see what your estimated monthly payment would be.

And before we go any further, I should mention… Ali, my business partner at Matriarch Financial, advised me to get pre-approved for a loan with the Southwest Credit Union before going into any negotiations so I wasn’t “at the mercy of the dealership’s financing.”

What does that mean?

When you buy a car, you take out an auto loan. The interest rates on these loans vary depending on the lender, the length of the loan, and your credit score. I didn’t know this before undergoing this process, but the dealership’s financing will make you an offer so you’re buying it from them and their bank is financing it (I noticed they seemed to hover around 4-5%, which felt really high to me).

When you go to the bank or credit union of your choice, you can normally secure a lower rate. Once I had some loan amounts in mind, I applied for pre-approval on my credit union’s website and received the following within a couple days:

2.74% for 48 months

2.99% for 60 months

Now I had some numbers to work with in the BankRate calculator!

After some trial and error, this is what I settled on:

2.99% for 60 months and a $287 monthly payment

An estimated monthly payment of $287 felt great to me – which meant I’d borrow $16,000 and pay it back over five years (60 months), paying about $1,246 in interest overall with a 2.99% rate. Not bad — this is pretty cheap debt. Note that oftentimes you can secure 0% APR on a new vehicle, but ultimately, buying new didn’t make sense for me (and frankly, probably won’t make sense for most).

Of course, I also looked at what it would cost to do the 48-month/2.74% option, but it ended up being considerably more costly every month and only a little cheaper in overall interest: a monthly payment of $352 (vs. $287) and $911 in interest (vs. $1,246).

I decided to pay $335 more in interest over five years in order to only have to pay $287 per month.

If I had taken the 4.99% rate offered at the dealership, I’d have paid $302 per month and $2,112 in interest over the 60 months.

This is why Ali was so adamant that I secure loan pre-approval before beginning the process – it saves you money on a month-to-month basis and allows you to pay a lot less in interest over time.

In Ali's words, if you do nothing else, do this.

The total purchase price of the car

After considering the range of 10-35% of my annual income, I decided my budget for this car would be $20,000 (but that I’d try to negotiate down as much as possible).

This meant – if I took out a $16,000 loan – that I’d have to put a maximum of $4,000 down to make up the difference.

How to decide how much to put down

Because my only prior experience with buying something ungodly expensive was my failed attempt at buying a condo, I figured the more money down = the better.

After speaking with Ali and my dad, I learned that that’s not the case with a depreciating asset (in other words, something that loses value over time, like a car, rather than something that ostensibly gains value over time, like a house).

Consider this scenario:

 You put $15,000 on a $30,000 car, or half of its value. On the way home from the dealership, you get in an accident. You’re unharmed, but your car is totaled. You’ve just sunken $15,000 into this asset that’s now worth only a fraction of what you paid. (This is where GAP insurance and regular insurance come in, but still, you’re driving around in $15,000 cash!)

Hopefully this nightmarish circumstance is something none of us any experience, but I think it illustrates the point – the more you put in upfront, the more you’re risking.

In the end, my down payment was a simple function of:

( How much I wanted my monthly payment to be ) determined ( the loan’s amount )

(The value of the car) minus (the loan amount) = (down payment)

Or, using real numbers:

(I wanted to pay $287 per month) which means (borrow $16,000 at 2.99% for 60 months)

(The car costs $20,000) minus (the loan of $16,000) = $4,000 is the resulting down payment

Choosing the car, going to dealerships, and negotiating with grown men

This was the least-scientific yet somehow most daunting part of the process.

Everyone knows the stereotypical “young woman walks into car dealership and gets swindled into something she can’t afford” motif — or sometimes worse, “young woman walks into car dealership and ends up paying way more for something she could’ve afforded otherwise.”

I was determined to set the tone very early in the conversation that I was an educated buyer and wasn’t interested in being persuaded into leasing the 2020 model of something I can’t afford.

My first stop? Acura.

I wanted to give Acura a chance to make me a better deal, so I went in and spoke with an associate and said the following (a script I crafted with my father very carefully on the phone in the parking lot beforehand like the strong, independent woman I am):

“I’m shopping around today to explore my options and see the best deal I can get. My lease on a 2017 RDX ends in February.”

Immediately, they went for the hard sell on the 2020 lease. She practically launched me into the driver’s seat of the floor model.

And let me tell you, that new car smell is lusty and intoxicating – but I stood firm. Before long, the sales manager was sitting at the table with us. I said:

“I’m looking to pay no more than $300 per month and put no more than $4,000 down, so unless I can lease a 2020 RDX for less, I’m not interested, and I’d like to hear the options for buying my 2017.”

It was like I’ve seen in the movies – his talk about how you can’t lease a 2020 for under $400 quickly changed.

“Well, if I take $5,000 off, I can get it down to $360.”

I politely (but firmly) declined and asked (again) to see the options for a lease buyout.

Finally – and oddly enough, they still continued to lace in talks of a lease as if that were somehow still on the table – he showed me the numbers on my 2017. It was what I had feared: $500 in lease rollover fee, $250 tax and title fee, and about $23,000 in the car’s remaining value. I asked if there were any wiggle room on that price and he told me that the bank set that value, not the dealership.

So, I told them I’d be considering other options and to call me if they can do a 2020 lease for less than $300 per month – and I left.

I knew leaving that day that I’d almost certainly be turning in my car. I noticed on Cars.com that there were other 2017 RDXs for sale in my area, fully loaded, for less than $23,000, so I always had the option to buy another from someone else.

If you’re considering buying out your lease, be sure to take this step and double-check that you’re actually getting a good deal on the car.

My second stop? Audi Dallas.

I know what you’re thinking: You blog about frugality and your budget is $20,000 – what do you think you’re doing in an Audi dealership, sis?

Because I like nice things, remember?! Truthfully, we drove a Q5 in Colorado and I fell in lust.

In all seriousness, I’ve always liked the Audi A3 – it’s small, cute, and sporty, and I liked the idea of downsizing a bit. Plus, I can’t afford much more than that with $20,000 at Audi, so... Here we are.

After poking around on Cars.com, I was happy to see that 2017 Certified Pre-Owned A3s with super low mileage were listed around $19,000 and $20,000.

Walking into Audi was a little bit of a different experience. You know those places you go where – immediately upon entering – you’re like, shit, these people are rich.

It was your classic “fancy car dealership” feel, but I was immediately snagged at the door by a really friendly older salesman named John Paul. He was funny and we had a good dynamic, so I felt more at ease about being in a dealership where there was actually very little in my price range. I gave him an almost identical speech that I had given at Acura.

I told him what I was looking for, and he immediately pulled up all their used A3 inventory on his monitor and showed me. He barely mentioned leasing, which I appreciated after the hard sell at Acura.

He noted (probably a sales tactic) that the Certified Pre-Owned vehicles tend to go quickly because Audi doesn’t “do” very many of them.

He asked if I wanted to drive the A3, and I told him that’d be great – but that I wanted to drive one that would be used and the relevant trim package (Premium, the hilariously named base trim), rather than some fully loaded 2020 model that would blow my socks off and set unrealistic expectations.

He pulled a 2019 around (apparently the 2017 that was available was in the shop getting serviced and detailed to be ready for sale) and he guided me on the test drive. Highway first, bumpy road second.

You could tell this guy was a seasoned salesman – he was casually telling me about the car, but there wasn’t anything desperate or “sales-y” about it. The perfect storm.

After we got back, he printed out all their inventory and laid it all in front of me.

“So let’s talk about your budget,” he said. I was secretly relieved he broached the topic so I didn’t have to. Something about telling a man that routinely sells $80,000 cars to doctors and lawyers made me feel sheepish and embarrassed about even acknowledging that money is a factor in this decision, but luckily, he was friendly and funny and I felt comfortable being firm with my low $20,000 limit.

(Isn't that messed up? I can be so confident in what I want and how much I'm willing to spend on this GIANT decision and then still feel awkward and uncomfortable standing my ground.)

There must be something about my aura that says, “I’m cheap as f***,” because he didn’t seem surprised in the least.

He showed me a red 2017 with an MSRP of $35,100 that was for sale for $19,952. This one hadn’t been online, so it was news to me. It was… pretty adorable. But I didn’t want to show my hand (or excitement), so I stayed calm and asked if that price was negotiable. He claimed they do “no-haggle pricing” on the pre-owned vehicles, so what you see is what you pay.

I asked for the CarFax so I could learn a little more about the history of the car.

First day at the dealerships, in summary

• Explained I was shopping around for the best deal and gave a rough estimate of my timeline

• Told which car I was considering, and that I wanted to buy used

• Test drove

• Talked inventory and budget

• Asked for CarFax on specific vehicles

He told me he’d call me when the car was ready to be driven after it was done being serviced, so I’m still waiting on that call.

My last stop was Audi Plano.

There are five Audi dealerships in DFW (because there are so many people in Dallas who love pretending to be rich, LMFAO), and I saw a black A3 for around $19,900 at their Plano location. A few minutes after I had submitted an interest form on their site the night prior, a salesman called me and asked if I wanted to come see it.

I was surprised at his eagerness, and, as I learned later, slightly misread it.

I figured he was eager to sell it because of quotas and the like, so I told him I’d come by after going to Audi Dallas (attempting to create a little competition, you know?).

Similar experience here, except it got to the test drive a lot faster because I had already given the salesman the low-down the night before re: my lease and search.

I really liked the car, and asked the same question. “Is this the lowest price you’re willing to accept for this car?” He gave me the same line about no-haggle pricing.

“All right. Well, I’ll think about it.” I said. “There’s a very similar car at Audi Dallas for the same price and I was hoping to make my decision based on price.”

He asked if there was anything else they could do to earn my business, and I asked if there was anything else that was negotiable. He mentioned extending the warranty further or adding some type of discounted maintenance package.

I agreed and asked him to look into that and then get back to me with their final offer.

As I drove away, I decided I wanted the black one.

I waited all afternoon for them to call. I felt like I had just gone on a great first date, and then was waiting around for the boy to contact me. Also similar to old desperate dating habits, I began cyber-stalking the car when I felt ghosted, curious for answers.

I noticed it had been taken down from the inventory on AudiUSA.com. Damn it, I thought, they sold it to someone else.

It’s possible John Paul was right – the pre-owned ones do go fast. In retrospect, I think he offered to let me come see it that night because they’re gone as quickly as they’re available.

Next steps

While waiting to hear back from the dealerships, I did two things:

Bookmarked AudiUSA.com’s Certified Pre-Owned A3 inventory in the DFW area so I could check it every day and consider options from all five locations.

Got a quote from my car insurance provider, Geico, of how much it would cost to take my RDX off the policy and add a 2017 Audi A3.

To nobody’s surprise, the A3 cost more to insure.

 I buy my car insurance in 6-month increments to save money on the premiums, and when I had last purchased it, it was $663 for 6 months (approx. $110.50/mo.). This is irritating considering I've never gotten in an accident, had a DUI, filed a claim, etc. — but alas, here we are.

 The quote for the A3 was closer to $800 for 6 months, so I started to toy with some of my coverage. In the end, what I ended up changing were my Collision and Comprehensive deductibles: they both used to be $500 and I upped them to $1,000, meaning if I get in an accident, I’ll have to pay the first $1,000 out of pocket before insurance kicks in.

That got it down to closer to $760, and I figured I was OK with $100 more for 6 months of coverage (although was a little irritated that I'd be paying MORE for LESS coverage). Because the insurance can vary widely on your car based on the type, I think it's probably a good idea to get a quote before buying anything so you can at least expect what you're getting into.

Budgeting for the new vehicle

As this is the first time I’ll have a car payment, I adjusted my 2020 budget accordingly.

I broke out “Car” into several categories beyond just “Transportation” which used to be my catch-all, and figured the following (again, this is all happening prior to actually buying anything):

Car payment: $300, give or take

Car insurance: $770/6 = allot $130/mo. to be paid in full every six months

Gas: $75 (the only budget that actually went down, since the car gets better mileage)

This means that – all in all – owning a $20,000 car is going to cost me $505 per month, not including routine maintenance. (And let’s not forget, maintenance on German cars isn’t cheap – so I’m going to conservatively allot $30/mo. for it assuming I’ll have to get about $200 in maintenance every six months).

Grand total? $535 per month. Woof.

Main takeaway: Cars are expensive AF and you probably can’t afford as much as you think you can at first glance

The more I learn about car ownership and feel the full sting in my monthly statements, the more I’m convinced they’re a total racket. A $20,000 car shouldn’t cost $500 (or more) on a monthly basis when all things are considered – and it makes me wonder how the f*** people driving $90,000 cars are doing it.

And sure, I know I could get a used $10,000 or $15,000 car made by a brand like Toyota or Honda that would lower the insurance premiums, but at the end of the day, I'm trying to strike a balance — $350 all-in per month (hypothetical scenario with a cheaper option) vs. $500 all-in per month (for something I really love) is an OK breakdown, in my book... for now. TBD if I still feel this way in a year (or 5) from now. The follow-up to this article might be called, "Why I'm buying a $6,000 Honda Accord in cash and never looking back." I have no idea.

But because I love to twist the knife, $500 per month is $6,000 per year. $6,000 per year! To move around the same 5-mile radius! Unbelievable.

Now I’m praying Audi doesn’t ghost me permanently and swooping when I find the right deal (i.e., anything under $19,500).

If there’s anything to be learned from the actual purchasing process itself, I will post another article detailing – but for now, hopefully this is helpful (or – at the very least – entertaining).

How it played out

I ended up buying the red A3 from John Paul, my smooth-talking bestie.

The numbers above ended up being approximately correct, save for the fact that the car payment is around $315 per month (home girl didn’t factor in tax) and the insurance was $686 on renewal (so actually, the monthly all-in cost is a little lower).

One negotiation happened that’s worth noting (mostly because I can’t, in good conscience, post a car blog without a good negotiation thrown in).

While they were firm on the “no-haggle price,” the red A3 turned out to NOT be a CPO vehicle (Certified Pre-Owned), meaning it didn’t have the extended warranty. Since German cars are like beautiful women (expensive and high-maintenance), I felt strongly that the extended warranty be included.

So I put on my big girl panties, called John Paul, and in the meekest voice you’ve ever heard, asked, “Um, so is the car CPO? Because online it doesn’t look like it is… and I thought it was… and I’d really like the warranty. So if you could, uh, check, that would be —”

Master negotiator over here. Luckily, he cut me off mid-flounder and said he’d call his people (why do grown men love saying that?) in the shop and see if they’d be willing to certify it.

He called back a few minutes later with an affirmative answer. I was thrilled, especially because the price had been determined based on a regular, pre-owned status, not the CPO label that usually increases the sticker price by a non-negligible amount.

This sealed the deal for me, and a few weeks later, I drove off the lot with my jelly bean of a car, feeling very accomplished in my ability to buy something so valuable.