Having access to a vehicle is a necessity for the majority of people in today's society. Some, although, find alternative ways of transportation such as walking or public transportation, especially in urban areas. Those few people are dodging a massive expense that most of us have.

​With that said, it is essential that we have a thorough understanding of the options that are available when financing a vehicle. Cars also have a plethora of other expenses such as maintenance/tires, gas, insurance, licensing/taxes, and depreciation, of course. I think you get the picture, cars are a huge investment that you need to be prepared for.

In this article, we'll share some helpful tips to guide you in the right direction and get the best vehicle for your needs while still making the most frugal decision.

Quick NavigationFrugal Vehicle-Buying:Step 1: Do Your Homework/Know What You WantStep 2: Budget Yourself/Be PatientStep 3: Cash vs. LoansStep 4: Purchasing StrategyBuying vs. Leasing:Negotiating Prices:Step 5: Car InsuranceStep 6: Maintenance

Frugal Vehicle-Buying:

Step 1: Do Your Homework/Know What You Want

​When purchasing a vehicle, you can't ever have too much information. It is important to do your research so that you know what car is perfect for your needs.

First, you need to consider what exactly you want. Often times, your job and overall lifestyle will help you narrow down your options. If you have a job that portrays a professional image, maybe you want a luxury vehicle. If you do a lot of traveling, it might make more sense to get a car with great gas mileage. If you are in construction, work with your hands, or value a vehicle that is a essentially a tool, then a truck might be the vehicle for you.​

Once you have figured out what kind of vehicle you want, it is time for you to narrow down your options even further by choosing a car make, model, and year. Now we are getting into the specifics of what EXACTLY you want. This includes specific things such as exact gas mileages, safety features, the kind of driving you do (highway, back roads, rain, snow), etc.

This research can all be done online, and it is a good idea to print out or write these things down. Keep a folder of all this information, and bring it to the dealership with you.

If you are looking to get the best deal, it is beneficial to be flexible as well. If you know exactly what you want, it is absolutely a good thing, but it does not hurt to consider other options that may save you money. The more you know about your needs, the more money you will save.

Step 2: Budget Yourself/Be Patient

The next step in the car-buying process is figuring out how to pay for it. The first thing you need to do is create a budget. Your budget will depend on how much you can afford, how much you have saved, and your needs.

​Sam Dogen, founder of financialsamurai.com, suggests…


​Try to make 10 times as much as the car's value before you do any financing or purchasing. This way, you motivate yourself to make more if you want a nicer car, and you prevent yourself from blowing yourself up.”

Sam DogenFinancial Samurai                 

You should have a set goal price, and an upper limit. For example, I might have a goal to spend around $5,000 on my next car. I would not want to exceed this price, unless I found a deal too hard to pass on, which might fit into my upper limit. My upper limit, in this case, might be $6000. Anything over your upper limit is not a smart purchase.

Next, it is a good idea to make a schedule. Schedule visits to the dealership, and be sure to stick with it. This lowers the possibility of being talked into a deal that you later realize was not smart.

Justin Cupler, auto savings specialist at The Penny Hoarder, weighed in…


Don't fall for the this-deal-expires-when-you-leave threat. If the dealer offered you that deal now, they will offer it tomorrow, next week, 30 days from now, or 6 months from now. No deal ever expires when you leave the dealer.”

Justin Cupler The Penny Hoarder

Dealers are often times aggressive in their sales tactics because they are trying to make their numbers. You can find bargains towards the end of the month, although, because salespeople are eager to meet their quota.​

​Being patient is one of the most important things to keep in mind when you are on the market for a vehicle. Don't jump on the first car that comes along! Keep an eye out for cars in the newspaper, on online resources such as craigslist, or even on social media. Being patient will pay off, and you will end up with a lot more money in your pocket!

Step 3: Cash vs. Loans

Now that you have found the perfect car that fits your budget, it is time to dive even further into figuring out how you are going to pay for it. You have to decide between paying cash up front or taking out loans.​

​Almost every expert you speak to will tell you the same thing: pay cash up front. Frugal people are typically opposed to debt, so it makes the most sense to save up the purchase price. It may take longer than you want, but the end result is worth it because there is no monthly payment to worry about. Also, it just feels good to be debt free.

​In a personal email correspondence we had with David Ning, founder of moneyning.com, he offered this advice…


​The most frugal way to buy a car is to save until you can pay cash for a used car. That's simply by far the cheapest way to own a vehicle.”

David NingMoneyNing

Justin Weinger, from northerncheapskate.com had this to say…​


You should never finance your car. Save up and buy in cash, or take any form of mass transportation until that is possible. Never finance a depreciating asset.”

Justin WeingerNorthern Cheapskate                 

So it's very clear: cash is the best option! However, it is not always realistic. For example, something could go horribly wrong with your car one day, leaving you with no ride to work. You were not prepared for this to happen, and you do not have enough money to purchase a vehicle straight up. In a situation like this, you might need to take out loans.​

​David Ning went on to say…


If you have to finance the purchase, then it's best to have financing arranged before you ever step into a dealership by shopping around for the best rate. Then you can negotiate with the dealer to see if you can get even better terms by financing directly with them.”

David NingMoney Ning

​Sudipto Basu, owner and blogger of onecentatatime.com had this to say when referring to financing your vehicle…


There are some companies that offer even 0% interest on car loans. If you get one such offer then there's absolutely no harm in taking out a loan. Once I got 0% financing from Toyota.”

Sudipto BasuOne Cent At A time                 

It is essential to shop around and compare different interest rates for a loan. Having great credit will certainly help you find lower interest rates as well. Taking care of these things before going to the dealership can potentially save you thousands of dollars.

Step 4: Purchasing Strategy

Buying vs. Leasing:

​If you do happen to find yourself in a position where financing is your only option, you are going to have to decide between buying and leasing. What exactly is the difference?

  • Once your loan from the bank is paid off, you own the vehicle. There will be no worries once it is paid off.
  • Monthly payments are more expensive because you are paying off the entire purchase price of the vehicle, interest and other finance charges, taxes, and fees.
  • Vehicles depreciate by 10% the second you drive them off the lot, and by 30% within the first 2 years of having it.
  • You are free to drive as many miles as you want.
  • You are free to customize the vehicle however you would like.
  • You do not have to worry about wear-and-tear.

​Philip Taylor, founder of ptmoney.com says…


I'm convinced the most optimal way to purchase a vehicle is to buy a 3 to 5 year old used Honda or Toyota from a private party for around $10,000 to $15,000 cash. Consider a short term loan from a credit union and pay it off as soon as you can.”

Philip TaylorPT Money                 

  • Once your lease is over, you have to return the vehicle and walk away with no cash. You will have to go through the leasing process again when the lease is over.
  • Monthly payments are cheaper because you are only paying depreciation charges, interest charges, taxes, and fees.
  • Future value does not affect you.
  • You have a mile limit.
  • Anything you do to customize the vehicle must be removed when the lease is over.
  • Leases typically hold you responsible for wear-and-tear.

Negotiating Prices:

​Don't be shy to negotiate your monthly payments at the dealership. It is important to remember that car dealerships are looking to get the most money out of you. If you do not negotiate prices, they will take advantage of that, and you will end up paying more money than you have to.

​Justin Cupler also noted…


Everything is negotiable, even interest. Banks often set a base interest rate, but the finance office will often get a bump for selling you on a higher rate. Don't be afraid to negotiate that rate and/or walk away from the deal at financing. This is where your pre approval from a bank can come in handy too.”

Justin CuplerThe Penny Hoarder                 

​The following is a list of helpful tips to keep in mind when negotiating prices:

  • Know the worth of the car. This gives you a price to start negotiating at.
  • Always ask about unique discounts such as:
    • Student discounts
    • Veterans discounts
    • AAA member discounts
  • Compare multiple trade-in prices to knock the monthly payment down as much as possible.
  • Visit multiple dealers and compare multiple prices. Use these prices to negotiate with dealers to get the best price.
  • Focus on the long term. Do not get talked into smaller monthly payments because it will take longer to pay off. You will end up paying more in interest.
  • Do not be afraid to say no! Force them to give you the price that YOU want.

​Take Away: Be aware, be stern, and be confident at the dealership! Prepare yourself to negotiate properly and get the best possible deal.

Step 5: Car Insurance

​Before setting foot in a dealership, it is very important to have already shopped for car insurance. This will allow you to assess which car makes and models will cost more or less to insure. Also, it will tell you if certain safety features will lower the price.

​Comparing multiple car insurance plans is certainly a good idea. Every plan is different, so you have the opportunity to choose the best, cheapest plan for you.

Step 6: Maintenance

​Now that you already have your car and an insurance plan, maintaining your vehicle is now one of your main priorities. If you do a good job of maintaining your vehicle, you will save a lot of money in the long run.

​You should regularly pay your mechanic a visit so that you make sure your vehicle is in good shape. Even if you feel like you are constantly paying for things such as oil changes and other minor adjustments, you have to understand these are necessary to prevent expensive disasters down the road.

​Pro Tip: If you wanted to save even more money, learn how to change oil and perform other maintenance tasks yourself so that you do not have to pay a mechanic to do them for you.