Something I wish I'd known three months ago: Some credit card issuers do not allow merchants to impose a maximum

As you might recall, back in March, Marc and I bought a new car. I had intended to make a down payment of over $10,000 on my credit card, but the sales manager told me that the maximum I could pay with a credit card was $5,000. When I mentioned this on CFO, I received a comment from MITBeta stating that Visa and Mastercard do not allow merchants to impose minimum or maximum limits on purchases.

I had known that merchants can't impose a minimum purchase amount, and that the mom and pop stores that have signs that say "Credit card purchase requires $10 minimum" were in violation of their merchant agreement. But it never occurred to me that the opposite might also be true.

I was reminded of this issue by this Bankrate.com article. The author quotes a Visa rep confirming that their "rules require merchants to always honor valid Visa cards regardless of purchase amount -- large or small." (Mastercard has the same rules, but American Express allows merchants to limit transactions.)

If I had known this back in March, I definitely would have insisted on being allowed to make the full down payment that I wanted to make. And, according to the Bankrate article, the dealership would most likely have given in when I informed them that I would pursue the issue with Visa. The article's author points out that the dealer might want to re-negotiate a deal under such circumstances, but it wouldn't have worked in our case. Marc and I had made clear when negotiating our old car's trade-in value that we were prepared to walk away.

We don't plan to buy a new car for at least another five years, but I plan on paying cash for that car. In fact, I've already started saving money for it each month. And in five years, I'll be paying for that new car with a credit card!

Our car loan is officially paid off - in less than two months!

I am thrilled to report that our car loan is officially paid off. We took out the loan in the middle of March, so we've paid it off in less than two months!

How did we do it? The most important thing we did was buy a car that we could easily afford. We also negotiated a great price. And, we saved up for the purchase. All of this meant that the loan wasn't a very big loan. And it helped to have good credit, so that we could get a loan with a great rate.

As for paying off the loan itself, we basically snowflaked all available funds toward the loan. The funds included the amount we had been saving monthly for the car purchase, the amount that I normally would have transferred into our savings account, our tax refund, our tax rebate, and some additional small amounts of income that trickled in during the last two months.

Considering we took 4 1/2 years to pay off our last car loan, I'm extremely pleased that we were pretty much able to meet my 2008 financial goal of paying cash for a new car.

What's our next financial goal? Stay tuned . . . I'll share that with you soon.

Yippee! Our tax rebate was deposited today

Just an FYI for you folks wondering whether the economic stimulus payments have actually been going out after reports last week that the payments would be sent out starting this past Monday: our tax rebate showed up in our bank account this morning.

I am excited we got it because I'll be using the rebate to pay off the balance of our car loan. That's right! Our car loan will be paid off in less than two months! I feel like I pretty much met my goal of paying cash for a car this year. :)

Our Car Buying Experience - Part Three: 5 Lessons Learned to Reduce Stress and Cost

Read Part One: The Negotiations and Part Two: Financing and the Trade-in.

After we bought our car, I thought about the things that worked well and things I wish I'd done a little differently. Here are the lessons I came away with:

1. Negotiate by email. Whether your email communications start with a car buying program as I discussed in Part One of this series, or you initiate the communication via the dealership's web site, negotiating by email is the way to go. The dealership can't strong arm you if you're not in front of them, and you don't waste a lot of time sitting in their little room waiting for the salesman to get back from consulting with his manager. Email negotiation also gives you the opportunity to price match - we bought our car from a dealer that agreed to match another dealer's offer of $500 under invoice. Finally, once you've agreed on a price, ask the dealership to email you a breakdown of the taxes and fees you'll be expected to pay so there aren't any surprises when you go in to close the deal. (This will also give you a chance to look up any suspicious fees.)
2. Make sure the car is on the lot. Five years ago, Marc and I found ourselves at a Mazda dealership waiting for a car. After we'd completed all of the paperwork, we were told that although the car we wanted was listed in their computer system, it appeared that it had been sent out for customization and the closest car they could offer us was $800 more. We were mad. It was classic bait and switch, as far as we were concerned. Not only did we walk away from Galpin Mazda, we will never do business with the entire Galpin family. This time around, we made sure the car was on the lot before we went in (well, after a little hiccup).
3. Mention any trade-in only after you've agreed on a purchase price. Otherwise, the salesman might try to recoup the trade-in value on the purchase price. For more on this topic, see Part Two of this series.
4. Plan your financing before you go in. Knowing how you are going to pay for the car is at least as important as negotiating a good deal. If you are going to finance the purchase, make sure you find the best loan available to you. Know what deals the dealer is offering on financing, and what the restrictions are. In our case, Nissan was offering a $1,000 rebate with 3.99% financing or a $1,250 rebate with no financing. Since I knew we'd be paying off the car quickly and we were able to get a 4.99% rate with USAA, it made sense for us to take the extra $250. But if we'd planned to make payments for the full five years, it would have made sense to go with Nissan's financing. (For example, a $20,000 loan at 3.99% for five years results in $2094 interest paid; $20,000 at 4.99% results in $2640 interest paid, or $546 more.) Also, if you know you don't want or think you might not want dealer financing, then get preapproved with a different lender and take proof of the preapproval with you when you buy the car.
5. Finally, always be prepared to walk away. If you ever feel that the deal isn't right for you, walk away. Marc and I were prepared to leave when the dealership offered us a mere $2300 for our trade-in. This is obviously easiest to do when the car purchase isn't urgent, but even if you do really need a car, it's not worth closing a deal that will make you miserable as soon as you walk out the door. Tell the dealer that you need to think about it some more and leave. If you have to, you can always start over with another dealership. But getting out of a contract once you've signed it is, at a minimum, a huge hassle - and at worst, might not be possible.

The new car vs. used car debate revisited

There are so many personal finance bloggers who write about buying a new car as one of the worst financial decisions a person can make that I decided to revisit the issue.

As I've mentioned previously, Marc and I considered buying a used car before we ultimately bought our new Nissan Altima. After all, the numbers don't lie. A wisely chosen used car would almost always cost less money than a new car. (See Million Dollar Journey's analysis on this subject.)

But that's the rub.

We don't have any confidence in our ability to choose a used car wisely. Of course, we would choose a car that's reliable, is only a year or two old, and has low mileage. We'd order a Carfax report and have the vehicle inspected before we bought it.

But we don't have a good mechanic anymore. We haven't found a mechanic we trust since our last one went loony after his divorce. Oh no, wait. That was the dentist. He's the one who lost it after his divorce. I guess the mechanic was always loony to start with.

Aaaaanyway . . . last year, golbguy wrote a great series on buying a used car. He addressed our major concern and described how to properly inspect a used car before buying it. It was gibberish to me, and I knew neither Marc nor I would be able to inspect the car in the way golbguy described. That was when we decided that the right decision for us was to buy a new car.

It's not just that peace of mind is worth something (a lot, in my book). It's also that, unless you get a used car in great shape, you can end up with major car repair bills. I speak from experience - my first car was used and turned into a huge headache. Admittedly, my first car was a five-year-old Honda Accord, not a one-year-old car, but still, it should have had far fewer problems than it did.

We now have two cars that we plan to drive until they're each over 10 years old. (The Honda Accord that we traded in for the new Altima was 11 years old. The car we traded in for our old Atima was 12 years old.) In the long run, we might be losing a few thousand dollars by buying new cars. But I think we more than make it up in peace of mind and fewer car repair bills.

Now it's your turn: Do you prefer to buy cars that are new or used?

Our car buying experience - Part Two: Financing and the Trade-in

Read Part One: The Negotiations.

Financing
As soon as we got serious about buying a new car, I started looking into financing options. I checked the rates at all of our banks, including credit unions, as well as Nissan's rates. Nissan offered 3.99% with a $1,000 rebate or a $1,250 rebate with no dealer financing. When I went through USAA's car buying service, I discovered that they had an online auto loan application with 4.99% financing, so I applied online and was approved within minutes. I simply printed out an electronic check to take to the dealership. (Note: The 4.99% rate was for online applications only, and required automatic payments set up with a bank account.)

When we got to the dealership, I intended to put down a hefty down payment of over $10,000 on my credit card (which I pay off in full each month) - but I was told that they only will charge a maximum of $5,000 to a credit card. The money for the down payment was sitting in our liquid CD account, which is generally highly accessible. However, it takes a day or two for funds to be transferred into a different account. I considered giving the dealership a check and asking them not to cash it for a couple of days, but rather than risk bouncing the check, I opted to finance a greater amount than I had originally intended. Once the loan was completed, I set up an electronic principal payment that brought the loan amount down to the amount I wanted it to be in the first place.

Setting up our financing through USAA was super easy, and gave us a net gain over dealership financing because of the additional $250 rebate. The dealership, knowing that a check from USAA would never bounce, had no problems with the set up. In fact, the only hiccup occurred because we registered the car in both our names, but the loan was in my name only. Marc had to sign a release before the loan could be finalized.

The Trade-in
We had a 1997 Honda Accord EX sedan to trade in. I looked up the trade-in value at Kelly Blue Book and Edmunds.com, and also spoke to a friend's husband who's knowledgeable about used cars. Edmunds' low value was about $2600. KBB's low value was about $3500. My friend's husband said we could expect to get about $4000 to $5000 in a private party sale, and about 30% less than that from a dealer.

The first time I mentioned the trade-in to the salesman was the morning of the day that we were going in to buy the car. All of the negotiations were done at that point, and I made a final call to confirm that the car was actually at the dealership before we drove out there. I decided to mention at the end that we'd be bringing in the Honda, and I could detect a bit of perturbation in the salesman's voice when I did.

But when we arrived at the dealership, everything went fine. We test drove the new car, agreed that we wanted to buy it, and the salesman went over the Honda, then left us in his office while he took the papers over to the appraiser. Based on the numbers I'd collected, I was prepared to negotiate for $3000. It was still a shock, though, when the salesman came back with an offer of $2300. Marc and I looked at each other and prepared to leave - we'd agreed before arriving at the dealership that if the trade-in value wasn't acceptable, we'd walk away. After all, the new car wasn't an urgent purchase. The salesman tried to guilt us into taking the offer by telling us that he'd gone out of his way to bring the car in (repeating his story that it was highly unusual for them to get the car on the lot before the paperwork has been completed) and complaining that we hadn't mentioned the trade-in to him before (as if that should have any impact on the purchase price of the new car).

Finally, the salesman ran to get his boss, who was probably the sales manager but also was apparently at least somewhat responsible for selling the used cars, since he talked to us about what he personally was going to do with the Honda - something about selling it at auction. He told us in his most sincere manner that the most he could get for the Honda at auction was $2700, so he would give us $2700 and hope to break even on it. Marc and I discussed the offer for a minute and agreed to take the offer. (Read this if you're wondering why we didn't just sell the car ourselves - and read Patrick's post, too.)

Some thoughts on financing
As you might recall, one of my goals this year was to pay cash for a new car. Obviously, that didn't happen. But we should have the car paid off in June, which is pretty darn close to my original goal. (We took the loan out in March and will have it paid off in less than three months.)

Our car buying experience - Part One: The Negotiations

As I previously mentioned, we recently bought a new car - a 2008 Nissan Altima 3.5 SE. (See my posts here and here on how we came to choose this car.)

About a month ago, when we decided it was time to buy a new car, I started at Edmunds.com and calculated the "True Market Value" of the car we wanted - a 2008 Altima with an automatic V6 engine and no options. It came to $23,211. That wasn't too bad.

Then I kind of put car-buying on the back burner until J.D. at Get Rich Slowly linked to a Metafilter thread on determining a reasonable offer for a new car. One of the commenters noted that USAA has a car negotiation service (similar to AAA and Costco). Since I'm a USAA member, I immediately logged in and submitted my information.

I've never used AAA or Costco's program, so I don't know how different they are from the USAA program. But what happened with USAA was that after I gave my consent to send my name, phone number and email address to participating dealerships, I immediately received a notice from USAA that the closest dealership's price was $100 over invoice, or $22,350. I was asked if I wanted the system to search for a dealership with a lower price, so I clicked the yes button and received a notice that a dealership further away would sell the car to me for $500 under invoice, or $21,750. (The price included a $1,250 manufacturer rebate - I'll discuss the rebate more in Part Two, about financing.)

Later that day, I received emails from both dealerships asking for more information about what car I wanted to buy. That was a little frustrating since USAA must have sent them all of that information - really, all I should have had to provide was the color of the car I wanted. But in any event, the first thing I did was confirm with the second dealership that their USAA member price was $500 under invoice and it was. I then asked the first dealership if they would match it and they said they would. Great!

Or maybe not. We wanted a V6 with no options and both dealerships insisted that they couldn't locate such a car. In fact, I can't count the number of times we were told that there were only two cars in all of the western United States in the color we wanted ("precision grey") with the minimum options of floor mats and splashguard (at an additional $238). Nissan apparently simply doesn't make V6s without the floor mats and splashguard (as if they couldn't just take the mats out!). I find it incredibly deceptive for Nissan to call these "options" when they're apparently really "features," but that's a story for another time. We weren't in a huge rush to get a new car, so we told the dealerships to let us know when they found a V6 in precision grey with no more than mats and a splashguard and we'd come in.

Over the next three weeks or so, a few days would pass and then I'd get an email asking if I was still interested, and I'd send the same response: "here's what I want, if you can get it, let me know." Eventually, it became apparent that the first dealership actually really wanted our business and the second dealership didn't care that much (I'm assuming because they wouldn't have made much money off of us - it was also the beginning/middle of March at this point, so they may not have been worried about their quota yet).

Finally, I received an email from the first dealership saying they had found the car we wanted and could we come in? Since the dealership was near our house, Marc and I met at home and cleaned out the Honda Accord we'd be trading in. That was when I received an email from the salesman saying that he wanted to be sure we knew that the car wasn't actually at the dealership, it was three hours way. Say what?!

Needless to say, we didn't go in that day. The next week, we were told by a different salesman that he would have the car on the lot, so we made arrangements to go in. I exchanged multiple phone calls and emails with him to make sure that the car was indeed in his possession, and off we went. (The salesman insisted that the practice of not having the car on the lot was routine and it was "highly unusual" for them to bring the car in first. Are there really hundreds, maybe thousands, of people who willingly spend half a day waiting for their new car to be brought in?!) In any event, I can't tell you how nice it was to be able to go in knowing what the cost of the car would be and there wouldn't have to be any haggling or pressure to buy options we didn't want.

Stay tuned for Part Two of this series, about financing the new car and trading in our old one.

Updates: New car & a new mortgage

Just a couple of quick notes this morning:

We bought our new car yesterday. I'll post about the process in detail once I've had the time to write it up, but for now, I'll just note that dealers hate selling cars without options! But I'm happy with the deal we got and with the car, too.

We don't have a new mortgage yet, but rates are sliding down, so I'm keeping a close eye on them. As I calculated back in February, a lower interest rate could save us thousands over the long run, since we intend to remain in our house for next thirty years. But I think rates would need to fall to 5.4% before I start the ball rolling on a refi. (The rate today is 5.66%.) I'm keeping my fingers crossed!

Image credit: Edmunds.com

We'll be buying that new car soon (and financing it)

So much for my goal of paying cash for a new car later this year. However, we think we've made a good decision to go ahead and buy a new car now (or in the next month or so). The biggest factor is that our 1997 Honda Accord needs some work if we're going to drive it for the rest of the year. So rather than spend $1,000 on a car that we're only keeping for a few more months, we've decided that it makes sense to just trade it in and buy a new car now.

As I've mentioned before, we've had a hard time deciding what car to buy. Nothing has strongly appealed to us, though we eliminated SUVs and minivans from consideration due to their higher fuel consumption. We're happy with our 2003 Nissan Altima, so we're going to test drive a 2008 model and if we like it, we'll end up with a second Altima in our garage. Fortunately, the 2008 model looks a little different from the 2003, so it's not like we're buying the exact same car. Marc took a look at the hybrid version of the Altima but discovered that it has half the trunk space, which would be a problem for us.

I've been studying the tips in the car-buying series at Gather Little by Little, and at his recommendation, went to Edmunds.com. I priced out a V-6 model with no bells and whistles - it comes to $23,211, which includes a $1,000 cash back rebate with dealer financing at 3.9%. I plan to finance $19,000, which will give us a monthly payment of about $350 for 5 years. Then I'll put the money that we had saved up for the car purchase and make a large payment toward the principal on my remaining student loan (the interest on that loan is higher than 3.9%). We'll still have both loans paid off within two years, at which point we'll be debt-free except for our mortgage.

As a side note, I asked Marc about getting a 2007 Altima, since it would come with 1.9% dealer financing. But he pointed out that the car would have been sitting around for at least a year, and quite possibly baking in the sun (the first dealership we plan to go to has at least two storage lots where the cars are parked outside, and the Southern California summer sun is intense). Plus the difference in total interest paid would be negligible, particularly in light of the fact that the loan will be paid off within two years. So we'll go with the 2008 model.

Image credit: Edmunds.com.

Today's Reading: February 25, 2008

• How to get a great deal on a new car - Part III at Gather Little By Little - This great series ends with some negotiating strategies.
• How Much Is A Serving: The Portion Teller Visuals at Get Fit Slowly - Over at J.D.'s other blog, I found a handy portion guide complete with pictures.

Today's Reading: February 15, 2008

• Homeless: Can you build a life from $25? - I really enjoyed this proof that the American Dream is alive and well, with lots of hard work. Via Money Musings.
• Try Reducing Instead of Eliminating A Trimmable at Blueprint for Financial Prosperity - Jim offers some practical advice on reducing spending.
• How to get a great deal on a new car - Part II at Gather Little By Little - Glblguy is putting together a great series on buying a new car (even though he recommends buying used). I'll be using his tips when we buy our new car later this year. You can find Part I of the series here.
• 10 Handy Numbers to Save in Your Mobile Phone at Marc and Angel - I have four of the suggested numbers in my cell and plan on adding the remaining numbers. Via Lifehacker.

Deciding which car to buy: sedan, minivan or wagon?

As I've mentioned before, Marc and I will be buying a new car in the next year or two. But we can't decide what that car should be.

Size and space are major - perhaps controlling - issues. We currently have two sedans that fit into our two-car garage without leaving much room around the sides, in front or in back. So we can't buy a new vehicle that's significantly bigger than the one we're replacing (4-door Honda Accord). At the same time, we'd love to have more interior and trunk space. With two car seats in the back seat, there's no room for someone to squeeze between them. It would be really nice to be able to go somewhere with our parents and not need a second car. Is it possible to find a seven or eight-seater that still fits in our garage?

Another consideration is fuel economy, particularly with the rising cost of gas. When I met Marc nearly 10 years ago, $1.50 per gallon was high. Earlier this year, we were paying almost $4.00 per gallon. Considering we live in Southern California, we actually don't drive that much. But I can imagine a few road trips in our near future, even if it's just down to San Diego, and I definitely don't want to pay $100 for gas each way.

Reliability is a huge issue for us since neither of us is knowledgeable about cars. Because of this, we gravitate toward Japanese cars with high resale values. But it really limits our choices when it comes to wagons, since most stylish wagons are made by non-Japanese companies or smaller Japanese companies who aren't known for their resale value (like Subaru, which makes the Forester). If we eliminate wagons from consideration, we're left with just sedans and minivans.

Now, everyone I know who owns a minivan loves it. But we're pretty hesitant. There's the fitting-into-the-garage issue I mentioned earlier. And there's also looks - which, I freely admit, are important to us. We want our car to be stylish, and minivans don't really fit that description. Although this may be one of those times when we sacrifice looks for practicality.

But then there's cost. And it's easy to find quality sedans that cost less than, say, the Toyota Sienna, which my friends have raved about. Our budget for the purchase is about $25,000 (I say "about" because we'd be willing to pay another thousand or so for a car that has all of the features we want). However, before we make a final decision, I'll be contacting our insurance agent and pricing out the increase in our policy based on the cars we're considering, and also checking out the True Cost to Own calculator at Edmunds.com to estimate the costs of maintenance and repair.

Finally, our new car must have two features: air conditioning and a V-6 engine. These features make driving around LA a much more pleasant experience than it would be otherwise.

It's worth noting that we aren't interested in any fancy packages. A built-in DVD player isn't even high on the list (we have our iPod and a portable DVD player as well should we ever feel we need it). This certainly saved us a lot of money when we bought our Nissan Altima - hopefully it will also save us money this time.

Right now, I honestly have no idea what we'll end up getting. I think we are kind of hoping that between now and buying time, we will come across a car that meets all of our wants and needs and, most importantly, our budget. I'll write soon about how we're planning to pay for the car.

In the meantime, do you have any suggestions on what car to buy?