How to Buy a Car And Not Get Screwed (in 2026!)

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1:14They're calling this a battle for the fans. What do you say to that, Rumi? It's not a battle. So glad the Saja Boys could take breakfast and give our meal the rest of the day. It is an honor to share. No, it's our honor. It is our larger honor. No, really. Stop. You can really feel the respect in this battle. Pick a meal to pick a side. And participate in McDonald's while supplies last. On this episode of the Personal Finance Podcast, How to Buy a Car in 2026.

1:54what's up everybody and welcome to the personal finance podcast i'm your host andrew founder of mastermoney.co and today on the personal finance podcast we're going to dive into how to buy a car in 2026 if you guys have any questions make sure you join the master money newsletter by going to mastermoney.co slash newsletter. And don't forget to follow us on Apple Podcasts, Spotify, YouTube, or whatever podcast player you love listening to this podcast on. And if you want to help out the show, consider leaving a five-star rating and review on Apple Podcasts, Spotify, or your favorite podcast player.

2:31Now, today, we're going to be diving into how to buy a car in 2026. Now, our goal is we're not going to take you step-by-step on how to find the best deal at a dealership or how to make sure that you are following the right process when you're ready to buy a car. What we're going to be talking about here is how to make the best financial decision for your situation. We will do another episode in the future on some of the tactics and tips with some car buying experts on how to buy a car and get the best deal when you're looking at a dealership. Because right now, as you and I both know, cars are at their highest level that they have been in a very long time.

3:04And so we need to make sure that we do not make a mistake when we you're buying something like a depreciating asset. So if you don't know, cars go down in value over time. And in fact, over the course of the first couple of years, cars can go down 20 to 30 % for a brand new car. And over the course of five years, they'll go down 40 % in value, meaning you are losing those dollars every single day. They are liabilities that are not something that you want to over spend on. And in fact, you can get yourself in some really bad financial situations if you do this. Now, the perfect way to see if someone is in a middle-class trap is if they live in a middle-class home and they have two really nice cars sitting in the driveway.

3:43Because you know both of those cars are typically going to have very large payments and they are going to be someone who is most likely broke. And so I don't want that for anybody listening to this podcast. I don't want that for any wealth builder out there. And instead, what I want you to do is make sure that you are wise when it comes to buying cars and make sure you are doing this in the right way. So we're going to go through today the frameworks and the way to think about buying a car, how to make sure that you're not spending too much on a car, how to make sure you're not spending too much of your income on a car, how to ensure that you know how long to hold that vehicle, how to make sure you understand how much to allocate towards maintenance and expenses, how much to put down on vehicles, and the optimal order that you should consider when you are thinking about buying a car.

4:28And so this is going to be an action-packed episode. I am really excited to dive into this. So we're going to jump to a quick break and then I'm going to get right to it. This is an action-packed episode. So without further ado, let's get into it. All right. Now, the first thing I want to talk through is the first way that you should consider buying a car if you want to figure out what the optimal way is, is to consider cash. Now, there's going to be a lot of people that are going to argue with me and they're going to say, hey, well, what if there's a really low interest rate? Then why would I utilize cash?

4:58And we'll cover that as I go through this. But cash is by far one of the strongest ways to buy liabilities. The reason for this is because liabilities go down in value over time. And so when we look at utilizing cash, that means we're not going to overextend ourselves in a number of different areas. So car loans typically have an interest rate anywhere from 6 % to 9 % right now. A lot of people could be paying a little bit less if you buy a brand new car and maybe get an intro APR of 0.9 % or something else. That could be a situation that makes a ton of sense. But if you are looking at cars that are anywhere between 6 % to 9%, that is a big deal.

5:33Let's say, for example, you finance a$30 ,000 car at 8 % over the course of five years. You're paying thousands of dollars extra for a depreciating asset, something that goes down in value over time. And because cars go down in value over time, we want to reduce the amount that we have to spend on those. Now, a bunch of reasons why you want to do this is, A, one, you avoid that interest. But two, you eliminate monthly payments. Now, this is the biggest reason and one of the biggest areas that can really, really help people. Let's think about this for a second. If you had no monthly payments on this depreciating asset, that gives you more room and flexibility to do a number of things.

6:11One, it gives you more room and flexibility to be able to take those extra dollars and put them towards wealth building activities. If you need to build up your emergency fund, fantastic. You can start to do that with the extra payments. If you need to make sure that you are maxing out your retirement accounts, you can use this money to do that. Or if you lose your job, you are not a slave to your car payment, meaning you are not going to have to go out and try to figure out how am I going to make my car note and my mortgage payment or my rent and all of these other bills. No, it just reduces your overall overhead, which is a really, really powerful thing, especially when you really want to make sure that you are covering these areas.

6:47And so this gives you more flexibility and less stress around that area. Next is you force smarter buying decisions because if you are not borrowing money, that means you are most likely buying the vehicle smarter. Now, a lot of people, when we talk about buying cash, we'll say, how can I come up with that much cash? And this is not for everybody, but this is for the folks who do have extra cash on hand who are considering this because it's gonna help you make a smarter buying decision. Instead of going out and buying the luxury vehicle, maybe you go out and buy the Honda or instead of going out and buying the brand new, super-sized SUV with every single bell and whistle inside, you go out and you buy the Toyota.

7:24This is an area where I think a lot of people need to consider buying cash, especially if you were early on in your wealth building journey. Because nice cars and making sure you can drive things and live like nobody else is earned. This is an earned thing that you can have over time. And I want that for every single one of you. I want all of you to be driving really nice cars. But at some point in time, we have to make a sacrifice. And so this is something that I think most people out there need to understand. Used is a great option as well. And for those who are considering used, if you can pay cash, it is a really, really great deal.

7:57But also you reduce risks because if you lose your job or if your income drops or if the market has some big issue, you want optionality. And not having a car payment gives you a ton of optionality. I just love the fact or I love the idea of not having a car payment. It is the best thing ever. In fact, I am in the camp that I don't really ever want a car payment ever again. It is one of those things that once you get to a certain point, you're like, I'm just sick and tired of having debt on hand. Now, Andrew, what would you do if someone offered you a car or a vehicle and you could finance that vehicle at 0.9 % interest?

8:32Well, for me, I'm going to say this right now. I'm not an idiot. I would absolutely take that. That is something where it is almost free money. And so because of this, I'd rather put my dollars in the market. That is a good argument. And it is an argument that I agree with. If you get a really low interest rate, then absolutely. But are you getting that really low interest rate? And typically this is why, because you're buying a new vehicle. New vehicles are way more expensive. There's a lot more depreciation hits that you are going to be taking. And that is a big, big deal. And it is really a multi-million dollar decision if people continue to buy new vehicles all the time.

9:05And this is a fact. I have never owned a new vehicle in my entire life, ever, in my entire life. As someone who has built wealth, as someone who has focused his time and energy on making sure I can live like no one else. I have never bought a new vehicle in my entire life. And there's nothing wrong with buying a new vehicle. And we're going to talk about the parameters around that and how to think about that if you are going to finance a new vehicle. For me, there's not a ton of value in it. Instead, I like to look for vehicles that have been a couple of years used where they have taken that depreciation hit of 20 to 30 percent and someone else has paid for that depreciation.

9:38And then I get to acquire the vehicle and not have such a big depreciation hit because most people out there don't know. Depreciation is the number one cost that you are going to incur when you buy a vehicle. And so you want to make sure that you defer that as much as you possibly can. And so when it comes to reducing your risk, when you buy a vehicle cash, this means that you're going to be more disciplined in your approach because you only have so much cash on hand and you can't just overextend yourself because of emotions or because you see all the bells and whistles and realize, Oh, I want this.

10:08Every single car I'm looking at has all these brand new bells and whistles. No, it keeps you disciplined and it makes sure that you avoid being upsold. And that's the number five is because car dealerships, their job is to upsell you. They will upsell you left and right. If you bring your car to get repaired at the car dealership, they're gonna try to upsell you. But also, if you go and try to buy a car, they're gonna upsell you the entire time. But if you only have a certain amount of cash on hand, you are good to go. And car dealerships are notorious for giving bad financial advice. They'll tell you to stretch out your payments longer.

10:39They'll tell you to get the warranty. They'll tell you to do this and that. And all the different light items that they pursue for you to actually buy into are gonna be things that you really don't wanna do. And so you need to make sure you're educated. You need to make sure you're prepared. I don't want you getting upsold in the financial office. Paying for cash also just gives you peace of mind. So if you really, really value that, that is gonna help you in that area. But most of us don't have the ability to go out and pay cash. Most of us do not pay cash for a car. We need to make sure that we understand the rules when we are going to go finance a car, and we are going to talk about those rules next.

11:14All right, so if you need to finance a car, I'm going to introduce you to our rule called the 24-12-10 rule. Now, the 24-12-10 rule we have talked about on this podcast before, but we're going to dive deep on it in this episode for 2026 and look deeper into exactly what we need to do, okay? So let's start with the first number, which is 20. 20 stands for putting 20 % down on your vehicle. And the second you drive your car off the lot, the very second that you leave, your car depreciates immediately anywhere between 15 % to 25%. Now, usually domestic vehicles, regular old Toyotas and Hondas and Fords, they're going to depreciate closer to that 15 % range.

11:55If you drive a luxury vehicle, it is going to fly off the lot at closer to that 25 % range in the first year. This means that if you buy a$40 ,000 car with very little down, you are literally going to owe$38 ,000, but your car, when you drive it off the lot, is going to be worth about$32 ,000. This is called being underwater. When you drive your car off the lot and you owe more than the car is actually worth, you are now underwater on that vehicle. And this is where a lot of people can get financially stuck because if a problem happens with that vehicle and you are underwater on that car, you have yourself a financial problem.

12:34So let's say, for example, I'm going to give you a worst case scenario here on why we tell you to put 20 % down because most people scoff at this and they say, no, I'd rather put that money in the market. I'm not putting any cash into a depreciating asset. But let me explain why, because we have seen this happen with a number of folks. So let's say that you put 5 % down on a$40 ,000 car and you finance the rest of the vehicle. Okay. Six months later, you're driving down the road and you are texting on your cell phone and you run into the back of someone's vehicle who's at a stoplight. You didn't see the stoplight coming.

13:04You were trying to text back your spouse and say, hey, I'll be home for dinner at X amount of time. And then all of a sudden, boom, out of nowhere, you run into someone else's vehicle. Everybody's okay. We're gonna make this a okay scenario, but your car is completely totaled. Here's the thing you need to know. Insurance is gonna pay what the car is worth. They're not gonna pay what you owe. So that means that you are gonna be on the hook. So let's say that the car is worth$30 ,000, but you currently still owe$36 ,000 on the vehicle. What that means is that you're going to be writing a$6 ,000 check to the finance company to make sure that you can fully pay for that vehicle.

13:43And this is to get out of a situation of a car that you don't even have anymore. This has happened time and time again. And that is a really, really bad day to have. So 20 % down dramatically reduces this risk. It gives you equity and it gives you cushion. Now, if you're the type of person that doesn't want to put 20 % down, but you want to put the money aside in cash into something like a high yield savings account or something like that, then maybe you can make an argument there. But most people aren't disciplined enough to do that. Most people aren't disciplined enough to carry their own insurance like that.

14:14And so if you are not going to put 20 % down and you're not willing to put 20 % to the side, if you don't want to put it down on the vehicle, then there's another option that you have available to you, which is called gap insurance. Now, gap insurance is an insurance that you can put into place, which is called guaranteed asset protection. So it covers the gap between what your car is worth and what you actually owe. Let's use the previous example. So if you owe$36 ,000 and your car is worth$30 ,000 and that gap is$6 ,000, they would cover the difference. But if you buy it at the dealership, it would cost anywhere from$500 to$900 up front.

14:48And most likely it just gets rolled into your loan, which means you are going to be paying even more interest on that. Now, some other companies offer it even cheaper. You can find it cheaper in some specific locations, but you got to do your homework if you're going to get gap insurance. And the thing about gap insurance, this is not a wealth building activity. This is just a bandaid, but it is something that you could put into place where they will cover the difference if you don't have the cash on hand or if you don't have that available. But here's the goal is if you are going to finance, try to at least save up 20%.

15:15If you know you're going to get a car in the next couple of years, now is the time to save that. But secondarily is if you roll over or you have a trade-in, a lot of times that can help cover your 20 % as well. If you have a trade-in that's worth$10 ,000 and you are buying yourself a$40 ,000 car, well, you're putting 25 % down right there, then you should be a-okay if that is the case. And so your trade-in, 20 % down, gap insurance or cash are going to be some of the big things that you want to think about for this first number. Because I don't want anybody underwater and they're having to pay out of pocket for that vehicle.

15:44That is just never a situation that you want to be in because you are just throwing money out the window when you do that. Okay. So that is a big, big key overall. Now, again, if you buy a used vehicle, this is less of a problem because it will depreciate over time, but it's not going to depreciate as fast. So new vehicles will see this depreciation. Used vehicles will see less depreciation. So even when I went out and bought my vehicle that I'm driving now, I drive a 2018 Ford truck. Okay. And when I bought this vehicle that I am currently driving, which I am going to drive into the ground. I'm going to drive it till it dies.

16:18My son right now is seven years old. I think I'm going to try to drive it till he's 16 and he can drive his first vehicle. We'll see if I can do it, but we're going to try. When that happens, or when I bought that vehicle, I bought it used. So when I bought it, I got it for 30 % less than it was actually purchased new with 13 ,000 miles on it. The depreciation hit was there and somebody else paid that depreciation. And that was a situation where I found this was a really, really good deal. Now, luckily, I bought it in 2019. it was a year old. It was before COVID and the prices spiked. And so now that's why I'm not shipping out this vehicle at any given time whatsoever.

16:51It's fully paid off. Never, ever looking to take it on another car payment. And so that is why I'm in that situation where I'm just going to drive it forever. But for used vehicles, you can see how much depreciation hit is there and you don't have to put as much down when you're looking at that. All right. Now let's go to the second number because again, to review, we did 20%. Now we have four, 12 and 10 left. So let's dive deeper into these numbers. What does the four mean? Four means that you are going to take a car loan on for four years or less. A car is an appreciating asset. And so if you are stretching out payments longer than they need to be for five, six, seven, eight years, then you are doing something unnecessary.

17:32One is when you stretch out a loan, you're going to be paying more interest. So over that timeframe, you could be paying thousands of dollars more an interest depending on how long you stretch a loan out. For people who are not financially educated, a lot of times they want to stretch out a loan. Two, is you stay underwater longer when you are stretching out payments, meaning that you're not paying off the car fast enough, especially if you don't put that 20 % down. You are not paying down the principal fast enough for you to be able to catch up. So you are underwater on that car for longer periods of time, especially when you are buying a new vehicle.

18:07Three is you trap your cash flow, meaning that when money comes in, you have to drive through traffic to work, go to work, work all day, drive through traffic home, come home to pay somebody else and make sure you can pay your car note. And so this is a situation where you wanna reduce the time between when you start a loan to when that loan finishes. You wanna reduce that time as fast as you possibly can. Typically, we wanna look at the interest rate too, but typically this is because then once you pay this off, you can take those extra dollars and put them towards your investments or wealth building activities.

18:37And so having no payments is very, very important. And then number four is if you do have to end up getting a new car, you increase the odds that you could roll negative equity into the new vehicle by stretching out those payments. That's the last thing you want to do. A lot of people now are rolling negative equity from their vehicles because vehicles are so expensive into the next one. And that is not something you want to do. Where I talked about, if you have a trade-in, that's fantastic. You can use that for your 20 % down. A lot of people are negative on those and that really doesn't work out for them.

19:04And so really, really important that you make sure you don't stretch out that payment. Now, the dealership is going to try to get you to stretch out your payment. In fact, every time I do this, I say, I want four years or less on a car loan. And they come back to me and they say, oh, yeah, but what, why don't you just stretch it out? Your payments are going to be lower. And then you can just make those extra payments. They always say this, you can just make those extra payments, but this is something you don't want to do, especially if you know yourself and you know, you're not financially disciplined to make those extra payments, you want to make sure that you just make it four years or less.

19:33That is our rule because we don't want you carrying payments forever. We want you to have long periods of time where you do not have a car note. You should not have it. The majority of your life should not be car payments. And that's what I want you to know. You should have more of your life without car payments than having car payments. And that's what I want for each and every single one of you is to make sure that you understand that. But I'm going to give you an example because I want to show you this example. And this is from Caleb Hammer's podcast called Financial Audit. But I want to show you this example of exactly how people think and how people look at this when they are thinking about how long they should carry a car payment.

20:08Let's look at it here. An 84-month car loan? Why an 84-month car loan? I want lower payments. You know that's not how it works. You are paying more in interest over time. 2024 Kia Sportage. and it is$638.70. That's an insane car payment for seven years. I feel like$600 is a normal car payment. Oh, I'm going to refinance it when rates go down. Okay, if rates go down. When rates go down, they will go down for sure. What? Yeah. If I can't refinance, then whatever. If I can, awesome. Whatever. I have an 84-month load. I'm going to be 40 and I finally paid off my car. And? You owe$39 ,000. It's worth$31 ,000.

21:21Can I actually afford this vehicle? And we're going to talk about what that means in a second. And can I also afford all the costs associated with it? But most people think about it this way. They want to stretch out their payments so that they're just paying over time. And Caleb gives a great example here. So you're finally going to pay this off seven years later when you're 40? And she said, yeah, so? My friends, that is a great example of someone who is not financially educated. Someone who does not know what they are doing. And so I don't want that for you. So each and every single one of you out there needs to understand total cost of ownership when it comes to a car.

21:53And you need to understand how much you need to pay in maintenance and how much of your income should be spent on car payments if you're going to take on a car payment. We're going to talk about that right after this break. So lately, I've been noticing how fast things are changing at home. The kids are growing like crazy. Clothes don't fit anymore. And routines are changing. And it just hits you. Life is expanding. And when your life grows, your responsibility grows with it. That's something I've been thinking about more this spring, making sure the safety net we have in place actually matches the life that we're building.

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