Whether you’re buying your first car or your dream car, you can always make car buying mistakes. Considering this is a major purchase, the terms that you negotiate today can have a significant impact on your finances for years. Knowing just a few things to avoid can help you easily find the best deal, make the experience less stressful and work best for you and your financial goals.
To come out ahead in making a major purchase such as this, consider five top pitfalls to avoid:
1. Relying on the Car Dealer’s Loan
Don’t let a dealer dictate your loan terms and sway you into blowing your budget. Oftentimes, the sales staff will offer financing through their preferred banks and financing companies. In addition, dealers can mark up the finance charge and pocket some or all of the difference, so the dealer likely has no incentive to offer you the lowest interest rate. They also can pad the cost with products and services, such as an unwanted extended warranty or additional insurance. Knowing this, consider the overall term of the loan and what works best for you. Shop around for the best financing and get pre-approved for a loan before you hit any dealerships rather than taking the first options the sales staff offers you.
2. Go Car Shopping Without a Budget
The joy of having a great new car can be dampened if it throws a wrench into your finances. One simple way to determine your budget for a new or used car is to use an online affordability calculator. If you know how much you can pay per month and how much you can deposit, you can determine your target sales price. An easy way to calculate your vehicle payment is to use an online auto loan calculator which allows you to enter your vehicle purchase price, down payment, loan term, and interest rate to estimate your monthly payment. For example, let's say you know you can afford to pay $400 per month. If you can make a down payment of $2,000, you can shop for a car priced at around $19,400. That would with a 48-month loan with a 5% interest rate. A widely held budgeting rule is to keep a monthly car payment around 10% to 15% of your monthly take-home pay. Remember, it's critical to add the cost of insurance and gas into your budget as well.
3. Blindly Negotiating a Price
Doing some research on car pricing will help in negotiating a lower price. Unless it is the hottest, most popular new car on the market, dealers frequently will come down on the full sticker price or even the invoice price—what they paid for it. The dealer cost can vary widely and is virtually impossible to determine, but online resources can help guide you in how to hit a reasonable target price. Remember to negotiate the price of the car independently. Consider the trade-in value of a current car and financing separately so that each deal works best for you.
4. Having Tunnel Vision
Don’t focus on only one brand or model or that it must be new. Considering used car options can help you find what will serve you best. Explore what type of car will best suit your lifestyle. Consider your commute, fuel efficiency and if weather conditions warrant all-wheel drive. Think about space for carpooling, children's car seats, sports equipment or musical instruments. Research models’ reliability and safety, too.
5. Being Pressured By Limited Time Only Sales
Don’t be misled by offers around holidays or weekends. Consider other good opportunities such as shopping toward the end of the month, quarter or year. Dealers are more likely to negotiate more at those times if they haven’t yet made their sales goals—which allows them to earn bonuses.
It doesn’t take much time to take a few easy steps that can save you time, money and sanity in buying a car. Having just a few key pieces of information will make the whole experience less stressful and help you find the car that’s right for you, at the right price.