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Top 5 Worst Car Buying Mistakes

5 Worst Car Buying Mistakes

Credit.com’s experts show you how to avoid the five most common car buying mistakes. From dealer scams to credit traps, these mistakes could cost you thousands. To be sure that you are getting the best rate on your car purchase, be sure to take a look at your credit score for free using Credit.com’s Credit Report Card. You can also get your credit report for free each year from all three credit reporting bureaus.

1. Buying New Instead of Used

Buying a brand new car is almost always a mistake. New cars lose anywhere from $3,000 to 5,000 in value the second you drive them off the dealer’s lot. If you are financing your car purchase with an auto loan, this depreciation means that you are instantly “upside down” on your loan (your loan amount is more than the car is worth). New car scent is appealing, but is it really worth thousands of dollars? Instead, skip this initial drop in value by purchasing a used car. The same model of car that is just one year older can be dramatically less expensive and can still come with the same warranties as the newest model. With all the money you’ll save by buying used, you can afford a lifetime supply of new car scent air fresheners.

2. Not Researching Online

Thanks to the internet, car buyers have a ton of information available to them these days. Websites like Kelley Blue Book, Cars.com, and Edmunds all offer free information about car models, features, prices, and you can even find owner ratings, car suggestions, and reviews. Before you take your first test drive, you should compare cars in your price range, decide which car is right for you, and what price is fair to pay.

Once you have selected a car to purchase, be sure to get the VIN number and look up the vehicle’s history report online with a company like Carfax. It is important to check a car’s history even if it’s new. A lot can happen to a new car on the way from the factory. There have been numerous cases of unscrupulous dealers trying to pass off vandalized or damaged cars as brand new. Plus, brand new cars damaged in floods or hurricanes often end up on the market. Avoid bad deals and lemons by doing your research online.

3. Thinking in Monthly Payments Instead of Price

A standard car dealer trick is to talk to you about a car’s cost in terms of what you are willing to pay each month instead of the actual price. This can be confusing and is often misleading because the salesperson will use the longest auto loan term available (60+ months) to calculate your possible rates. A $25,000 car with a five year loan has the same monthly payment as a $16,000 car with a three year loan. The difference? You’ll end up paying $2,500 more in interest for the more expensive car. Unless you are great at calculating loan costs in your head, ask the salesperson for the total price of the car and work out the auto loan payments on your own later.

4. Buying Add-Ons From the Dealer

Add-ons are optional features that a dealer adds to a car. Common add-ons include undercoating, CD Stereo, alarm system, window tinting, chrome wheels, pin-striping, and leather seats. These features are often overpriced and used as a way to boost the sale price of the car. Plus, it’s been shown that add-ons rarely add long term value to your car. In some situations, such an upgrade to a premium model, these add-ons can actually harm the resale value of a car. If you do decide that you need an add-on, check first with outside companies that may offer the service for less.

5. Financing With a Dealership

Dealership financing offices usually offer auto loan rates that are several points higher than what you could receive from an online auto lender or credit union. These rates are largely based on your credit score, as well. As part of the car buying process, you should shop and compare auto loan rates from various sources. Reducing your loan from 8% to 4% could save you a bundle on the car of your dreams. However, dealership financing can be the best deal in some specific situations. For example, if you have bad credit and can’t get a loan from an outside lender or if you qualify for a special 0% offer, dealership financing may be your best choice. Evaluating all of your options before you choose a loan is the best way to ensure that you are getting a good deal.


  • MrEddd

    A minor disagreement with the author. For someone with bad credit I would suggest buying a new car, but the cheapest model available. Research what the best price should be and make the dealer go with it. Dealers will sometime try to make a credit poor person pay more for the car. No reason for it. Your interest rate will be high but you can refinance it after two years of making timely payments. If a person has financial issues they should not buy any car without a minimum 3 year warranty. When I was having financial problems I bought a new Ford Festiva with no options. The dealer tried to screw me but I walked out. They called back on the next day and gave me a good deal. Car lasted for 5 years with no repairs except tires. Most used car dealers, especially the buy here-pay here ones will screw you over badly and there will be trouble with the car pretty quickly. Good Luck.

    • http://www.Credit.com/ Gerri Detweiler

      Thanks for sharing your experience – it’s helpful.

  • http://www.Credit.com/ Gerri Detweiler

    The issue of auto dealer financing markups at some dealerships (certainly not at all) has been documented by regulatory and consumer groups. For example, the CFPB recently weighed in on discriminatory auto dealer financing mark ups. Consumers are wise to line up financing in advance, and then if the dealer can match it or do better they can make an informed choice.

  • Ken

    Whether too buy new or used depends a lot on the brand and kind of car you are buying. A great majority of the one or two year old cars for sale are retired rental cars with 30,000-40,000 miles on them. The people who bought new personal cars are still upside down and can’t trade in their cars. You don’t want a retired rental if it is a sporty/performance car. Also, powertrain warranties on some brands (100,000 powertrain warranty on Hyundai/Kia,etc) does not transfer to the second owner.
    Also, if you’re buying a car that depreciates slowly like a Toyota or Honda, the premium for buying new is far less than for a fast depreciating car like a Chrysler, VW, etc.

  • scarhill

    Seriously, buying new is not always bad. The key is to negotiate a good price, much lower than MSRP. As a result, the depreciation hit is minimized. Also, a new vehicle will provide a nice period of no repair bills, a single repair bill on a used vehicle can quickly offset any price difference. Furthermore, when it is time to trade or sell a new vehicle purchased will be worth more than a used vehicle purchased. And finally, for many the feeling of driving a modern, safe new vehicle is worth paying a bit more.

    Number 5 is flat out incorrect. Dealers always have numerous financial sources which the buyer may not have. I have always found dealers are able to provide a lower interest rate than I was able to locate on my own. The key is to research the interest rate for which you, the buyer, can obtain from your bank or credit union. With that knowledge, it is always wise to allow the dealer an opportunity to beat the rate. Example, I recently bought a new vehicle, new not used. The rate I got from my bank was 2.25 percent. The dealer was able to offer 1.8 percent. Interestingly, the dealer’s financing was from my bank.

  • http://www.Credit.com/ Gerri Detweiler

    Thanks for your insights Jeffrey. I have to say that when I bought my last car couple of years ago it was hard to find low mileage used vehicles for a good price; apparently they were quite in demand at the time and people were holding onto them rather than trading them in. But that may be shifting again as the economy has improved and more people are back to buying new.


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