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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.

    • Rich

      My credit score is decent, but I went through a chapter 7. I had bought 4 new cars from the local dealership and always had my financing (credit union) in place. Sometimes I would purchase new cars and leave with equity. Went to the same dealership after I had gone through every curse known to man and laid out my finances. I went to the dealer on a Saturday, which I learned is a no no, and got a Malibu from the Honda dealer ship and there would be one person showing me the cars one person going over the paperwork and they were pretending to be soooooooooooooooooooo busy! I left the dealership with a $418.00 car note that lasted until hell thaws out. I called my brother and told him how devastated I was to have been taken. He told me no you think you been taken! I said what do you mean? He said how much do you think the Honda dealership have tied up in a Chevrolet Malibu? and I replied they charged me $18,000 plus a $4500.00 maintenance plan (Because that was the only way the finance company would finance the car) for the 2012 so the dealer must have around $8000-$10000 tied up in the car. My brother told me the dealership more than likely received a fleet of cars from a car rental agency at a rate of between $2000-$4000!!! I figured him nuts until I later looked in the glove box and saw at least 5 yellow rental agreements, and I remembered the salesman asking me if I was familiar with a Cruze? I learned from the lesson and I managed to make them eat the car without bothering my credit, but that was a weekend that I had an ulcer. I know for certain that If a person can keep their car functional the best way to get a car is to purchase it with cash from an individual. And be sure to get it checked out.

  • 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.

    • Elkdag

      I just bought a new car. Did not want to buy another used lemon and end up having to sink money into it. Buy new…less worry.

  • NewCarBuyer

    “Always buy used” is one of those sweeping generalizations that never worked well for me. I have purchased both new and used. My best experiences are with purchasing new and driving the car as long as it will last.

  • http://www.credit.com/ Credit.com Credit Experts

    We can try. While the monthly payments would be the same, you would own the less-expensive car in three years (and thus be payment-free in years 3 and 4). Now, imagine that you continue making “payments” to yourself. At the end of five years, you would have a car, plus a good bit of savings toward another one. OR you would have a $25,000 car now worth substantially less than that. (Your 16K car would also be worth less, and some cars hold value better than others.) Another consideration might be insurance premiums or gas mileage. Those affect your monthly cost of driving, as well. But a salesman might ask you what monthly payment is comfortable for you — and you could find yourself with eight years of “comfortable” payments, because you were looking at that rather than total price.

    • Sal

      Do Not ever buy a car from a dealership , you pay some stupid charges dock fees ,To start with.I have worked for dealerships and know what I am talking about .They also make money off you for financing the vehicle .Do your own research on line.Look for kelly blue book and black book to find out the real value of the car.Most dealerships get the cars they sell from trade ins or the auction .Which they have public auctions you can go to. Find a friend with a dealer license and go buy you a car.Buying new is the worst thing you can do and financing for more than 48 months not smart because of the interest you pay and cars depreciate from the second you drive off the lot that is for new cars.Go to a credit union better interest rates and buy from an individual finance for four years do you homework.Run a car fax on the vehicle .get a mechanic to go with you and pay him to check out the vehicle for you. You will be happy with your purchase and save thousands if dollars. Done this many times never got a bad deal or a bad vehicle .Let the dealership pay their own dock fees.You keep laughing all the way to the bank.Like I said worked for several dealerships and did well just got tired of all their bull that goes with it.I am a successful business man today that is the way I do it .Everyone comes out happier and gets a good deal .Stay away from dealerships and new cars and dealership financing .
      good luck .

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

    You can try Consumer Reports and Edmunds.com. In addition, you may be eligible for a car buying service through a membership such as Costco or your credit union.

  • robert

    How many time can my car loan be sold to other finance company?

    • http://www.credit.com/ Credit.com Credit Experts

      We are not aware of a limit.

  • http://tomzickell.com Thomas Zickell

    Agreed when it comes to rates for purchasing a vehicle you can lose never top what the manufacturer of the vehicle offers I could only do better than BMW financials pricing with if I were willing to jumping through hoops and because I have used them so much in the past I would rather stick with the same company anyway. What I’m getting at is car manufactures have huge incentives especially around the new year.

    I like to lease vehicles however what you said about new cars is true. You can get a certified preowned vehicle with probably a better warranty from the factory and do just as well. But the vehicle will not be worth as much when you go to sell it because it is not a one owner vehicle.

  • Peter Lewis

    Not much use if one is after a newly released model that is so new it’s not in the showrooms yet.
    Buying nearly new makes sense, but finding the right model with the right spec can be very tricky.
    Obviously you lose quite a bit driving a new car off the dealers forecourt, but at least you know the cars true history.

  • Bluffguy

    ALWAYS take the rebate and go through regular financing.


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