The Top Five Financial Mistakes when Buying a Car

By | July 1, 2014

For most of us, purchasing a car is a big decision, and one that comes with many micro-decisions along the way. You must think about whether you want to buy new or used, what type of car will best suit your lifestyle, and what you can afford to pay up front. It’s important to do your research carefully and work out a budget before you step into the dealership. As you get started with striking the perfect balance between affordability and convenience, you’ll want to avoid the following common financial missteps.

1. Neglecting to Calculate Running Costs

The sticker price of a car is what may lure you in, but don’t forget that factors like maintenance, insurance, and fuel efficiency could vary quite drastically between different models. A more expensive vehicle will also incur higher insurance premiums, which could really add up over time. Rare or luxury models will cost more in maintenance, due to a higher cost of replacement parts. Fuel consumption is another important cost to consider. Although today’s crop of cars is more efficient than ever, mileage can still vary quite a bit. If you know you want a practical hatchback, read this thorough Ford Focus review and compare it with rivals like the Vauxhall Astra or VW Golf.

2. Failing to Negotiate

You’d think nothing of shopping around online to find a better deal on a nice watch or even a used book, so why would you accept the first price you see on a car? Obtain quotes from several different dealers and use these as leverage when the time comes to negotiate a price. Don’t be afraid to haggle, because car dealers have greater leeway in their pricing that you might initially think.

3. Only Looking at Monthly Payments

If you will be obtaining auto financing, it’s important to look at the big picture. Rather than simply choosing the plan with the lowest monthly payment, look at the loan’s terms, conditions, and interest rates as well. In general, it’s best to choose the shortest loan term that you can afford, or you will simply be paying more in interest.

4. Putting Down a Barely-There Deposit

Similarly, it’s now possible to buy a car with zero money down deposit. This is extremely tempting, but you’ll then be on the hook for more money at higher interest rates. You’ll be entering the loan in an upside down position, because the value of a new car starts to depreciate immediately. Essentially, you’ll owe more to the bank right off the bat than what the car is really worth. If you plan to drive the car for the next decade, that may not be a problem. However, if you plan to sell over the next couple of years you may end up paying extra for the privilege.

5. Buying a Car Too Soon

Along these same lines, it’s best to buy a car that you know will serve you for the long term, or you face this same underwater loan position even if you put down a hefty deposit. You can avoid this by keeping your car for a longer time period rather than rushing to trade it in, or you can choose a car that is known to hold its value well over time.

These are just a few issues to be aware of as you start comparing your options. By choosing a car that is suited to your lifestyle and financial situation, you can treat it as an investment.

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