Focusing on the Price
One of the most popular mistakes people make in the process of buying a car is that they focus too much on the price. Fear of paying too much is a common statement car-buyers make. In figuring out how much the car we are considering is worth, we often check places like Kelly Blue Book or Edmunds.
While making sure that you aren’t overpaying isn’t bad, if you are paying so much attention to the cost of the car that you aren’t keeping in mind whether the vehicle is actually going to fulfill your needs, you may be setting yourself up for future hardship. Along with this idea is that you aren’t buying more car than you can actually afford. If you have to max out all your credit buying capabilities and it is throwing your debt to income ratio over 45-50%, you may be setting yourself up for failure. For many, while the idea of a new car may be nice, it may be more practical to buy a quality used car from a reputable dealer instead.
Ignoring the Financing Terms and Conditions
When people talk about their car buying experience, many mention high loan rates or wishing they had paid a larger down payment. Part of this comes from not knowing where to negotiate and how to negotiate those terms when financing. A common experience in financing is fighting to get the overall cost down, but not paying attention to the interest rate or how much money is going to finance fees.
In an ideal world, everyone would pay cash for their cars, but when that isn’t possible rather than negotiating the price down, you’re more likely going to get a better deal by negotiating the financing terms. Those that negotiate their terms can often pay a lower interest rate that ends up saving them thousands of dollars in the long run.
Take for instance: If a buyer finances a 20k car for 48 months at 6 percent, he’ll pay $2,580 in total interest over the four years, but if this buyer could get a loan at 4 percent instead of 6 percent, he’d save $881 in interest. And if he could pay off the car at 4 percent in three years instead of four, he’d save another $424. Adding a $1,500 down payment would drop the total interest to $1,180—a savings of $1,400 off the original financing quote.
Setting Your Expectations Too High
It’s not bad to have high expectations, but if you set them too high, you’re likely to end up disappointed and unhappy with what you are able to get. Do your homework so you know what you can afford and what the standard features are within that range. If you can only afford 8k, then you’re likely looking at a used vehicle that is around 4-6 years old. If you can afford 16k, then you can afford a newer vehicle, but you’re likely ending up with an economy manufacturer rather than a luxury one. By researching what your limits are, you can get a better idea about what your realistic car buying options are.
Consider these three points next time you are in the market for a car.