Couple Shopping for Cars

Top Ten Car Buying Mistakes

Getting ready to buy a new car? Here are ten new-car buying mistakes — and how you can avoid making them.

Car Buying Mistake #1: Not shopping around

Young woman looking at new car in showroomMany people buy a car from the first dealership they visit, and it’s no wonder — a good sales person will find a way to overcome your objections and close the sale. (“If I can get your payments under $400/month, will you buy this car from me today?”) That’s all well and good, but if you don’t shop around, how will you know you’re getting the best car for your needs?

How to avoid this mistake:
Schedule a “window shopping” day in which you visit several car dealers simply to see what’s in the showrooms. When a sales rep approaches, politely tell them you’re just looking — don’t go for a test drive and don’t discuss finances. This is your day to see what cars catch your fancy so you can put together a short list. Don’t fall for the “If you find a car you like, why waste time and gas driving around?” argument — you’re about to make an expensive, long-term purchase, and shopping around is a wise investment of time.

Car Buying Mistake #2: Relying solely on dealer financing

A lot of buyers finance at the dealership, but they may not be getting the best deal. Dealers buy loans at low rates and pass them on at a profit, so buyers often wind up paying a higher interest rate than they have to.

How to avoid this mistake:
If you can buy for cash, by all means do so; if not, shop for a loan before you shop for your car. Visit a few banks and credit unions to find out what kind of rate you can qualify for, and apply for the best one. Having your financing already arranged will make it easier to negotiate the cash price of the car (see Mistake #4, below). Once you’ve struck a bargain and sorted out your trade-in (see Mistake #6), ask if the dealer can offer you a better rate; with “factory-backed” loans they may be able to. Be wary, though — if you have poor credit and the dealer’s rate seems too good to be true, they may be setting you up for a yo-yo financing scam.

Car Buying Mistake #3: Too little test-drive time

Woman buying a carIf the saleswoman has her way, your test drive will be a five-minute spin around the block with the air conditioner blasting and the dealer yapping away. Enchanted by the new car, you happily sign on the dotted line — and a week later you realize you can’t get comfortable in the seat and the stereo requires a master’s degree in computer science to operate.

How to avoid this mistake:
Take control of the test drive! Before you take off, play with the seat, steering wheel, and mirror adjustments, and make sure you can get comfortable. Try out the back seat and the passenger’s seat. Fiddle with the stereo and the A/C. One you’re ready to go, drive for a half-hour or so on the types of roads you frequent — urban, suburban, and highway. If it’s a big vehicle, try parking it. Keep the tunes and the heater or A/C down low so you can hear the car, and ask your sales rep to keep conversation to a minimum. Ignore the new car smell and visualize driving the car for years to come — is this a vehicle you can live with?

Car Buying Mistake #4: Negotiating based on payments

Obviously, your car payments have to fit your budget — but negotiating on payment rather than total price is a big mistake, because even if the payment looks good, you can wind up paying far more in total than you need to.

How to avoid this mistake:
Don’t discuss payments; instead, haggle on the total price of the car. How do you know what your payments will be? If you shopped for a loan (see Mistake #2, above) you’ll already have some idea. You should also download an auto finance calculator for your smart phone that will help with the math. Work out a cash price for the car, and then — and only then — ask the dealer what kind of loan options she can offer. (Use your calculator to make sure the price isn’t creeping up, and don’t forget sales tax.)

Car Buying Mistake #5: Dickering on sticker price

The car’s window sticker says $30,000, and the dealer offers to sell you the car for $27,000 — sounds like a good deal, right? Not necessarily — there may be other incentives that could lower the price even further.

How to avoid this mistake:
Go on line to find the invoice price for your car — that’s the price the dealer pays. (You can find these numbers at car pricing sites like and Next, look up what incentives are available for the vehicle you want — you’ll find these at the pricing sites or the automakers’ own web sites. Knowing roughly what the car costs the dealer and what incentives are available, you can now negotiate a price that is fair to both you and the dealership. (If you don’t like to haggle, visit a Scion dealership; they have a strict no-haggle policy.)

Car Buying Mistake #6: Talking about your trade-in too early

Many buyers use their trade-in as a down payment, and that’s fine — but talking about your trade-in at the outset of the deal is a mistake. At the start of negotiations, the value of your trade-in is “soft” — dealers can offer high or low, giving themselves more flexibility to change other factors in the deal (i.e. lowering the down payment) while keeping the profit high.

How to avoid this mistake:
When the dealer asks if you are trading in, say “I haven’t decided. Let’s figure out the price of the car first.” Once you have settled on a cash price for the car (and before discussing financing; see Mistake #2), that is the time to ask the dealer what he can offer you for your trade-in. (Look up your car’s value before visiting the dealership, and remember that dealers will pay less than private buyers so they can re-sell the car at a profit.) At this point in the deal, you’re much more likely to get a firm price for the car, rather than a soft number with wiggle room.

Car Buying Mistake #7: Warranties, accessories, and other “after-sale” products

woman and dealerOnce you’ve settled the terms of your new car, you’ll most likely be sent to the Finance and Insurance (“F&I”) department to review the deal — but the real job of F&I is to sell extras like warranties, alarms, paint protection, and the like. Invariably, these are high-profit items that benefit the dealership, not the buyer.

How to avoid this mistake:
Simple: Say no. All of the items that the dealer offers are available from third parties, usually at lower prices and with higher quality. It’s convenient to have the costs rolled into the monthly payments — something only the dealer can do — but that’s no reason to get gouged on the price. Extended warranties are the most popular scam; some dealers will tell you that you can only buy one when the car is new, but that’s not true — you can buy an extended warranty any time, and there’s no reason to pay for one while the car is still under the manufacturer’s warranty.

Car Buying Mistake #8: Not shopping for insurance

This is one we hear about a lot — someone buys their car, signs the loan papers, and then finds out that the monthly insurance bill is higher than the car payments!

How to avoid this mistake:
Simple, really — once you have your short list (see Mistake #1, above), call your insurance company or go online to get an insurance quote, and be sure to shop the competition. If the insurance is too expensive, you may be able to compromise by buying a slightly different version of the car — for example, buying a Mustang with a V6 engine instead of a V8 can lower your insurance by a few hundred dollars a year.

Car Buying Mistake #9: Buying beyond your needs or your budget

numbersIt’s human nature to dream big: When we shop for a car, we think of where we want our life to be in two to three years — more kids, more vacations, more hobbies. But are you really going to take up skiing or start road-tripping with your family? You could wind up with higher payments and fuel bills for a vehicle you don’t use to its potential.

How to avoid this mistake:
Be realistic. How much are your needs really going to change in the immediate future? Forget how much car you want — how much do you really need, and what can you really afford? Remember, you can always rent a minivan or an SUV for that once-a-year family skiing trip; the money you save on payments and gas with a smaller, more austere car will easily pay for it.

Car Buying Mistake #10: Not buying what you really want

A lot of buyers talk themselves out of buying the car they really want because it’s too expensive, too flashy, or too big. They settle for something more reasonable, and then feel a pang of regret every time they see the car they really wanted.

How to avoid this mistake:
Buy the car you really want, provided you can afford it. This actually makes good financial sense: If you buy a car you love, you’re more likely to take care of it and keep it longer, which will save you money in the long run. Buy a car you don’t like, and it’ll be that much sooner that you’re back at the dealership trading it in — and spending more money.

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