Consumers tend to have negative feelings toward dealerships. While some dealers might earn these reputations, most are not shady or dishonest. What drives this mindset is that you can negotiate car prices, which leaves car buyers wondering if they really got a good deal.
But many members are surprised to learn that you don’t need to be a top negotiator to drive away happy. Most of the effort, and mistakes, happen well before you ever set foot in a dealership. Review the following six car-buying mistakes and how to avoid them as you search for your next vehicle.
#1: Failing to Secure Financing Ahead of Time
Blindly walking into a dealership finance office is a big mistake. It’s not every day that you buy a car, and that payment will impact your budget for several years. Without approved financing, you’re at the mercy of the dealership – which could result in higher interest rates or unfavorable terms.
How to Avoid It: Before visiting a dealership, stop by the credit union to become pre-approved. A pre-approval is a financial document that states how much you’re approved to borrow for your new car. It’s one of the best moves you can make before buying a car for several reasons:
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It lets you know exactly how much you can afford to spend.
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It helps prevent dealerships from selling you expensive add-on products.
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It gives you the upper hand in price negotiations.
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It allows you to avoid dealership pricing games and gimmicks.
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It locks in your interest rate before you shop.
#2: Focusing Too Much on Monthly Payments
When looking for a new car, the first question people usually ask themselves is, “What can I afford to spend each month?” Likewise, this is typically the first question a car salesperson will ask you.
Why is this a mistake? Because with a bit of funny math, it’s easy to manipulate the monthly payment. By extending the loan term, you could end up in a car you cannot afford – even though the payments are nearly identical.
Example:
Assume you’re pre-approved to buy a $30,000 vehicle at 5.5% APR with a loan term of 60 months. In the example below, you can see your monthly payment is $573.07.
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Now review what happens when the loan term is extended. Dealers can sell you a higher-priced vehicle yet keep the monthly payment almost the same. You’ll also notice the amount you pay in interest increases significantly even though the interest rate remained unchanged at 5.5% APR.
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Without realizing it, you might get stuck with a car you cannot actually afford. Or worse, since cars depreciate quickly, you could end up owing more than the vehicle is worth.
How to Avoid It: By getting pre-approved in Step #1, you’ll already know how much you can afford to spend, along with your estimated monthly payments. So, when negotiating, you can avoid focusing on monthly payments. Instead, your goal is to keep the total car price below your pre-approved amount (in this example, $30,000).
#3: Not Knowing the Value of Your Trade-In
Trading in a vehicle is a significant financial benefit because it acts as a down payment on your new car. If you’re unsure what your trade-in is worth, you could lose a substantial amount of money in the deal.
How to Avoid It: Luckily, it’s pretty easy today to estimate the value of your trade-in. Kelley Blue Book (www.kbb.com) is a popular website that allows you to obtain the value of your current car. Another option is to visit local dealerships and ask them to appraise your vehicle. Once you know your trade-in’s worth, you can avoid being undercut by dealerships.
#4: Shopping Only Local Dealerships
Shopping at local dealerships is convenient. If your schedule is busy, you can stop by your local car dealer on the way home from work. However, not all dealerships are the same. Some will carry a wider variety of inventory. Others might be interested more in your trade-in to resell. You must thoroughly research your options to ensure you get a stellar deal.
How to Avoid It: The internet makes researching vehicles a breeze today. Start local, then expand your search to include dealerships that are 10, 20, or even 50 miles away. It might be a bit of a drive, but it could be well worth it if you save hundreds, or even thousands, of dollars.
#5: Forgetting to Call Your Car Insurance Company
Purchasing a new vehicle is exciting and it’s easy to get caught up in the moment. Before you know it, you’re driving away in a brand-new car. A common issue car buyers face after the sale is a significant jump in their car insurance – which could strain your budget for years to come.
How to Avoid It: Your monthly car expense includes more than the loan payment. You’ll also want to factor in car insurance, maintenance costs, and fuel.
Before agreeing to purchase a car, contact your insurance company to obtain updated quotes. If you want a specific vehicle, provide the Vehicle Identification Number (VIN) to your insurance provider. They’ll typically be able to give you an exact policy cost within minutes.
#6: Going to Just “Look Around”
When you step onto a dealer’s lot, you must be prepared to do one of two things: buy a new car or walk away. Too often, people who want to “look around” end up as new car owners. Salespeople make their livelihood by selling cars. Consequently, they will try their hardest to sell you a vehicle that day – whether you’re fully prepared mentally (or financially).
How to Avoid It: Take a friend along if you want to look at vehicles or test drive one. Recruit someone that isn’t involved in the car-buying decision. Assign them the role of making you leave the dealership after you’ve had a chance to look around – without a new vehicle. Even if you find a car you love, leave the dealership, and think about it for a day or two. Ensure it fits into your budget and is the right vehicle for you and your family.
We’re Here to Help!
While buying a new car is exciting, it’s also a significant financial decision. Before you get too deep into the car-buying process, it’s wise to obtain a pre-approval. You’ll know how much you can afford to spend, and it can protect you from costly add-ons and dealership games.
If you’re interested in becoming pre-approved for your next car, please stop by the Credit Union or call 410-687-5240 to get started today.