back to articles | September 26, 2022 | Madison Cates
Categories:   Tips & Insights For Car Buying    Auto Loans & Financing    Vehicle & Buying Research
How to Avoid Common Financial Pitfalls when Shopping for a Car
So you're in the market for a new car. Congratulations! Shopping for a car can be an exciting time. However, it's important to remember that a car is a major financial purchase.
So you're in the market for a new car. Congratulations! Shopping for a car can be an exciting time. However, it's important to remember that a car is a major financial purchase. It's easy to get caught up in the moment and make a financial mistake that you'll regret later. To help you avoid those pitfalls, here are six ways to avoid common financial pitfalls when shopping for a car.
Budget for Insurance, Warranties and Maintenance Costs
Failing to budget for car insurance and car maintenance cost is a financial pitfall you want to avoid. Many people don't realize how much these two expenses can add up, and it can be easy to get caught off guard if you're not prepared.
Car insurance is typically billed monthly, so it's important to factor that into your budget. Similarly, car maintenance costs can vary depending on the make and model of your vehicle, but it's still important to set aside money each month to cover things like oil changes, tire rotations, and other routine maintenance.
In order to avoid unexpected maintenance costs, you can invest in a used car warranty that will allow you some breathing room and financial security. A used car warranty is a service contract that covers repairs or replacements that might be needed during the warranty period.
Most used car warranties are offered by the dealership where you purchase the vehicle, and they typically last for 3-6 months or 12,000 miles, whichever comes first. Some used car warranties may be transferable to future owners, which can be a valuable selling point if you decide to sell your car before the warranty expires.
Used car warranties can provide peace of mind when buying a pre-owned vehicle, but it's important to read the fine print carefully before purchasing one. Some warranties only cover certain parts of the car, and some have deductibles that you will need to pay out-of-pocket before coverage kicks in.
Be sure to ask plenty of questions so that you understand exactly what is and is not covered by your used car warranty.
Do Your Research
When you're shopping for a car, it's important to do your research. Know what kind of car you want and what features you're looking for. A good place to begin is by evaluating your needs. Do you need a large vehicle for family outings? Or a smaller car that’s easy to maneuver in city traffic?
Once you’ve determined what type of car you’re looking for, you can begin researching specific models. Read reviews, compare prices, and test drive different cars to find the one that’s right for you.
Have an idea of how much you're willing to spend before you start talking to dealerships or car salespeople. Otherwise, it's easy to get talked into a car that's out of your price range or doesn't have the features you need.
Negotiate, Negotiate, Negotiate
Never take the first offer from a dealership or car salesman. They will always start high in order to leave room for negotiation. Be prepared to negotiate and don't be afraid to walk away if the price isn't right.
There are a few reasons to negotiate:
- The seller is likely to be more flexible on the price than the dealer. This is because the dealer has overhead costs that they need to recoup, whereas the seller is simply looking to get rid of the car.
- Negotiating with the seller gives you some leverage in the negotiation. The seller may be more likely to give you a better deal if they know that you are also considering other cars.
- Negotiation is simply a good way to practice your bargaining skills. By negotiating with the seller, you can hone your technique and become better at negotiating in general.
Check Your Credit Score before Going Car Shopping
Your credit score affects everything from whether or not you're approved for a loan to the interest rate you'll pay on that loan. Before you head to the dealership, it's important to know your credit score.
Your credit score is a number that indicates your creditworthiness– in other words, how likely you are to repay a loan. A high credit score means you're a low-risk borrower, which could lead to a lower interest rate on your car loan.
A lower credit score could result in a higher interest rate or even being denied for a loan altogether. You can check your credit score for free with a variety of online tools. Once you know your score, you can start shopping for a car that fits both your needs and your budget.
Don’t Forget about Taxes and Fees
When you're car shopping, it's easy to get caught up in the monthly payments and lose sight of the big picture. But don't forget about taxes and fees! Depending on your state, the sales tax on a new car can be as high as 9%.
And if you're trading in a car, you'll have to pay income tax on the difference between the trade-in value and the purchase price.
There are also other fees that may apply, such as registration and title fees. So before you sign on the dotted line, be sure to factor in all of the taxes and fees so that you have a true understanding of the cost of your new car.
Don’t Opt for Longer Loan Terms
When you're taking out a loan, it's important to consider the terms of the loan carefully. A longer loan term might seem like it would make your monthly payments more manageable, but it could end up costing you more in the long run.
That's because you'll be paying interest on the loan for a longer period of time, which means that you'll end up paying more money in interest over the life of the loan.
So, if you can afford it, it's generally better to choose a shorter loan term so that you can pay off the loan as quickly as possible and save money on interest. Of course, every situation is different, so be sure to talk to a financial advisor to see what option is best for you.
Avoiding these six financial pitfalls will help ensure that you have a positive and stress-free experience when shopping for your new car—and that you don't end up making any costly mistakes! Do your research, know what kind of deal you're willing to accept, and stay mindful of all the additional costs associated with owning a car, and you'll be well on your way to driving home in your new ride!