6 Car buying mistakes that could cost you
Spring is most definitely car buying season. But before you get lured in by that new car smell and the promise of low payments, take some time to develop a car buying plan that can help you reduce your debt and anticipate costs.
Here are some of the worst car buying mistakes and how to avoid them.
Because car buying involves negotiating and some variable pricing, make sure that you’ve done all of your homework before you enter the dealership.
You need to know how much a car should cost, how long it will hold its resale value and what kind of reputation it has for performance and maintenance requirements. You should also research features to determine what you need and what you want- so that you don’t get oversold on “must-have” bells and whistles that will jack your price (and your debt) up.
Extending a car loan for low payments
Don’t focus on low payments, but on how much interest you’ll pay overall.
“Car dealers use smoke and mirrors to make cars seem more affordable than they really are by offering ultra-low payments for an extended period of time. Don’t forget that the longer you take a loan out, the more interest you will pay over time. You’ll ultimately pay more for the same thing, so remember to focus on the final cost as opposed to monthly installments,” says Jeff Schwartz, executive director, Consolidated Credit Counseling Services of Canada.
Ideally, you should buy a car with the shortest term with payments that you can afford. If you have to extend payments over more than 48-60 months, then that is a car that you can’t afford. Don’t forget that a car is a depreciating asset, which means that if you have a long-term loan, you’ll be paying debt on something that is worth less and less as the months go by.
Taking dealer financing
It may seem more convenient to sign right on the dotted line in the dealership, complete with financing, but before you agree to any sort of debt, understand what your options are. You should shop around for things like rate and payment privileges.
Be sure to read documentation thoroughly to ensure that you’re not getting charged any additional fees for financing (i.e. administration fees, etc.) which can often happen in a dealership environment.
Forgetting about operational costs when setting your budget
“When you are calculating your monthly car payment, be sure to include other car-related expenses, like gas, insurance and parking. Also make sure to put some money aside on a monthly basis for car repairs, so that you don’t have to turn to credit to pay for those expenses,” says Schwartz.
Paying a premium for a new car
Undeniably, new car smell is pretty cool, but when you consider how much more it costs to buy a car new, it’s not that great. Even if you get a model that is a couple of years old with low mileage, you’ll get many of the same features for thousands less with a used car.
Putting down a low (or no) down payment
Many car dealers offer 0$ down as an incentive. Putting a low down payment down means that you’ll be financing more. As a rule, the less debt that you have to take out to buy your car the better. Own more than you owe on your car.
Debt load hampering your ride? It’s time to pay down that debt so that you can work towards financial goals, like buying a car. Call one of our trained credit counsellors at 1-888-294-3130 or visit our online debt analysis.