Ever since the Ford Model T made its debut in 1908, Americans have had a love affair with automobiles.
Even with the prevalence of ride-sharing apps such as Uber and Lyft, it doesn’t seem like that relationship will end anytime soon. Consumer auto loans hit their highest total ever — $1.23 trillion — in the first quarter of 2018, according to the Federal Reserve Bank of New York.
But that doesn’t mean buying a car is easy, especially if it’s your first time. If you’re new to the game, make sure you avoid these six mistakes when purchasing your first set of wheels.
1. Not using the internet to your advantage
Thanks to the internet, you’re not alone when you buy a car. Not only can you research car dealerships, but you also can explore prices.
“A car purchase is a large financial responsibility you’ll live with for years to come, so don’t skip the research,” advised Natasha Rachel Smith, personal finance expert at TopCashback. “Diligently research promotions, car dealerships, car inventory, and more to buy smart.”
By understanding prices, you’ll be in a better position to negotiate with a seller. Plus, many dealerships now offer online price quotes for vehicles.
2. Sticking to a single seller
Once you’ve done your research, you’re ready to move your search offline. But even if you find a great car at the first dealership you visit, it’s a good idea to check out a few others.
“Contrary to popular belief, loyalty does not always pay off,” said Smith. “When shopping for your next vehicle, make sure to shop around.”
By visiting a variety of dealerships, you can evaluate different cars and compare prices. You don’t need to spend months searching for an amazing bargain, of course, but visit a few locations so you can confidently choose the best option.
“Sticking to a single car dealership could cost you money not just now but in the future too,” said Smith.
By taking the time to shop around, you can find the best deal for your budget.
3. Forgetting to factor in insurance and other costs
It’s easy to focus on getting a great price for a car, but don’t forget about the other costs of car ownership. Insurance, for instance, can add a significant amount to your bills.
“One big mistake when buying your first car is not factoring in the cost of car insurance,” said Jon Dulin, owner of personal finance blog Penny Thots. “I remember when I was looking to buy my first car after college. I was driving my parents car and looked at a sportier Acura model. After talking to the salesperson, I knew I could afford the monthly payment.”
What Dulin couldn’t afford, though, was the insurance premium that would come with the new car — $3,000 per year. “[I] was blown away,” he said. “That was a deal breaker for me.”
Before you sign any papers, speak with your insurance company about monthly costs. And don’t forget to factor in costs associated with warranties, fees, gas, and repairs.
“Budget for the average monthly gas costs and car maintenance since they vary depending on vehicle type and size,” advised Smith. “Don’t purchase a car until you know you can handle all of the added expenses that come with the vehicle of your choice without straining your monthly budget.”
4. Not comparing multiple financing options
Just like you should shop around at multiple dealerships, you also should compare financing options. Chances are you’ll make a down payment on a car and pay the rest over time with an installment loan.
But your bills will look different depending on your loan’s terms and conditions.
“A lot of first-car buyers fail to shop around for the best loan rates,” said Julia Guardione, content manager at vehicle refinance platform rateGenius. “First-car buyers are usually intimidated by the whole process, so they accept the first offer they’re given, not knowing they’ve just signed up to waste thousands on a ridiculous interest rate.”
Instead of accepting the first financing offer you receive, shop around to compare rates. Not only can you explore offers from different dealerships, but you also can get a quote from your bank, your credit union, or an online lender.
If this institution offers you a better rate than the dealership, you can go with it or show it to the seller as a negotiation tactic. And if you still end up with a high rate, you eventually could refinance your auto loan for better terms.
5. Opting for style over substance
Buying a car is a practical decision, but it’s also an emotional one. Before you fall in love with a vehicle, though, take a moment to determine what car would best fit your lifestyle.
If you have four kids, for instance, a minivan might make more sense than a two-seat sports car. And if you have long commute to work every day, purchasing a gas-guzzling SUV could be a mistake.
“[One] mistake is purchasing a vehicle that is not practical or conducive to your lifestyle,” said Merrie Allen, personal finance educator and CEO of Money Management Wisdom. “[If] the vehicles do not fit the lifestyle of the buyers, [they] end up being an inconvenience or fiscal burden.”
Allen also warned against “purchasing an image.”
“In some circles, people think the car a person drives says a lot about a person,” she said. “An image-conscious person may place too much emphasis on the style of the car as opposed to affordability or functionality.”
Be careful not to choose style over substance, or you could be stuck with a flashy set of wheels you can’t afford.
6. Stressing about getting the best possible price
Although it’s important to compare offers, you don’t want to exhaust yourself. Your time and energy are valuable too.
At the end of the day, it’s up to you how much time you want to spend car shopping.
As long as you’ve done your research and factored in all the costs of owning a car, you can feel confident that you’ve found a decent price that works with your budget.
Purchasing your first car is an important milestone for many people, so don’t forget to enjoy the journey.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|5.99% – 24.99%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|