6 Mistakes to Avoid When Buying Your First Car

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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.

Check out sites such as TrueCar and Kelley Blue Book to compare prices and learn about vehicles in your price range.

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!
LenderAPR RangeLoan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal LoansFixed rates from 7.08% APR to 15.37% APR (with AutoPay). Variable rates from 5.81% APR to 14.11% APR (with AutoPay). SoFi rate ranges are current as of August 10, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.81% APR assumes current 1-month LIBOR rate of 2.07% plus 4.175% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.
  2. Terms and Conditions ApplySOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS #1121636.
    (www.nmlsconsumeraccess.org)

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  • Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  1. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  2. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

3 Important Disclosures for LendingClub.

LendingClub Disclosures

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.


* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

* Your loan terms are not guaranteed and are subject to our verification and review process. You may be asked to provide additional documents to enable us to verify your income and your identity. This rate includes an Autopay APR reduction of 0.5%. By enrolling in Autopay your payments will be automatically deducted from you bank account. Selecting Autopay is optional. Annual Percentage Rate is inclusive of a loan origination fee, which is deducted from the loan proceeds. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. All loans made by WebBank, member FDIC. Please refer to Upgrade’s Terms of Use and Borrower Agreement for all terms, conditions and requirements.

** 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 - $50,000Visit Upstart
5.81% – 15.37%1$5,000 - $100,000Visit SoFi
6.87% – 35.97%*$1,000 - $50,000Visit Upgrade
8.00% – 25.00%$5,000 - $35,000Visit Payoff
4.99% – 29.99%$10,000 - $35,000Visit FreedomPlus
5.99% – 18.99%2$5,000 - $50,000Visit Citizens
15.49% – 34.49%$2,000 - $25,000Visit LendingPoint
6.16% – 35.89%3$1,000 - $40,000Visit LendingClub
5.49% – 18.24%$5,000 - $75,000Visit Earnest
9.95% – 35.99%$2,000 - $35,000Visit Avant
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.