10 Car-Buying Mistakes to Avoid

When buying a new or used car, there are several tips that can help consumers get the best deal, ease negotiations or even find the best financing for their needs. However, there also are a few bad buying habits that could skew the sale more in favor of the dealership.

Some buyers might have skipped a few important steps before visiting the dealership, or maybe they are novice buyers looking for their first car. When visiting the dealership to make a purchase, these are the 10 car buying mistakes to avoid:

  1. Visiting the dealership without knowing the budget
  2. Giving the dealership a preferred monthly payment amount
  3. Visiting the dealership on the weekend
  4. Not setting a time limit for the visit
  5. Not negotiating interest rate terms (and not knowing about the buy rate)
  6. Failing to research credit worthiness and exploring financing options
  7. Declining to take a test drive
  8. Not including a down payment
  9. Not reading the contract
  10. Driving out of the dealership with questions

Know the Budget Before Shopping

The number one rule for making any major purchase is to understand the budget and the limits of that budget. Going into a car dealership without knowing the budget can set a buyer up for frustration or financial issues down the road.

Review expenses and income to understand how much per month can be allocated towards a car payment. Experts recommend that less than 10 percent of monthly take home pay should be spent on the car payment. However, some individuals might have few other expenses and might be able to allocate more per month.

It’s also important that buyers understand how the monthly payment translates into the amount that they could theoretically finance for the car. Use Nerdwallet’s reverse auto loan calculator to understand the bigger picture of how much car those payments could finance.

Letting the Dealership Know Monthly Payment Budgets

The dealership might try to gauge how much the buyer could spend per month on a car payment. When visiting a dealership, the monthly payment budget is one piece of information that buyers should avoid revealing. Why?

When buyers give dealerships their monthly payment bottom line, it could invite other discussions. Now that the dealership knows the budget, they might say that a more expensive car could work for that budget—with a longer loan term. In addition, the dealership could try to up-sell other ‘extras’ that the buyer doesn’t really need.

Focus on the final price of the car. Use this price as the budget. If the buyer needs to spend $25K or less, this could help the dealership and the buyer find the best car for the budget.

Car Buying Mistakes

Visiting the Dealership on the Weekend

Shopping for a car on the weekend might be the most convenient option for those who work the standard nine-to-five hours. However, weekends are busy times at car dealerships. Sales team members might be running in all directions and dividing their time among many buyers.

While shopping on three-day holiday weekends could lead to savings or sales because of promotions related to these holidays, shopping for a car on any other weekend might just lead to a more stressful experience.

Try to schedule a dealership visit after work during the week. Dealerships are slow on Mondays following the busy weekend, and a Monday visit could help buyers get more focused attention from their sales person.

Not Setting a Time Limit for the Visit

Some buyers don’t care how long the car shopping process takes. However, setting a time limit for the dealership visit might be a wise decision.

The shopping and negotiation process could be long. To ensure that buyers don’t get hungry and tired, they can set a time limit at the dealership. This also can avoid buyers signing onto a sale just to be finished with the deal.

Take time to research all the options from home online. At the dealership, set a time limit and stick to it. If buyers feel that the salesperson is stalling or trying to bide their time, it’s ok to ask for their card and schedule a visit at a later time.

While buyers might want to limit their time, they also might face a situation where inventory for some popular models is in demand and in short supply. The chip shortage has caused crunches in production of some vehicles. This low supply/high demand combination could mean that the dealership has no problems finding a buyer for the car; this is why researching before a visit is such a crucial step in the buying process.

Buyers have information related to supply, pricing and other information at their fingertips (from home). Many local dealerships offer chat functions on their website; buyers could ask about vehicle availability before they visit the dealership.

Failing to Research Credit Worthiness

Buyers need to know their budget before shopping for a car, but they also should understand their credit health, too. Sites like Credit Karma could allow consumers to review their credit scores for free. While free scores might not mirror the exact scores lenders see, the free scores can help buyers understand if their credit is good or perhaps not so good.

Higher scores can lead to more favorable interest rates, while lower scores could lead to higher rates. Knowing about credit health can help buyers prepare for the interest rates they might receive for their financing.

Not Negotiating Interest Rate Terms or Not Shopping Around

The interest rate of an auto loan impacts the monthly payment amount. When a buyer has a good credit score, they might be able to receive better interest rates. Shopping around for the best rates also could be a wise choice so buyers can feel confident that they know all their options.

When getting financed at the dealership, the buyer also needs to know that the dealership is the middle man for the financing process. The lender will present the dealership with a ‘buy rate’ for the financing—this is the interest rate the lender is offering. However, in some cases dealerships can mark up the ‘buy rate.’

The interest rate that buyers see on their contract might not be the rate from the lender. Instead, the dealership might have tacked on a little extra, and this is known as the contract rate. The difference between the contract rate and the buy rate is profit for the dealership.

MotorBiscuit explains that buyers can ask about the buy rate, and buyers also can try to negotiate the interest rate.

Declining to Take a Test Drive

The car might seem like the perfect model. It’s the right color, and it has all the features the buyer wants.

How does it handle it, though? Is it easy to drive? Is it comfortable? Buyers don’t know the full story of a car until they get behind the wheel. Take a test drive of favorite models to determine if it really is the best car.

Car Buying Mistakes

Not Including a Down Payment

A down payment can help offset the impact of depreciation for new car models. Over the first five years, a car will depreciate on average about 33 percent. Even driving out of the dealership’s parking lot lowers a new car’s value by anywhere from nine to 11 percent.

To ensure that depreciation doesn’t leave the buyer underwater on their loan (this is when the loan amount exceeds the value of the car), buyers should try to allocate 20 percent of a new car’s purchase price for the down payment.

Not Reading the Contract

Some buyers just want to leave the dealership and drive off in their new car. Maybe they signed the contract without reading it. Always read the sales contract.

There could be an error with the APR or extra charges that the buyer doesn’t understand. Read the contract before signing it, and ask any questions before signing. Once the signature is on the dotted line, the deal is complete.

Driving out of the Dealership with Questions

The buyer might have the car they want at the best price. Now it’s time to drive off into the sunset. Except the new car owner doesn’t know how to work those cool new features that they wanted.

Ask the dealership to go over all the car’s features. Many do this as a standard practice, but buyers can always ask for help or for a tutorial. No one wants to be stuck on the highway in a traffic jam without knowing how to use the infotainment system or some other feature.

Come Prepared and Visit with Confidence

Shopping for a new (or used) car can be a process. Buyers who have never purchased a car at a dealership might feel a little overwhelmed or stressed. Before visiting the dealership, come prepared with information related to the budget and car preferences. Ideally, buyers might know the exact model they want (and the features, too).

Buying a car is all about negotiation. The dealership wants to make the most profit possible, while the buyer wants the lowest possible price. When buyers know what they want and understand the bad habits they should avoid at the dealership, the shopping process might be less stressful and maybe even fun.