7 Car Buying Mistakes That Could Cost You

By Patrick Means

I do like cars. What I don't like is the process of buying a car—because there are a lot of car-buying mistakes you can make. I know from experience. I've owned at least 10 cars since my dad bought me my first one, a '91 Chevy Corsica, when I was in high school. Since then, of course, I've had to buy my own vehicles, and I've learned a lot—sometimes the hard way.

For instance, when I was in my 30s, I bought a used sports car from a family friend. I fell in love with it (a 2002 black Porsche 911 Targa). Because I trusted the friend and assumed the car had been well cared for, I didn't do the research I normally would have done. I bought the car purely on emotion, and it turned out to be nothing but a money pit. Plus, it was totally impractical for a new dad. There was no room for a car seat!

Buying on emotion is just one potential car-buying mistake. Here are seven other common ones and what you can do to avoid them.

Mistake #1: Not considering your budget and savings plan.

Don't be misled by recent news about the price of cars coming down. Buying a car today, whether new or used, is a big financial investment that takes planning. According to online car-shopping guide Edmunds, the average price for a new car in the first quarter of 2024 was $46,992, and the average price for a used car was $27,113. If you jump into the luxury market, you're looking at nearly $61,000 for a new car, according to Kelley Blue Book. While these numbers may be down from post-pandemic highs, it's still a lot of money.

So here are two important questions:

1. Have you saved or do you have a plan to save for a down payment?
2. What can you afford in a monthly payment?

Just for context, a 60-month loan at 7.4% on a $40,000 vehicle with $2,500 down is almost $800/month. Don't let your desire for a high-priced car send your budget into a tailspin.

Mistake #2: Overspending on a car at the expense of other goals.

Good money management starts with prioritizing your goals. Where does a car fit into yours? Will buying the car you have your heart set on keep you from saving for another, maybe more important goal?

It's a balancing act. On the one hand, we know a car is a bad investment because it's a depreciating asset. On the other, many people feel a car represents our personal brand. It's part of our identity and we get attached to it. That's why we might overspend on a car rather than putting that money toward something else. Consider what type of car will represent your personal image without putting you in a financial bind.

Here's something to think about: 61% of people who earn more than $250,000 a year are more likely to be driving Hondas, Fords, and Toyotas, according to an Experian Automotive Study.

Bottom line: Don't spend money to look wealthy. Save money to be wealthy.

Mistake #3: Not doing your financing homework.

Know your financing options before you talk to a dealer. Comparison shop at banks, finance companies, and credit unions. Ask about interest rates, loan terms, and financing charges. Explore how a larger down payment or a shorter loan term might bring down financing costs.

Car loan calculator.

The SchwabMoneywise.com car loan calculator can help you explore different payment scenarios. Use this car loan calculator to figure out the total purchase price with interest payments.

• Car Loan Calculator

Get the numbers before you shop, so you know what you can really afford.

With this information in hand, explore dealer financing. Some dealerships may offer special rates and terms on certain vehicles, but you won't know if it's a good deal if you haven't researched what other lenders are offering. In fact, don't settle on one dealer. Comparison shop here, too, for the best financing rates and terms, as well as car prices. This will help you avoid the next mistake.

Mistake #4: Focusing only on the monthly payment.

Pay attention. This is an important one. Let's say you're at the dealer, negotiating a price and talking about the monthly payment. If you are asked, "What can you afford to pay each month?" stop right there. Because when you negotiate you want to look at the total cost of the car.

The monthly payment is important, but focusing on that alone can distract you from negotiating down. A dealer knows this. You may get to the monthly number you want but end up paying more for the car over time. Instead, find out what the dealer paid for the vehicle—not the sticker price—and start from there. Then discuss financing options.

Remember too, that there are taxes and title fees. Ideally, you want to pay cash for those and not wrap them into your financing. That will save you on interest and lower your payment.

Mistake #5: Not considering a used car.

We all like the look and smell of a new car, but remember a new car could lose up to 20% of its value in your first year of ownership. Buying used might get you a better car, or more car for the money.

My best car purchase was a 3-year-old 2008 Infiniti G35 with 29,000 miles on it. I drove that car for seven years and never had any major problems. It looked good. And I got a lot of compliments on it. But more importantly, I did my research and knew it was reliable.

There are lots of used car options—a former lease or loaner car, a certified pre-owned car, a 1-year-old car with low mileage. Any of these could be a good move. But like I did with my Infinity, (and not the Porsche!) do your research before you buy.

Mistake #6: Ignoring insurance and maintenance costs.

Auto insurance, like everything else these days, is going up. In fact, auto insurance premiums increased over 20% from '23 to '24, according to the Bureau of Labor Statistics. Rates vary by state and by car type, so again, do your research before you buy.

And don't forget maintenance. Consumer Affairs estimates that maintenance and repairs average around $900/year. That too varies by car make and model. The annual average to maintain an Acura is around $680 while an Audi might set you back over $1,300/year.

With these costs in mind, you'll definitely want to avoid the next mistake.

Mistake #7: Not planning how you'll cover repairs.

You may be okay handling routine maintenance, but what about a major repair? Some cars today have a 4-year or 50,000-mile warranty. But if you plan to keep the car long term or if you buy used, you might consider purchasing an extended warranty.

Having an emergency fund is always something I recommend. But I like to keep that for other major emergencies and cover car costs separately. However you do it, make sure that when you have a car problem, you're not stuck on the side of the road.

One last piece of advice from my father.

If you're going to trade in a car as part of your purchase, know its value before you make a deal. Here's where Kelley Blue Book is your friend and can give you a starting point for negotiating.

It's a lot to think about and, like me, you've probably made some of these mistakes. But live and learn. Knowing how to get a good deal on your next car can make driving it even more fun.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

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