Budgeting Financial Planning Top 5 Biggest Mistakes to Avoid When Buying a Car Avoiding These Mistakes Can Save You Thousands of Dollars Each Year By Jeremy Vohwinkle Jeremy Vohwinkle Facebook Twitter Jeremy Vohwinkle specializes in retirement planning and has experience as a financial advisor. He also started a financial blog for Generation Xers. learn about our editorial policies Updated on May 25, 2020 Reviewed by Marguerita Cheng Sponsored by What's this? & Photo: martin-dm / Getty Images For many, a car is a necessity. Many of us depend on our vehicles to get us to and from work every day, transport children to events, and even just get around for pleasure. Because they are such an important aspect of our lives, most people want a vehicle that is reliable, comfortable, and, yes, maybe even a little stylish. The vehicle choices are almost endless and car salesmen are notoriously assertive, so finding the right combination of wants and needs with an affordable price tag can be challenging. 5 Car Buying Mistakes to Avoid When you're in the market for a new vehicle, the best thing you can do for yourself is be prepared. So here are the 5 biggest mistakes to avoid when purchasing your next vehicle: Thinking in Terms of Monthly Payment Not very many people walk into a car dealership and plan on writing a check or paying cash for their vehicle, and the salespeople know this. In fact, many of them rely on this fact in their sales pitch. This also explains why the negotiation almost always revolves around how much you can afford to pay for the car each month. But focusing on a monthly budget is by far the easiest way to spend too much on your next vehicle. When negotiating a price, the dealer can do a number of things to make almost any vehicle fit your budget. They can do this by adjusting interest on the interest rate, offer you a longer term on the loan, or restructure the financing in a way that creates a payment that fits into your budget. It may not seem like a big deal, but even a few extra percentage points or an additional year on the loan can add thousands of dollars to the total cost of the vehicle. When the average car payment in the U.S. is $550 per month for new cars as of 2019, it's worth looking at what that money is actually getting you. Buying New Versus Used A vehicle is not an investment—at least not a good one. Vehicles depreciate in value quickly, so when you buy a new vehicle, you can expect it to continuously decrease in value from the moment you take ownership. In fact, a new car may decreases in value by 25% in the first year. The best thing you can do is to let someone else take the initial hit by buying a slightly used vehicle that is a year or two old. Years ago, there was a good reason to buy new and that was for the warranty. Today, most vehicles have longer warranties that can still be in effect even if you buy a car that is a few years old. You may even opt to purchase an extended warranty, which is typically far cheaper than the value the car lost in the first year or two. Choosing the Wrong Vehicle Are you a single person who needs a vehicle just to get you to and from work every day? Then you probably don’t need that $45,000 SUV that seats eight and can tow 5,000 pounds. You want a vehicle that meets your specific needs. Sure, there are a lot of cars and trucks out there that will turn heads, but keep in mind that many of these will come at a premium. Not Taking Into Consideration Other Costs The actual cost of the vehicle is important, but what is often overlooked are all of the hidden long-term maintenance and car insurance costs that go along with a vehicle. Keep in mind that car insurance premiums typically increase with the value of a vehicle, so buying a more expensive vehicle will increase your annual insurance costs. This can amount to hundreds, if not a thousand dollars or more per year. In addition to insurance, you have to take into account all of the maintenance costs. Vehicles need oil changes, new brakes, air filters, tires, and much more. Luxury or performance models are generally going to require higher-end replacement parts that can cost much more than their standard counterpart. Finally, you need to consider gas consumption. The average person will drive between 10,000 and 17,000 miles per year. A vehicle that gets an average of 30 miles per gallon with today’s gas prices, you can expect to spend between $844 and $1,435 per year on gas alone. Now, consider a vehicle that only gets about 15 miles per gallon. Now you’re spending $1,689 and $2,871 each year. Putting $0 Down There are a lot of incentives when it comes to buying a car, and you can often put yourself in a brand new vehicle of your choice with no money down. Sounds great, right? Not so fast. Remember, vehicles depreciate rapidly, so if you finance the full purchase price, you often find yourself upside down on the loan immediately. Being upside down simply means that you owe more than the car is worth. Remember, there are taxes and other fees that go into a new car purchase, and they are typically rolled into the loan if you don’t put anything down. That means as soon as you drive it off the lot, you owe more money to the bank or dealership than the vehicle is actually worth. This is a very bad idea if you intend on selling or trading the car in before the loan is paid off. If after three years you need to get a new vehicle and you owe $10,000 while the car is only worth $8,000, you will have to either pay $2,000 out of your pocket, or finance that into your new loan. It may feel good to walk out of the dealership with a brand new car without having to fork over a dime up front, but it will cost you. Frequently Asked Questions (FAQs) When is the worst time to buy a car? There are some factors of car buying that you can use to time your purchase. For instance, car dealerships often have monthly quotas. You may be able to get extra deals at the end of the month as salespeople try to hit their quota, but on the other hand, the beginning of the month may provide a more low-key shopping experience. Also, consider how recently the car model was released; you may find deals offered later in the model year that aren't available in the weeks after the model is first released. What do I need to buy a new car? To buy a new car, you'll need to bring your driver's license, proof of insurance (in most states), and a form of payment. If you plan on financing the car through the dealership, then you'll need to prepare for that, as well. With good credit, you might not need to bring anything else. If you don't have good credit, you might need to bring pay stubs, utility bills, or a co-signer. Do I need new plates when I buy a used car? License plates typically transfer with ownership of the car. The new owner is free to swap them out if they want personalized plates, but it isn't necessary. The only exception is if they plan on registering the car in a different state, in which case they'll need new plates. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. National Automobile Dealers Association. "NADA Data 2019: Midyear Report," Page 19. Maine Bureau of Consumer Credit Protection. "Downeaster Common Sense Guide: Auto Buying and Financing," Page 3. U.S. Department of Transportation, Federal Highway Administration. "Average Annual Miles Per Driver by Age Group." U.S. Energy Information Administration. "Weekly Retail Gasoline and Diesel Prices."