If you’re in the market for a car you may wonder whether it’s better to purchase brand new or opt for a second-hand option that will ‘do the job.’ You may be weighing up the risks and benefits.
You may also focus far too heavily on price and not enough on the financing terms. This article tackles the most common financial mistakes to avoid when buying a used car. Save yourself a ton of time and money by taking these into account.
Failures Relating to Price & Finance
There are a few different errors relating to price and finance that many shoppers make while considering a second-hand car. By becoming more familiar with these failures, you may avoid paying too much and actually get better value for money.
Ignoring financing terms
When applying for car financing, it’s common to overlook the fine print. The allure of lengthy terms or periods of non-repayment may seem attractive at first. But it’s important to consider the dangers lurking underneath, such as high-interest rates that lead to unaffordable repayments.
Underestimating the total cost of ownership
Many dealers are quick to advertise a great price, but sometimes are prone to have additional costs associated with the car. These may include dealer delivery, transfer costs, and taxes.
There are many costs of car ownership that may not be included in the total price that is advertised. It is important to look at the full cost of transfer rather than simply the cost of the vehicle.
Failing to line up financing before shopping
Many dealers make a great deal of money on finance options provided on-site. The finance options available through the dealer are quite often made more easy and convenient because the dealer is getting a kickback from the finance provider.
Who pays for that kick-back? You, the consumer. You can avoid this pitfall by lining up your own finance with a bank or credit union in advance.
Focusing on the repayment when negotiating
There is a tactic in sales called “Reduction to the Ridiculous.” It is where the salesperson will reduce the figure that you are paying to a smaller amount the make it seem more affordable. It’s easy to get someone to pay $5,000 if it’s only $10 per week over five years.
Avoid slipping into this error by sticking to the total purchase price, which will ensure that you’re considering the full cost of the transaction.
Using the Sticker Price As Your Gauge When Negotiating a Deal
The sticker price that the dealer puts on the car is their price. The price of that car in a different lot or a different city would change completely. Do plenty of research to ensure that instead of knowing the price of the car in the dealer’s lot, you’re aware of the true market value.
It’s easy for a dealer to inflate a price to mark it down and make a deal seem incredible.
Buying Unnecessary Extras
It’s very appealing when a salesperson accentuates the features of a vehicle. A vehicle with tires and an engine snorkel to go off-road may seem appealing, but very few actually need these items, which has you paying more for the vehicle.
Before shopping, consider what extras you really want. Unless the vehicle has an extra component that will enhance your use, it’s best to pass on it.
Not Planning Ahead
Always plan ahead when buying a used car. Before shopping, it is best to research the value of your current car if you are doing a trade-in. Consider finance options before going to the dealer, and it is best to forecast what monthly repayments you can truly afford.
These are all decisions that should not be made while inside the dealership. If you don’t know all the details of the vehicle you are purchasing you may feel flustered and talk yourself into a car or financing terms you don’t want. Not planning ahead is one of the biggest mistakes to avoid when buying a used car.
Being Unaware of Scams & Financial Frauds
There are online scams and frauds that some purchasers fall subject to while in the market for a new car. Here are a couple of examples.
- Lemon Car: A vehicle that looks amazing but is actually ‘sour’ and terrible mechanically is referred to as a lemon. Thankfully, there is the lemon law that means dealers must take these cars back under certain conditions.
- Must Sell Now: Some fraudsters create false urgency, posting cars online that ‘must sell now’ and can be secured with a down payment. The only problem is, the car doesn’t exist and all they want is to disappear with your deposit
Scams and financial frauds can be avoided by ensuring that you shop through a reputable dealer with good reviews. A dealer with hundreds of reviews is unlikely to be a scam. In fact, reviews can be verified if you make the effort to verify them independently.
Checking vehicle history report before making a purchase is also important. It’s possible to check for problems with the car, any prior accidents, and the number of previous owners.
Other Common Mistakes to Avoid
There are a few common mistakes that are easy to avoid when buying a second-hand car.
- Make sure that you don’t forego the test drive.
- Always have the car checked by a mechanic.
- Run a vehicle history report.
- Don’t simply buy based on appearance.
Avoid making emotional buying decisions. It’s so important to consider the whole deal instead of simply the price of the car or the value of your trade-in.
A high trade-in price on an expensive car is quite often worse than a low trade-in value on a lower price. By considering the entirety of the transaction, you’ll be less at risk of being disadvantaged.
Mistakes to Avoid When Buying a Used Car – Summary
When shopping for a second-hand car, you may end up buying the deal instead of buying the vehicle. Many savvy car salespeople make their money from telling a great story. Always exercise a healthy level of skepticism and be well-prepared by doing your research.
If something sounds too good to be true, it probably is. If you’re smart enough when you purchase your second-hand car, you may walk away with the dealer wondering how you managed to avoid falling into their trap!
For more articles on financial planning and money tips, check out this section of the blog.