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Car Loan Mistakes to Avoid

Buying a car for the first time is a right of passage for many young Americans. The dream of having the freedom to be able to hop in a car and do the activities you’ve had to be chauffeured by someone to do your entire life is liberating. There is nothing like being able to hop into your whip, roll down the windows and blare any song you want without your parents yelling at you to stop listening to this noise.

What is important for us to know and teach our future generations is the car loan mistakes to avoid when purchasing a car. The car buying process is excruciating which has led to companies such as TESLA eliminating the need for a salesforce and Carvanawhere you literally can do the whole process from the comfort of your own home.

On average Americans will own six cars throughout their entire lives. This means this is six times that you will need to make sure you’re getting the best possible deal to purchase a vehicle. Especially because the average price of a new car has skyrocketed and as we saw during the chip shortage back in 2020 and 2021, a beat-up car was worth a good chunk of change for a moment in time.

From the mistakes I’ve made and I’ve made a ton of mistakes, here are the top 3 I feel everyone needs to consider before purchasing a car, especially if you’re buying from a dealership.

1. No Payments for 3 Months.

This one got me and it got me good because I trusted what someone told me. Unfortunately, that wasn’t the case. The way this was explained was that based on this financing program you have no payments for the first 3 months. I thought this was cool because I could take this extra money and put it into an investment account rather than put it towards the car. Well, it worked it in the end, but what they don’t tell you is this.

During the time you’re not making payments, your new car loan is going to immediately starting accruing interest so that when you make your first payment it’s like a mortgage where a majority of your first payment is interest and the lesser amount is principal. It would be very easy for someone who isn’t financially savvy to fall for this trick and it’s a huge money-maker for financial organizations that offer these programs.

2. Not Negotiating.

Unless the person you’re buying the car from is a dear friend that you want to earn a large commission, then negotiating is a must have when it comes to purchasing a car. All car dealerships receive incentives from the factor that reduces their price to purchase the car from them. The dealer is not obligated to pass these savings on to the buyer. If you know how the dealer operates in order to hit their sales numbers, let’s say it’s monthly. Then buying a car towards the end of the month may make the negotiating process easier.

A good rule of thumb is to say no to the price at least 3 times and don’t be scared to walk away. Especially if you’re inside a dealership buying a car takes on average 4-6 hours. So make sure you block out the proper amount of time and put your negotiating hat on. If you could save at least $5,000 off the purchase price and it takes you 5 hours to get it done, consider that making you $1,000 an hour. Not a bad deal right?

3. Purchasing Add-ons from the Dealer.

After you’ve negotiated your price and signed the paperwork you are now going to meet someone that is typically the “Finance” person for the car. Remember, this person is in sales too, despite having a classier title. They are going to attempt to get you to buy a variety of add-ons for your vehicle, most commonly, Gap Insurance, VIN Etching, Extended Warranties, Tire and wheel protection, Paint and fabric protection.

There is no need to buy these items for most vehicles, but lets say you are purchasing a luxury vehicle where the tires are $1,000/piece, then it may make sense to get the tire protection. Other than that, stay clear of these addons especially if you’ve negotiated the price you have already saved a lot of money. So, even if you got a nail in all 4 of your tires, you would still be coming out ahead.

Also, in order to get these deals, you’re going to have to go to a dealership rather than a conventional car mechanic, which could be costly in terms of your time. Not only that, the goal of getting you back into the dealership over time is to attempt to sell you another car. I’ve spoken to a few clients where they go in for a “Factory Recall” for their vehicle and leave with a new car.

Don’t fall for the same tricks that salesmen have been using since the beginning of time.

4. Not Having a Good Car Mechanic.

Recently my check engine light came on in my car and I brought it to a large car maintenance chain that has thousands of locations. They quoted $950 for the repair, but they did a complimentary assessment, which is the cheese to get you into the door. Well, no matter what it’s important to check the references and do your due diligence before making a purchase. So I went onto Google and looked for locally owned shops in my area.

Being it’s a small business they charged $149 for the consultation to diagnose the problem, which deters a lot of people because people want something for free and don’t realize that free has a cost associated with it. After paying the $149, the total to fix the problem came to $349, which included the $149 diagnostic fee. The problem that was originally diagnosed, wasn’t the problem at all and ultimately you always get what you pay for.

To Growth, Family, and Philanthropy,

Joshua Krafchick | 369 Financial

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