Need to Buy a New Car?

Buying a car, as much as the salesmen try to convince you otherwise, is not an easy task. There are dozens, if not hundreds, of factors that need to be considered before a car purchase is made. Your individual needs, the condition of your previous or current car, and the other reasons we normally consider when buying a car are only the beginning. The season, the economy, gas prices, the options, the dealers, and the planned length of ownership are all different pieces of the puzzle that must be considered. Here is the list of the top seven worst mistakes that people make when it comes to purchasing a new vehicle.

Mistake number one: Buying a car without considering the month-to-month expenses A good general rule of thumb when considering car payments is that you should not be paying more than 12% to 15% of your take-home pay (after taxes) on car payments. This includes gas expenditures, mortgage, lease payments, and insurance. If a particular car would require more than this amount, you should seriously consider passing up the deal. Chances are that you will end up over your head when you could have found a perfectly adequate car that would have fit your budget. How to determine 15%: Multiply your total paycheck after taxes by .15 . That amount should equal or be more than what you’re planning on paying (or are paying currently) for a car.

Mistake number two: Falling for the “long loan trap” Since a new car depreciates in value by up to 30-40% in the first two years of ownership, it’s very common for a new car owner to go “upside-down”– or owe more on the loan of the car than the car is worth – when they decide to pay for the car slowly. In general, if you can’t pay for the car completely in 36 to 48 months, it’s a good idea to leave that much car alone and settle for a more manageable purchase.

Mistake number three: Choosing the more lucrative cash rebate instead of considering the lower interest rate Whenever you go near a car dealership or even a car for sale, BRING A CALCULATOR. Salesmen are masters of making more money look like less and vice versa. Even though a $2000 rebate sounds much better than a 2% interest rate decrease, that 3% interest rate instead of 5% could save you more than $2000 depending on how long your loan will take you to pay off. ALWAYS do the math before you sign up for something that may cost you more than you bargained for. Be sure to watch for part two in the series!

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