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What Not to Do When Buying a Car: Common Mistakes

Whether you’re buying a car to commute to your first job or upgrading to an SUV for family adventures, purchasing a car—and financing it with an auto loan—is a major investment that can have a big impact on your financial future.

Below we look at eight common but serious car-buying mistakes you should look out for, and what you can do to avoid financial missteps that could cost you thousands of dollars.

Read on to learn more about smart car purchase choices that won’t stall your financial life.

8 Common Car Buying Mistakes

Purchasing a car is always a significant investment. While it’s important to choose a safe, practical, and reliable vehicle from a reputable seller, it’s equally as important to make wise choices when it comes to the loan you choose to finance your vehicle.

Unfortunately, many buyers fall into common traps that often lead to financial strain. Below we flag some of these common hazards on the road to successful car ownership and explain what you can do to avoid them.

1. Not Checking Your Credit Score

Your credit score affects how likely you are to be able to access affordable financing for your vehicle. Failing to check your score at the start of your car-buying process is a recipe for trouble since you will not know whether you will qualify for a good loan from a reliable lender.

You can check your credit score online, through your bank or lender, or access your full credit report here. According to credit bureau Experian, borrowers usually require a score above 670 to access loans from most lenders. Those with lower scores may have fewer options.

2. Not Knowing What You Can Afford

Buying a car is an exciting, emotional experience. One of the most common and serious potential mistakes is stepping onto a dealership lot without a clear understanding of your car-buying budget. Before going near a showroom floor, it's essential to consider:

  • Your maximum monthly payment: How much can you afford to spend on a car given your current income, bills, expenses, and other unavoidable financial obligations?
  • Your maximum down payment: The more you can contribute to a down payment from savings or gifts from family, the lower the amount you will need to finance later.
  • The absolute maximum you are prepared to spend on a car: Compare this not to the price of the car but to the total cost of your loan over time, including interest charges.

3. Not Having a Pre-Approved Loan

Relying solely on dealership financing can be an expensive misstep. Dealerships work with specific lenders and rarely offer the best interest rates or terms. They can also disguise the real cost of your loan with equipment upgrades, service contracts, and additional insurance costs.

Instead, be sure to:

  • Consult Your Local Lender: Member-owned credit unions take the time to understand your true financial situation and can often pre-approve you for a loan at a better rate.
  • Compare Offers From Several Lenders: Make sure the rates and terms you are being offered are competitive and match your financial needs.

4. Overlooking Critical Loan Details

Before signing on the line for a loan from any lender, be sure you understand exactly what you are borrowing and are agreeing to pay back. Pay attention to:

  • The total amount you are borrowing
  • Your monthly payment
  • Your loan’s annual percentage rate (APR)
  • Length of the loan
  • Fees, including balloon payments and prepayment penalties
  • The down payment you are agreeing to
  • The total cost of your loan over time, including interest payments and fees.

5. Not Understanding Loan Duration

The term length of your loan has a big effect on how much you will ultimately end up paying for your car on top of the original asking price.

Many dealers will offer a lower monthly cost by lengthening the term of your loan. While that can be tempting, remember that your car depreciates in value the minute you drive it off the lot. When comparing offers, carefully consider:

  • Loan length: Remember most cars will lose over 50% of their value in 5-7 years, while the outstanding amount you owe on your loan increases with interest charges over time.
  • Prepayment Penalties: Watch out for fees that make it hard to pay off your loan early.
  • Short-Term Benefits: Paying more each month might save you money in the long run.

6. Skipping a Down Payment

Dealers might talk up buying a car with zero down, but even a small down payment lets lenders know you have “skin in the game” and are committed to making payments. In most cases, putting money down should offer at least one of the following benefits:

  • A lower interest rate: Making a down payment may reduce your loan’s APR.
  • A lower monthly payment: Putting money down may mean a smaller monthly bill.
  • A shorter loan term: Money on the table might make a shorter loan affordable.
  • Borrowing limit: Cash down might allow you to buy a bigger or better car for the same loan costs.

7. The 0% Financing Trap

Is 0% APR good on an auto loan? While interest-free financing may seem attractive, these offers can be misleading. 0% financing is generally very difficult to qualify for and may not always offer the best value. In general, a 0% loan will require:


  • A very high credit score: Hard to achieve, especially if you are just starting out.
  • A large down payment: Typically 20% or more.
  • Higher sticker prices: You’ll usually pay more for a vehicle financed at 0%.

So, is 0% APR worth it? This type of financing generally only makes sense for people who would not struggle to finance a vehicle under conventional loan terms. Here’s why:


  • You usually need to be able to pay at least 20% of the cost of the vehicle upfront.
  • You need to be willing to pay more for a vehicle to avoid interest charges.
  • You usually need to pay off your loan for longer, typically four-and-a-half years or more.

How do car dealerships make money on 0% financing? By making money on other aspects of the loan, including the upfront cost of the vehicle and the term over which the loan is paid off.

If a dealer offers you 0% financing with less than 20% down, look carefully at the other terms of the loan. Even if you qualify and have the required down payment, you will usually end up paying more for a vehicle than you would with a competitive loan from another lender.

8. Overlooking Total Ownership Costs

In the excitement of choosing and buying a car, many new owners fail to consider the total ownership costs of a car over time. This can come back to bite you further down the road.

Ongoing ownership costs include not only fuel but continuing maintenance, as well as insurance and registration costs. And, while repair and maintenance costs may seem high, failing to look after your vehicle will lower its value relative to what you still owe on your loan.

Best Reward: Your Smart Auto Buying Choice

Perhaps the biggest mistake you can make when buying a car is rushing the process. Be sure to take your time to research and consider all options.

It’s important that you understand the financial obligations and monthly and lifetime costs of owning a car to avoid unfavorable loan terms and an unsustainable financial burden.

In particular, it pays to consider carefully where you get your auto financing from. Dealers thrive on high-pressure showroom sales that often bundle complex and unnecessary charges with unfavorable loan terms.

By contrast, local community lenders like Best Reward Federal Credit Union focus on affordable lending that helps our members achieve their long-term financial goals.

By getting pre-approved for an auto loan from Best Reward:

  • You’ll qualify for low rates and flexible loan terms.
  • You’ll be able to head to the dealership with financing on tap.
  • You’ll negotiate the actual price of your vehicle rather than the loan terms the dealership is prepared to offer you.

Contact us today to find out more about how we can help you purchase the vehicle you need to get where you are going in life or click below to learn more about smart auto financing choices.

Credit Union vs Dealer Financing: Which One Is the Best?