5 mistakes to avoid when buying a new car

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1. Buying on the spot.

Make it clear to the salesperson that you will not be buying on the same day you test drive the car. Explain that you simply want to take a test drive, and that you will be visiting other dealerships and doing the same. Consumer advocates recommend you do not discuss price, or how you will be paying for the car.

Politely tell the salesperson you haven’t decided on a car yet and are in the process of researching a few vehicles.  You want to take your time and not rush.

Do not let the new car smell and emotions of a good drive make you more impulsive than you normally would be.  Remember, the salesperson’s goal is to excite you about the car so you will "buy today".  You may be told things like “this car won’t likely be here tomorrow,” or “this is a one-time deal only.” Falling for lines like these will lead you to overpaying for the vehicle.  Considering you’ll be spending tens of thousands of dollars, you’ll want to sleep on it, to make sure you choose a car that fits your budget and serves your needs for the coming years.

2. Not knowing your financing options.

It’s highly recommended that you comparison shop at different financial institutions and get prequalified before you make any final decisions. Check interest rates at banks, credit unions, or online financial sites to see which offers you the best rate.  If you own a house, investigate using a bank or credit union “line of credit” which may be available at a much lower rate than the dealer’s normal rate. If the dealer can offer you terms that are better than what you can get elsewhere, you can always choose that instead, but not knowing your options can be expensive. 

One common dealer trick to avoid is being lured into a dealership by misleading ads for a super-low  interest rate, only to be surprised in the closing/business office with the information  that the advertised rate you saw is available only on the base model, or super-luxury model, but that for the very hot selling model you want “normal” rates are still available, so you can go ahead and drive your dream car home tonight! By the time you pay off the car these elevated normal rates can add up to thousands more than what you could have gotten at the bank, so be careful if special low rates are not available.

3. Not taking into account the dealer finance office.

A lot of people think that the price they've negotiated with the salesperson or dealer is the price they will pay for their new car. Unfortunately, nine times out of ten, this isn't the case. Keep in mind that the deal is not over once you've shaken hands with the sales person. You still need to visit the dealer's finance office (also known as the business office). This is where dealerships make as much money or more than they do on the showroom floor. Hidden costs, extra fees, and interest rate changes are just some of the dealer add-ons that can result in you paying hundreds to thousands more for your new car.

4. Overestimating How Much Car You Can Afford

Know what your limit is and stick to it. Figure out what features you actually need for your daily drive and lifestyle. That doesn’t mean you have to stick to a base model or sacrifice features you might need, but make sure you need and want what you’re getting.

Keep in mind that most salespeople have been taught to upsell and will play on your emotions.  They will often try and convince you that you can afford a few extra features or a fancier model.  And, while longer term financing can make payments more affordable and tempting, remember that you’ll be paying more interest, and possibly a higher interest rate.  Another trick to avoid is salespeople who say there are no lesser equipped cars available so there really is no other choice if you want that model without custom ordering and waiting months. It may be true, or it might not. Maybe the exact feature set you want is available at another dealer.

Sites like Canadian Driver offer car loan and lease calculators which can help you figure out payments and interest -  http://www.canadiandriver.com/tools/loan.htm. It’s up to you to understand how much you can really afford – not the dealer.

5. Not Factoring In Total Ownership Costs

Many car buyers get so caught up in the excitement they focus only on the monthly payment and forget to take into account the total ownership costs. 

For example, how much will insurance be for your new car?  Remember, not all vehicles have the same insurance premiums. Don’t make the mistake of thinking it will be about the same as your old car which is worth half as much. How much you pay for insurance will depend on a variety of factors including the value, make and model.  Typically, the more the vehicle is worth, the higher the premiums.  You could find yourself paying many hundreds of dollars more each year on insurance just by choosing a vehicle that’s more costly to insure.

Not all warranties are alike either.  Deciding on whether you need an extended car warranty involves determining how long the car will be kept, how expensive parts are and how extensive the included manufacturer's warranty is. Take the time to understand the warranty thoroughly e.g. what it does and doesn’t cover, is there complimentary roadside assistance, is the warranty transferrable if you sell the vehicle, etc.  Ask the Service Department for any annual maintenance costs that are not covered by the basic warranty.  Factor in additional parts you might need such as a set of winter tires.  In addition, it’s a good idea to check out the reliability ratings for the vehicle as well.  Sites like www.consumerreports.org, www.canadiandriver.com, www.jdpower.com, and www.edmunds.com feature  this type of information.

Last but not least, don’t forget to take into account the cost of fuel and regular maintenance. Just a 3 kilometre per litre difference can cost you hundreds of dollars more annually depending on gas prices and how many kilometres you drive. Natural Resources Canada has complimentary Fuel Consumption Guides and a Compare Vehicles Tool on their website http://oee.nrcan.gc.ca/transportation/tools/fuel-consumption-guide/fuel-consumption-guide.cfm?attr=8. 

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