Car Buying Mistakes – Too Soon

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Cars are a depreciating asset… a rapidly depreciating one at that. Buying a car is not investing.

It is not an investment. Oh, to be sure, you’ll be ‘investing’ much of your hard earned money into your car over the years to come, but buying a car is not an investment.

By buying a car too soon, I don’t mean in the calendar year. I mean falling victim to all the new styles and marketing ploys car manufacturers and car dealers throw at you and buying a new car well before what you owe catches up with what the actual value of the car is.

In car buying vernacular, when you owe more than your car is worth you are ‘upside down’ in your car.

You’re 'flipped'.

These days, believe or not, the average person ends up rolling about $2,000 of negative equity into their new car when they trade. In other words, if you’re looking at a $20,000 car and your car is worth $8,000 and your pay-off on your loan is $10,000 then you are going to be buying a $22,000 dollar car.

When the car dealer says they are going to ‘pay off’ your loan, they are really only rolling your negative equity from your old car into your new car and burying you even deeper in your new car.

Now here is the extremely important point to keep in mind about our example above and why it is beyond important that you put forth a concerted effort to get the best car deal you can.

If you are bound and determined to roll negative equity into your next car purchase (which is a mistake in and of itself), then you better darn well drive a hard bargain and work every penny you can.

Here’s why.

First, if you pay the sticker price of $20,000 on your new car, you just over paid for the car itself because I will guarantee you that the market value of that car is nowhere near $20,000! 

And we haven’t even added in the $2,000 you still owe on your trade.

Remember, in our example you owe $10,000 and you traded it for $8,000… because the dealer is kind enough to ‘pay off your old loan’. Before the ink even dries on your new car contract you are in a deep financial hole with your new car.

I hope you really like it because your will have to drive it for a long while before you get anywhere back to even money.

In summary, know your numbers. Don’t rush into buying a car when you are really not in a good financial position in your current car to do so.

Cars depreciate at a very rapid pace. Some at as much as 30% in the first year. If you head into your next new car way upside down, it will take you the entire term of the loan payments before you can get out from underneath it financially.

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