With the recent chip shortage and subsequent new and used car inventory shortages, shopping for a car has been tough for most buyers. It’s currently a “seller’s market” as dealerships are low on inventory and now able to charge over the sticker price on some new cars. And while many buyers are choosing to wait until 2022 to possibly get a better deal, there are many others buying cars and paying too much money right now. Here are some car buying mistakes that you can make if you buy a car this year and in these conditions.
Paying over MSRP for a new car
If you’re not familiar with the MSRP, it’s the “Manufacturer’s Suggested Retail Price,” also known as the “sticker price.” Normally, this price is negotiated down via discounts and incentives in order to get a better deal on the car that you’re buying. However, with the current market conditions and inventory shortages, there are plenty of dealerships charging over MSRP for their new cars.
According to Ari Janessian – a broker with Negotiation Guides – many buyers are paying 15 to 20% over MSRP, which is way too much. “You’ll find the sticker on the window that say’s ‘manufacturer’s selling price.’ Don’t pay over that. There may be a sticker attached to the sticker that’s asking for money than that, argue against it,” Janessian advises.
Not expanding your search radius
Since times are tough right now and finding the right car for you at the right price is like finding a needle in a haystack, it could be wise to expand your search radius. Can’t find that blue Honda Civic that you’ve had your eye on at the dealership nearby? Expand your search radius to double what is it and see what kind of results you come up with then
Even if you have to go out of state to the right car, you may end up finding a better deal in the end. Also, there’s nothing like finding the exact that you want. And you should, because there’s no such thing as a “good deal” on the wrong car.
Not shopping for the out-the-door price
When you purchase a new or used car, there is the selling price of the car and the taxes and fees associated with it. Many dealers nationwide charge a documentation fee as well as the DMV registration fees on top of the price of the car. When added all up, you’ll get what’s called the “out-the-door” price. This is the price that you want to know about and consider before buying a car. That way, you can negotiate that price down, if possible, and save even more money.
Not finding your own financing
Another way that you could be losing money when buying a car this year is by not finding your own financing. If you’re planning to finance the car you’re buying, then it can be easy to accept whatever financing the dealership finds for you. Beware! Many times, these financing offers come with high-interest rates, which will end up costing you more money in the end.
Instead, shop for a loan with your personal bank or a local credit union to get a good rate. Then you can shop for a car like you’re a cash buyer since you’ll have an auto loan ready to go when you step foot into the dealership.
Not purchasing GAP insurance
Let’s say you have a $20,000 loan on a car that you bought and you end up crashing it soon after. Your insurance company will pay you out for the market value of the car, which could hypothetically be $18,000. In that case, you would be responsible for the remaining $2,000.
That’s why GAP insurance exists; it covers the “gap” between the market value of the car and your loan amount in the case of a total loss. However, if you don’t buy GAP insurance, then you’ll have to pay for the difference and spend more money on a car that you no longer have.
Not shopping your trade around
Lastly, if you’re planning to trade in your current car for a new one, then Janessian suggests shopping it around. That means having it appraised by dealers like Carmax and Carvana in addition to smaller “mom and pop” dealerships. Doing so can get you more money for your trade, which you can then add to the down payment for the new car or keep for yourself.
Take your time when shopping for a car
While the current market conditions aren’t the most favorable for buyers right now, the more important thing you can do is to take your time. Be sure to do your research on the car that you’re buying and find competitive prices. Also, shop your trade around. In the end, you could end up saving a lot more money than you would think, even in times like this.
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