How to Really Screw Up a Car Purchase

According to questions I see posted on Yahoo Answers, there are a huge number of first car buyers out there who have somehow found exactly the WRONG way to buy a car. They then look for help AFTER they realize their mistake. It’s nearly always too late by that time.

Here’s how NOT to buy a car:

Leave a deposit with a seller or dealer for a car you are not absolutely sure you’re going to buy. The problem is that you may not be able to get your deposit back if you change your mind, unless there is a clear written document that states that you’ll get your deposit refunded and under what conditions. In the worst case scenario, the seller sells the car to someone else AND keeps your deposit. Don’t leave deposits unless you absolutely must.

Buy a used car without having it inspected by a professional mechanic before the purchase. Used cars are sold “as-is” which means you can’t get your money back if you find the car has problems later. There are no “right-of-return” or used-car lemon laws to protect you, even if you feel the seller or dealer committed fraud. You can’t rely on a seller’s statement that a car “runs fine” or “has no problems.” A mechanic’s inspection will cost $75-$125 but can prevent you from making a multi-thousand dollar mistake.

Buy a used car without getting a Carfax vehicle history report.  One of the most important things a vehicle history report can tell you is if a car has been wrecked. If a wrecked car has not been repaired properly it can have expensive damages, such as a bent frame, that make it unsafe and expensive (or impossible) to fix. It also seriously reduces the car’s resale value. Again, an inspection by a professional mechanic will tell you if the car is in good condition, in spite of an accident.

Don’t check a car’s value before you buy. Buyer’s often assume that a seller or dealer’s asking price is a fair price. It might not be. Check used car values on www.KBB.com and www.NADAGuides.com to determine if a seller is asking a fair price. If not, negotiate a lower price more in line with the car’s value and condition.

Buy a bargain-priced car from an online web site that you have never seen, never driven, and cannot inspect. Regardless of price, you should never buy a car that is not local such that you can’t meet the seller, check the title, drive the car, inspect it (or have it inspected by a mechanic), and conduct the sale in person. Watch for a common scam in which the “seller” has a reason he can’t meet you or talk with you (he’s in the Army, on an off-shore oil rig, etc.) except by email. He explains that the car is in another location and will be shipped to you for free. You will have a few days to decide if you like it and your money will be “protected” by eBay, Google, PayPal, Amazon, or other non-existent payment escrow service.

Buy a car from a “buy-here-pay-here” used car dealer. These dealers can be spotted with signs on their lots that proclaim “we finance anyone,” “no credit, no problem,” or “your job is your credit.” Although this may be the only way someone with poor credit can buy a car, they should go into it being aware of what they are getting into. First, the cars are usually older cars with high mileage, but overpriced (check www.KBB.com and www.NADAGuides.com for fair values). The cars will usually have problems because the dealer doesn’t inspect them. He provides his own loans at extremely high interest rates and doesn’t check credit. He also doesn’t report payments so this is no way for you to build better credit for the future. You’ll be put on a strict weekly or bi-weekly payment plan. A device on the car will prevent it from being started if you’re late with a payment. It’ll be repossessed if you miss a payment.

Buy a car you know nothing about. This applies to both new and used cars. If you don’t do research on the car(s) you’re interested in, you’ll likely make a mistake and buy one that you don’t like or that has problems you didn’t expect. You can’t return a car after the sale. There are no “right-of-return” laws for car sales. There are excellent and easily available sources of information on the Internet, such as ConsumerReports.org, Edmunds.com, Cars.com, KBB.com, and many others. For new cars, you can find reviews, specifications, reliability information, prices (including dealer invoice prices), safety ratings, and test-drive results. For used cars, it’s easy to find reviews, reliability information, price values, and owner forums.

Buy a car with an extremely long loan term. Dealers frequently offer car buyers extremely long loans, such as 7 years, to make lower payments. There are problems. First, interest rates are much higher for long loans than for shorter ones. This, combined with the long term, means excessive finance costs which significantly increase overall cost of the car. For example, a $12,000 loan for 84 months at 8.5% interest means the total cost of the car is $16,000. Second, long-term loans create instant “upside down” situations, meaning the car is worth less than the amount owed on the loan for nearly the entire loan term. This causes problems if the buyer decides to sell or trade his car before the end of the loan (very likely for long loans). It also causes problems if the car is stolen or destroyed in an accident. Insurance companies only pay for a car’s current market price, not the balance on its loan. Finally, for used cars, most people who accept a long loan don’t think about the fact that they’ll tire of the car before the loan is paid off, or that the car may become junk before then. This increases the likelihood of a loan default and credit damage.

Lease a car without knowing how leasing works. Car buyers often lease new cars when they shouldn’t. They are attracted by the low monthly payments a lease provides. They discover later that they’ve made a mistake because they drive more miles than the lease allows, or they don’t take good care of the car (as required by the lease), or want to make modifications to the vehicle (not allowed when leasing). Or they might want to terminate the lease before its end (very expensive). They find that they owe unexpected charges at lease-end as a result of excessive miles or damage. Leasing works very well for some people, but not for others. Anyone considering leasing should learn how it works and how to determine if leasing is right for them. Going to LeaseGuide.com is a good start.

Buy a used car by “making payments” to an individual seller. There are risks to both the buyer and seller in these informal arrangements. Participants often think having some sort of “legal” contract or written agreement will protect them. Not so. The buyer is at risk because the seller, who has the car’s title, decides he wants the car back and refuses to return any money. There’s always the question of who pays for insurance, and who gets insurance money if the car is totalled in an accident. Risks are even higher for the seller. A buyer may wreck the car and simply hand it back to the seller. Or the buyer may hurt or kill someone in an accident for which partial responsibility falls back on the car’s owner (the seller).

Find a car online and take cash to a seller’s home, apartment, or other private location. There are crooks and robbers online. If you’re taking cash to a seller, always meet the seller in a busy public location, bank, or business location. The danger is that the “seller” is only interested in taking your money from you, not selling a car.

Buy a car that doesn’t have a clean title. A car’s title is the legal document that establishes ownership. Inexperienced buyers sometimes buy cars for which the seller doesn’t have a title. Without a title, the seller has no right to sell a car nor does the buyer gain ownership of the car. Buyers should always makes sure the seller has a valid title that has his name on it, not someone else’s and that the Vehicle Identification Number (VIN) matches the VIN on the car (on the left dash near the windshield and on door frame). The title should also be “clean” in that it doesn’t indicate a “salvage” or “flood” status, and doesn’t indicate that a lien (car loan) is outstanding.

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