There’s nothing quite like buying a new car; the feeling of getting a new toy and learning its intricacies, as well as experiencing new performance for the first time, is intoxicating to any member of the gearhead clan. But all too often, we let our enthusiasm drive us to do dumb things, and our desperate desire to get behind the wheel of something new that’s being raved about everywhere – like a Toyota GR Corolla – results in making some bad decisions.
So in a bid to help you make smarter choices, we’ve come up with a list of five of the worst things you can do when buying a new car. To be clear, the things on this list are typically bad financial decisions or decisions that have no benefit whatsoever.
1. Paying Massive Mark-Ups
In the United States, there is no legislation governing the price of cars. While manufacturers might announce pricing every year, these are MSRP figures – or Manufacturer Suggested Retail Price – and ultimately, dealers can decide what sticker they put on a car.
When demand for a car is high, and supply is low – as in the case of the Toyota GR Corolla or limited edition sports cars – these dealers place massive markups to make maximum profit. It’s not just dealers, but also scalpers who get an early order in on a vehicle they predict will be in high demand, only to flog it a month later with 100 miles on the clock at 20-50% more than what they paid for it.
Do not pay these markups. If the car-buying community collectively stops paying these fees, dealers and scalpers will be forced to lower their prices or sit with a depreciating asset on their hands. By refusing to pay these markups, we take power out of their hands.
Logically, paying these markups makes no sense – instant gratification and the bragging rights of having a car before anyone else are the only possible upsides to paying more for a car right now, but in three years, will that matter? Not really. Don’t buy into the consumerism and FOMO these entities rely on.
2. Balloon Payments
Balloon payments on car finance are possibly the biggest scam around, using human optimism to con buyers into buying a car they can’t really afford. Think of a balloon payment as the opposite of a deposit – instead of, or in tandem with, putting up a large sum of money when taking out a car loan, a balloon is a large sum payable at the end of a loan term.
Balloon payments initially look appealing as they reduce your monthly installment, often by a large margin, and hinge on our belief that we’ll be able to save money or be in a better financial position in four or five years to pay off this large amount. However, that is seldom the case, as humans are creatures of habit and tend to fall into bad financial patterns.
When you earn more, you typically spend more. It’s called lifestyle inflation, and it generally results in you not having money available for a balloon payment. In the end, consumers who take loans with balloon payments inevitably either refinance the remaining debt or have to trade their fancy luxury or performance car in, pay off the balloon, and then buy something cheaper. That’s usually why someone goes from owning a fancy BMW to a Hyundai Elantra without their lifestyle or job changing.
The simple rule is to have a deposit rather than a balloon payment, calculate your monthly car-buying budget, and then look at spending 10% less, giving you a buffer in case something goes wrong.
3. Buying A Build Slot from Outsiders
Limited-production cars thrive on the concept that demand will always be higher than supply, typically turning them into appreciating assets. These usually come from high-end manufacturers that also produce a limited number of cars per year, all of which are usually reserved well in advance. Scammers take advantage of this and often sell ‘build slots’ on private platforms.
The problem with this concept is that there is rarely a guarantee that these build slots are even genuine. Last year, someone in Germany was selling a build slot for an Aston Martin Valhalla for $1.2 million, but Aston Martin is still accepting orders for only $850,000. An Aston representative told us that the seller of the slot wasn’t affiliated with the automaker in any way and that there was a dealer located in the same city, so prospective buyers could just go and order a car through official channels.
Oftentimes, even when the build slots for sale are genuine, the sellers will sell these to multiple buyers, and because the product is only supposed to be delivered in a few years, the scammer disappears into the wind with twice the money. If you’re not buying through an official channel, don’t buy at all.
4. Settling For A Spec That’s Not What You Want
This point is aimed at enthusiasts who want a car in a specific spec, as you typically walk into a dealership knowing what trim you want, and a salesperson will tell you, “We don’t have that particular model in stock, and it’s a three-month wait to get one, but we do have this trim on the floor right now.”
A car purchase is the second-largest purchase the average person will make in their lifetime, second only to buying a house, if we’re lucky. When you’re spending a significant chunk of change on something, why shouldn’t you be able to get the product you want? Especially if it’s not a limited edition car?
Again, we fall into the trap of instant gratification, but in the long run, waiting a couple of weeks for the spec you want will not impact your long-term ownership experience. If anything, it’ll make it better, as you’ll know you’re driving the car you always wanted, and you won’t live with the regret of settling for something that wasn’t quite right.
The caveat here is that if you’re just looking for an appliance, the spec may not be as important to you, but we still maintain you shouldn’t settle.
5. $100 Deposits On Future Cars That Don’t Exist
It’s become a common occurrence for manufacturers to ‘launch’ a car without actually having a car fully developed, providing us with wonderful designs rendered in glorious 3D and accompanying them with bold claims of powertrains that run on sunshine and good vibes while slaying Bugattis in the quarter mile. Then these ‘manufacturers’ ask you to put down a $100 deposit to secure a spot in line when the car is built, supposedly in a few years.
Unless the car in question is coming from an automaker with a proven track record of actually delivering a physical product in an acceptable timeframe, don’t give the company your money. This scam has grown in prevalence and relies on your refundable deposit to either fund the development of a car that doesn’t exist or build cars for clients ahead of you in the queue.
And that’s in the best-case scenario where a product eventually materializes, as seen with the likes of Tesla.