Avoid the #1 Mistake That Car Buyers Make

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When it comes to buying a car, as with anything, there’s a right way to do it and a wrong way to do it.

Doing it the wrong way can cost you thousands of unnecessary dollars. What are we talking about specifically? The number of years you finance your vehicle.

Don’t Make This Car-Buying Mistake

“You might have spent hours researching a potential car purchase thoroughly, but did you do the same when it came to getting your loan? One of the biggest mistakes people make when buying a car is to not arrange financing before they walk into a car dealership,” money expert Clark Howard says.

In this article, we’ll cover some ways you can avoid signing up for an extra-long car loan that may potentially outlive your vehicle.

A recent report from Edmunds.com says the share of Americans spending more than $1,000 on monthly car payments jumped to 17.9% in the fourth quarter of 2023, the most ever.

While several factors explain why these figures continue to increase, one of them is where these car buyers choose to get their loans.

The auto dealer — the place where you buy the car — is not the place where you should finance your vehicle, Clark says. If you allow it to happen, you’re letting the dealer double-dip to your wallet’s detriment.

Where Not To Get Auto Financing

A lot of consumers may prefer the one-stop-shop experience of buying and financing a vehicle at the dealer, but Clark says you should steer clear of that arrangement.

Although you may be able to knock a few thousand dollars off the purchase price of your vehicle, the real money in car dealerships is made in the F&I – finance and insurance – department, Clark says. That’s where the F&I man or woman sells extended warranties and writes car loans.

“When you fill out a credit application at a dealership, the dealer goes out to wholesale the money for you. They might get money at 4%, but they could write the loan at up to 7% or even higher — especially if they con you into thinking you have bad credit. The younger you are, the likelier it is that you’ll be conned into thinking you aren’t good for the money and they are heroes to get a loan for you!”

Where To Get Auto Financing

Clark wants you to pre-arrange your auto financing before you show up at the dealer.


Instead of potentially being pressured by a car salesperson who could set you up to be taken advantage of with exorbitant interest rates, Clark suggests that you look here for auto loans:

Your Local Credit Union

“Credit unions offer interest rates on car loans that can be 1% to 3% points lower than other lenders,” Clark says.

Read our guide on credit unions and their benefits.

Another great place to check is with online lenders who don’t have the overhead of physical buildings to finance and spend on.

Other Lenders

With your local credit union as our first stop, you should still look around and see if you can beat their rates. Regional banks with lower interest rates could be an option as well.

Even your auto insurer may be able to give you a competitive interest rate, Clark says.

After you’ve done the research, make the best choice for your wallet.

Whatever you do, Clark wants you to stay out of a super-long auto loan.

The Edmunds report says that by the end of the year, consumers were financing their vehicles for an average term length of 54.3 months. That’s nine and a half months more than the previous quarter.

How Long Should the Maximum Auto Loan Length Be?

Clark is not fond of taking on lengthy terms for auto loans. Clark has a strict rule for auto loans in terms of a maximum length.


“The longest auto loan you should ever take out is 42 months,” Clark says. “If you can’t afford the payment on a 42-month loan, then you should buy a cheaper car.”

If you find that you can’t seem to get an auto loan under 42 months, it’s time to think about some options to reduce what the car costs.

What Are Some Ways To Get Lower Car Payments?

Clark also says to be especially careful about financing anything when the prices are inflated or when you’re already straining to pay your monthly bills.

Improve Your Credit

It’s no secret that you’ll be able to qualify for better loan terms the better your credit is. A good credit score typically gives you lower financing rates, which means you can pay less in interest when you finance your vehicle.

The minimum credit score needed to buy a car will get you into a vehicle, but your goal should be to get the best rates possible.

Months before you buy a vehicle, see if you can boost your credit. Read our guide on how to improve your credit score.

Trade In Your Vehicle

One way to take a big chunk out of the total cost of a new or used car is to trade in your current vehicle. You can find out what your car is worth before you go to the dealer, which can arm you in any negotiations.

When pursuing a vehicle trade-in, there is one caution that Clark wants you to know about.

“Never, never, never trade in a vehicle you still owe money on. Period,” Clark says.

Several bad outcomes could potentially happen if you trade in a vehicle that you haven’t paid off. Read up on the pitfalls of trading in a financed vehicle.


Make a Bigger Down Payment

One thing you can do to keep your monthly payment reasonable, even in the short term, is to make a sizeable down payment when you buy your vehicle. The more money you pay upfront, the less you’ll pay in interest.

It will also give you a better chance to owe less than your car is worth — even if it’s a new car that you drive off the lot (and it immediately goes down in value).

Final Thoughts

The #1 mistake car buyers make is they sign up for a super-long auto loan and it hurts their wallets in the end.

“When you are financing a car, I want you to be sure you never finance for longer that 42 months,” Clark says. “Anything longer than that and you risk being ‘upside down’ on your car — owing more on the vehicle than what it is worth.”

Is your car loan too much for your wallet? Read our guide on how to refinance a car loan.