It’s the same story everywhere you go in the car world, on Reddit, in forums, or in the comment sections: people who made terrible decisions and are full of regret. Well, I’m here to help you all out.
I’m here to talk about 5 mistakes that people make and how you should avoid them.
Problem: Loan You Can’t Really Afford

The first issue is by far the most common, but it’s honestly the least excusable. Tons of people get a car loan that they can’t afford. There are a lot of bad things that happen when you’re stuck with a loan you can’t afford. First of all, you’ll probably have to make sacrifices to avoid losing tons of money. If you have that $800 car payment coming up and your choices are “eat healthy and lose your transportation” or “eat garbage and keep the car so you can get to work,” well, Wendy’s has your name on it. That’s not great.
Second, you’ll nuke your credit score if you start missing payments. And your credit score is super important if you ever want to buy a car you can afford, or a house, or even just qualify for a decent credit card.
The solution is to make 100% sure you have a hard limit on what you can afford before even filling out the paperwork.
Solution: Remember the 10% Rule

We actually have a more comprehensive video about this on our YouTube channel. But, at the most basic, find out how much you make per month. Let’s say it’s $3,000. Now, take 10% of that, which is $300. Make sure you don’t spend more than $300 a month on your car. It’s pretty much that simple.
And it’s not like that really limits your options. That’s about a $15,000 loan over 4 years. You should be able to find a great used car for $10,000 that suits your needs. Speaking of suiting your needs…
Problem: Car That Doesn’t Fit Your Needs

Another common problem is that people will buy a car that doesn’t actually fit their life. And it’s easier to do than it seems. Like, maybe they didn’t research the car beforehand and bought it only to realize that it gets truly terrible gas mileage and can’t be used for commuting.
Or they buy a sports car that they always wanted, but didn’t realize that it needs way more maintenance than they can put into it. The solution is to make a list before you buy and do your homework.
Solution: Make a List and Be Strict

Basically, sit down with a pen and paper and actually write down the top five things you need from a car. If it’s your second car, do you need it to make you feel good? Write that down. If you’re a father of two, you probably need a big back seat. Want to travel a lot with the kids? Better make sure it’s reliable.
Once you have your list, compromise on the car, not on the list. Don’t let a salesman tell you that you can get by with a little car or that the maintenance “really isn’t that bad.” Coupled with that, make sure to do your homework on any car before you buy it. Even if you find one that seems to fit all your needs, just hop on the internet and search for it. Maybe there’s a problem with it that will make it absolutely miserable for you to own. Or maybe it’s a truly terrible investment.
Problem: Losing Money on the Car

This is a problem we actually address a lot on this channel. How else are you going to buy a majorly depreciated sports car unless someone already bought the car and lost a ton of money on it? Now, I’m not saying that there’s never a time or place to buy a new car. Honestly, sometimes the financing and long-term utility make a new car worth it. But for lots and lots of people, all they’re doing is throwing money down the drain.
Most cars will sell for way less than you buy them for. But, honestly, that’s not the problem here. Tools, computers, phones, hell, even your microwave, they all will sell for way less than you bought them. The problem is that, with all that stuff, you get a lot out of it.
After all, driving to work is necessary, right? It’s not like the car gives you nothing in return. The problem begins when people are losing way more on the investment than they are making. Let’s say you buy a weekend car and you rarely drive it. If you aren’t getting anything out of it, it’s just sitting there losing you money.
Or let’s say you buy a family car that’s one of the worst depreciating cars on the market. Even though you are making $5,000 a month, the car is losing $1,000 a month in value on top of your $1,000 a month payment, which means you can actually end up upside-down on the loan. We’ll get to that later, but to avoid getting that bad in the first place, it comes down to a fairly simple solution.
Solution: Have an Exit Plan

This is one of the core parts of the Ideal Car Strategies. So, if you really want to know more about how to avoid losing to depreciation, and want to learn how to actually level up instead of doing damage control, give the Strategies a good look.
But, basically, what you want to do is learn to look for cars that won’t lose as much value over time and understand how to maximize the value of your car while you have it. For a lot of people, that means having a solid exit plan. If you know your car is going to depreciate, and you know how much value you are going to get out of it, you can know when it’s time to get rid of it and upgrade to a better investment.
That way you don’t end up upside-down, which is just about the worst thing that can happen.
Problem: Being Upside-Down

I see it too often: someone is looking for advice online because they owe more than the car is worth. That’s called being “upside-down” and you really want to avoid that fate. There are a lot of reasons. First, if you total the car, the insurance will only pay you what it’s worth, you’ll still owe the rest of the money to the bank, and that can make a bad situation way worse.
Second, it’s nearly impossible to offload a vehicle like that. Even if you manage to trade in that ride, you won’t be able to use the value as a down payment. It will just be rolled into the interest on your new loan and you’ll be starting out all over again.
That means you’re stuck throwing money into a hole. And since cars that are depreciating badly are usually also maintenance hogs, you can end up double-screwed really fast.
Solution: Lockdown

The solution isn’t pretty. You can’t really just cut your losses because you’ll still be liable for the remaining money. You also can’t really just squeeze more value out of the car. So, what you have to do is treat it like a credit card. Pay it off as soon as you can and don’t get into any more debt.
In fact, don’t do anything else, because a loan you are upside-down on is the same as having a loan with 40% interest or more. And every month that you don’t start catching up is another month that you’re losing money. So, pay it off, and use the rest of this list to avoid doing it again.
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