Buying a car is a major financial decision and a necessary one for most people in the U.S. According to Forbes, in 2021, approximately 91% of families in America owned a vehicle.
Unfortunately, it’s easy to get caught up in the car-buying process and watch your budget creep toward a number you can’t actually afford. Let’s look at some of the reasons people overspend on cars—and how you can avoid it.
1. Status Symbol
Many people buy expensive vehicles to show off their high socioeconomic status. New cars cost an average of $50,000, with luxury cars nearing $100,000. Most people can recognize a luxury car, even with little to no vehicle knowledge. When purchasing a car, one should be realistic about what they can afford and why they need it.
2. High Interest Rates
Not everyone is fortunate enough to have cash on hand that equals the sticker price when purchasing a new vehicle. Because of this, it is common to take out a car loan. When interest rates are high, you overspend on accrued interest over time. Shop around for the best rates and look outside the dealership for competitive offers.
3. Monthly Payments
Many people look for an affordable monthly payment when purchasing a vehicle. This could lead to taking out a loan that they will be paying off forever or paying too much interest. Consider the costs that come along with your monthly car payment. These include but are not limited to gas, maintenance, and insurance.
4. Gas
A vehicle’s fuel economy can lead to overspending over time. Gas prices fluctuate with the economy. In 2024, prices have decreased, but they vary by suppliers and geographical location. Whenever possible, ride your bike or carpool with friends or work colleagues.
5. Maintenance
Vehicle maintenance also adds up. Buying a new car is usually a better option because you can assume all the parts are new and in good condition. Consider what an oil change will cost and how often the vehicle of your choice will need one. For example, a foreign car will require specialty oil and extra labor.
6. Insurance
Insurance is necessary for all vehicles and helpful when you need it. It is essential to shop around for the best insurance to fit your budget. In most states, you must have liability insurance. But do you need collision, roadside assistance, and rental car reimbursement? Be sure you do not overspend on something you will not need for your vehicle. Discounts are available through classes like defensive driving and some schools and companies.
7. Parking and Storage
You likely have parking near your home if you live in suburbia or the country. But if you live in a major city like New York, you must consider where you will park your vehicle. Garages are available and cost what one may consider a second rent. On-street parking is an option, but you must move your car weekly or hourly to avoid pricey tickets.
8. Shopping Blind
Researching before you shop is imperative. Read reviews and compare the vehicle you want with other brands. For example, a Ford Explorer is the same as a Mercury Mountaineer, and a Lexus ES350 is a more expensive Toyota Camry. Be sure to look for sales and special deals across different dealerships.
9. Being Unrealistic About Your Needs
Ask yourself exactly what you need a car for—commuting, long-distance road trips, or taking the kids to sports practice. If you are unrealistic about your needs, you could overspend or be talked into a more expensive car that doesn’t fit your lifestyle. Keep it simple. Create a list of your wants and needs, and the next time you’re about to make a large purchase, you’ll be more mindful.
10. Unnecessary Add-Ons
Did you know the VW Atlas SE has a heated steering wheel? I didn’t, and I own one. I paid for it, too. A salesperson will always start with the top model we see in advertisements. But do you really need all those extras? Compare the price without these add-ons to see how much money you can save.
11. Leasing a Vehicle
Leasing is usually a more affordable, short-term option when getting a vehicle. Monthly lease payments are often lower, and you will put less down. Maintenance is generally included for the duration of your lease. However, you are investing in something in which you have no equity, so it might cause you to overspend in the long run.
12. Buying a Used Vehicle
Buying a used vehicle is cheaper, but more complications can accompany it. Get a full vehicle history report and find a trusted dealership. Look for the term “certified preowned,” or you may pay more in the long run. Often, a new car loses hundreds, if not thousands, of dollars the moment someone drives it off the lost. A new car isn’t always better, certainly not cheaper.
13. Making an Investment
People may overspend on a vehicle as an investment, hoping its value will increase. This is often not the case, but a whole world of car collectors is guilty of it. Try to look for a vehicle that will add value to your life now, not later. Get a journal, or download an app to help you set financial goals. Most people don’t save money for the sake of hoarding cash; they do so to reach their financial goals.
14. General Interest
Aside from collectors, some people love cars. They love the speed they are capable of, the engine’s purr, how it feels when it drives, and so on. These people are willing to buy their perfect car despite the price. If this is the case for you, it is still important to ensure your dream car fits into your budget.
15. Salesman Pressure
Finally, you might feel pressured into buying a car. Salespeople work to find a vehicle for the customer, get a commission and are trained to close a sale. Do not feel bad saying you are shopping around or even that you need to sleep on it before signing. Whether you’re purchasing a car or a house, don’t fall victim to sales pressure.
Don’t Overspend on Your Next Vehicle
If you don’t know all the required options or expenses, there are endless ways to overspend on a vehicle. Nobody wants to waste money—even those purchasing for an investment or the love of the car. If you are in the market to buy or lease a vehicle, be sure to use this guide as a helpful tool through the process.