5 Ways to Avoid Common Financial Pitfalls When Shopping for a Car
You’re a responsible driver. You follow the rules of the road. You never let your car insurance lapse. No one would ever catch you texting while driving.
But are you a responsible car buyer?
Analysts at Edmunds, an online automotive resource, dug into more than 842,000 vehicle purchases made between May and September to evaluate which states’ residents displayed the most responsible car-buying behavior.
The analysts evaluated behavior using these four criteria:
- The average percentage of vehicle trade-ins in which the owner had negative equity (meaning the owner owed more money on the car than what it was worth)
- The average amount owed when an owner had a negative-equity trade-in
- The average length of the auto loan
- The average auto loan interest rate
Edmunds found car buyers in the Northeast to be the most responsible, while buyers in the South could stand to improve their car-buying behaviors.
The states with the most responsible car buyers were Connecticut, Massachusetts, Rhode Island, Michigan and New Jersey. The states with the least responsible car buyers were New Mexico, Arkansas, Alaska, Mississippi and Oklahoma.
Ivan Drury, Edmunds’ senior manager of industry analysis, said in the report that being well-informed and prepared before going to the dealership help buyers make responsible purchases.
Analysts noted that residents in the top five states spent about 55% more time reviewing car shopping calculators before making their purchases when compared with residents in the bottom five states. Specifically, they worked with auto buying calculators at Edmunds.com, which estimate monthly payments and affordability, among other features.
“While there are certain things about shopping for a car that are out of your control, like your budget or needs, being smart about your research is something every consumer can do,” Matt Jones, Edmunds’ senior consumer advice editor, said in the report.
5 Smart Ways to Be a More Responsible Car Shopper
Edmunds shared five things smart shoppers do when buying a new car.
- Shop around for auto loans and get preapproved for a loan before visiting a dealership.
- Have a down payment of at least 10%, and combine that with GAP insurance or new-car replacement coverage so you won’t be underwater on your loan in the case of a major car crash.
(GAP insurance — guaranteed auto protection insurance — covers the gap between what you owe on your auto loan and what the car is worth after depreciation. New-car replacement coverage will pay for you to replace a totaled car with the same make and model — though there are rules about how old the original car can be and how many miles it can have.)
- Avoid car loans longer than 60 months.
- Think about the residual value — or the future value of the car — before buying a new vehicle.
- Consider getting a lease instead of buying if you don’t plan on keeping the car long.
States With the Most and Least Responsible Car Buyers
If you don’t live in the top or bottom five states, you may be wondering where your state falls in the ranking of most responsible car buyers.
The complete list of states from the most responsible car buyers to the least responsible is:
- Rhode Island
- New Jersey
- New York
- Hawaii and Maine (tied)
- California and Minnesota (tied)
- South Dakota
- New Hampshire
- Kansas and Ohio (tied)
- North Dakota
- Montana and Utah (tied)
- West Virginia
- South Carolina
- North Carolina
- Alabama, Nevada and Wyoming (three-way tie)
- New Mexico
How does your state measure up?
Nicole Dow is a senior writer at The Penny Hoarder. She has owned only used cars and has never taken out an auto loan.