Modern cars have more technology and safety features than the models a decade ago. Let’s face the facts: Selling a rusty old car with dingy seats is a tempting idea.

Many Americans make huge mistakes when buying cars. One third of buyers transfer $5,000 of debt from their previous car to their new loan. They are paying for a car that they no longer drive. Oh! This is not a winning personal financial strategy.

Don’t worry, NPR’s Life Kit can help. This is how you can buy a car without going into debt or spending more than you need.

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1. Before you step foot on a dealer’s lot, get preapproved for a loan

NerdWallet’s autos editor is Philip Reed. When he was working for Edmunds.com, he also did undercover work at an auto dealership to gain insight into the business. Reed will now reveal the truth about car-buying.

Van Alst warns against lenders. There are many shady online lending companies. Reed recommends that you choose a bank, credit union, or other lender that you know.

2. Maintain simplicity at the dealership

Focus on one thing when you buy a car from a dealership. Don’t be too specific with the salespeople. This is a game.

A salesperson will ask you if you plan to trade in another vehicle and if you are looking for a loan through them.

Reed advises against answering those questions. This makes it too difficult and you are playing against pros. They might raise the interest rate or lower your trade-in if you get a great deal on the car. They are able to manage all of these factors simultaneously. It’s not something you want to do. Keep it simple. 

3. Do not buy add-ons from the dealer

You’ve probably bought a car before. After hours of waiting at the dealership, you are tired and have settled on a price. You then negotiate the trade-in.

Gap insurance covers the gap between the cost of buying a new car and replacing it with a brand new one. This is if your regular insurance does not cover full replacement costs if your car is totaled. Van Alst states that gap insurance can be expensive and very problematic. You can still get the product if you contact your regular insurance company and not the dealer.

4. Avoid longer-term 6- or 7-year car loans

One third of all new car loans last longer than six years. Reed says that this is a “very dangerous trend”. We’ve got a lot to say about why this is the case. A seven-year loan will result in lower monthly payments than a 5-year loan. 

Reed states that seven-year loans have higher interest rates than 5-year loans. Like most loans, interest is charged upfront. You pay more interest than the principal over the first year. Reed says that most people don’t realize it and don’t understand why it is dangerous.

5. Do not buy too many cars. To save money, consider buying a used car

You might also consider a 5-year loan if you can’t afford a new car.

He recognizes the importance of what car you choose and recommends reading reviews and ratings to find out which models and brands are most likely to have costly repairs. He said that some European cars can be quite expensive to maintain.

Even if your car is slightly older than the Raekers’, this couple still has a point. What other things could you spend that car payment money on instead? You can save half of what you would normally spend on car payments, which is a lot more money to put towards your retirement fund, your children’s college fund, or any other purpose you choose.

Top Tips for Buying a Car Smartly in 2021