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Watch out for these 7 car-buying pitfalls

Car-buying pitfalls

People looking at cars at a dealership in Washington.
Bonnie Jo Mount | The Washington Post | Getty Images

The deal you think you're getting on that new car may not be so hot.

Dealership traffic and sales tend to pick up in the summer months, often in response to big industry incentives. Last August, automakers' incentives rose 13 percent compared to July, according to TrueCar.com data, with the average cash back and other offers tallying $3,199.

So what's keeping shoppers from getting the best deal? Plenty.

One of the easiest to fix may be timing. Waiting even a few weeks may yield much better deals. "We're at the beginning of the summer buying season," said Karl Brauer, senior director of insights for Kelley Blue Book. "The longer you can wait, the cheaper those last year's car models are going to be." Sales will pick up by early July, he said, with even better offers coming in August and September, although selection wanes as pricing improves.

These seven other pitfalls can also be avoided, with some advance planning and consideration.

—By CNBC's Kelli B. Grant
Posted 3 June 2015

Trade-in values

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Buyers trading in a used car may actually pay a higher price on their new vehicle than those who don't—$990 on average, according to a forthcoming study in the Journal of Industrial Economics. The study examined nearly 170,000 midsize sedan purchases in Southern California from 2001 to 2005.

Getting a low-ball trade-in offer isn't unusual, said Brauer. It's smarter to decouple the transaction: Sell your old car first, either to a dealership or private party, and then factor in those proceeds when you shop for a new car. Depending on the car and the market, consumers can usually get 10 to 25 percent more selling the car outright rather than trading it in, he said. Not up for selling the car yourself? At least get a good estimate of its value before heading to the dealership, so you can gauge if the offer is fair, and negotiate as needed.

Model year

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"One thing to think about this time of year is, it's the end of the model year," said Lincoln Merrihew, the vice president of transportation for market research firm Compete.com. Most sales are on 2015 models, as dealerships start bringing in the 2016s. "On paper, those [2015] cars will have depreciated a lot by August."

Which model year to go for depends on how long you plan to keep the car. If you plan to sell in less than five years, the somewhat pricier 2016 is likely to hold its value better, he said. But the clearance 2015 is a smarter pick if you'll hang onto it for five years or more. At that point, he said, the vehicle's condition will be a bigger factor in its resale value than the original price.

Flooded cars

Aaron M. Sprecher | AFP | Getty Images

If you're buying a used car, make sure the transaction isn't all wet. After big storms such as those in Texas, vehicles damaged by flood waters often turn up for sale in other parts of the country, said Carroll Lachnit, consumer advice editor for Edmunds.com. Although state motor vehicle registries usually brand such cars total losses, unscrupulous middlemen knowingly buy them at auction and move them from state to state in an effort to hide that title history, she said.

Obvious signs might include a moldy odor, a visible water line on upholstery or fogging inside headlights, along with a price that seems too good to be true. But it's not always that clear. "Run a vehicle history report, which, regardless of the efforts to obscure the car's history, should show the car was branded a flooded car," said Lachnit. (The National Motor Vehicle Title Information System lists approved providers who sell reports.) It's also a smart idea to make the sale contingent on the vehicle receiving a clean bill of health from your mechanic.

Financing terms

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Automakers are still dangling some long-term financing deals, letting buyers pay for a vehicle over as many as 72 or even 84 months. "If you're buying a car that you know you're going to drive forever…it's actually not that bad of a deal," said Brauer. But shoppers who expect to sell the car before that term is up, he said, should proceed with caution. The vehicle's value may depreciate faster than you pay off the balance, leaving you owing more than you can get for the car at resale.

It's also smart to get a sense of your credit rating and standing before you visit the dealership. "That's going to drive your ability to take advantage of that financing," Lachnit said. Check financing deals with your bank or credit union, too. Those may end up being the better deal, if your credit isn't good enough for a dealership's promotional offer. "It's better to know," she said. "If you walk in a dealership cold, you'll have no frame of reference."

Lease mileage

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"If you see a really great lease deal advertised, take a look at what the components of the deal are," said Lachnit. "You can't assume." Up-front lease fees have been inching up, as mileage allowances trend down; ideally, she said, the former should be no more than $1,000 and the latter at least 12,000 miles per year. That fine print can make a big difference in affordability.

Going in, have a sense of how many miles you drive each year. Dealerships often allow leasers to purchase extra miles upfront at a rate of roughly 5 cents per mile, she said. That's a better bet than paying a penalty at the end of the lease, where per miles rates are more commonly 25 to 30 cents per mile. Try to negotiate those up-front "drive-off" costs, too—there's often more wiggle room when you're leasing the outgoing model year that dealers are trying to clear out.

Ownership costs

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Getting a great deal on the car itself doesn't mean you'll spend less overall. "If you're really a power shopper, you can also look at the cost of ownership," said Merrihew. Insurance may be more expensive, he said, whether you're trading up to a model with more bells and whistles or pick a sports car when there's a teenage driver in the family. If your state, county or municipality charges a personal property tax that includes vehicles, a newer car might also push up that cost. Of course, gas costs could also rise if the new vehicle is less efficient or requires premium fuel.

Those kind of details are worth sussing out in advance, he said. Auto websites including Edmunds.com, KBB.com and Consumer Reports estimate the cost to own, and your insurance agent can offer revised estimates to help you choose between Vehicle A and B.


Popularity

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"Certain types of cars are in more demand than others," said Brauer. Right now, that's midsize crossovers and SUVs, and some trucks. Buyers who want those cars are likely to see fewer incentives and have a tougher time negotiating, even as summer deals pick up. (Demand for such vehicles is a key factor in why new-car transaction prices rose more than 4 percent in May, Kelley Blue Book estimates.)

The key here is to assess your needs rather than follow the trends. "If you can avoid buying an SUV and your needs don't really require one, you'll actually be in a little better position," he said. Compare offers to see where the bargains are—consumers have the most leverage right now on hybrids and electric models. "You can really low-ball them and potentially still get the car," Brauer said.