My Friend Made a Huge Mistake When Buying a New Car, and It’s Costing Her Thousands

This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.

My friend bought a new car before selling her old one. Read on to find out how it’s impacting her purchase and her finances. 

Recently, my friend told me about a financial mess she had gotten herself into. It all started when her car was giving her trouble and she opted to purchase a new one. Unfortunately, things didn’t turn out as planned and her checking account took a really big hit because of it.

Here’s what happened.

Getting a new car before selling the old one could be a recipe for disaster

When my friend decided to buy her new car, she wanted to move forward ASAP because she was tired of dealing with her unreliable vehicle. So, here’s what she did.

She looked up the estimated value of her current vehicle online and found out it was valued at just a little bit more than she owed on it. Armed with this information, she went to a car dealer and bought a new car. They didn’t offer her the amount she wanted for her vehicle as a trade-in and the amount they did offer wouldn’t have been enough to pay off her car loan. So she decided she’d sell the existing car privately after she bought her new one.

The car dealer approved her for a loan on her new car, even though she still had her current car loan, and off she went with her shiny new vehicle and a new car payment to go with it. Then, the problem arose.

A financial mess resulted due to this big issue

It turned out that no one was actually willing to buy my friend’s car for the stated value online — or anywhere close to it. In fact, the best offer she got left her more than $2,000 shy of the amount she’d have needed to pay her car loan.

So, now my friend is stuck with a car she cannot sell for enough to repay her loan. And, not only does she not have the money to pay the difference, but she also can’t qualify for a personal loan or credit card to pay off the extra $2,000 because of the fact her credit record shows she has too much debt due to the two car loans.

Sadly, she has no choice but to keep both cars and both car payments until she saves enough money to make up the difference between what the car is worth and the amount she still owes on it. Since she’s stuck with two car payments eating up most of her extra income, it could be years before that happens.

Be sure to avoid the mistakes my friend made

The mistakes my friend made could happen to anyone, but there are ways to avoid them.

First, if you are buying a new car, don’t move forward until you actually have sold your old one. This may mean you could be without a vehicle for a few days, but that’s better than ending up in this situation.

Second, don’t assume that because you’re approved for a car loan, you’re going to be able to afford it. My friend really should not have been approved for that second loan when she still had her first one, but car loan lenders don’t really care if they create financial hardship for you.

Third, when you do buy a car, aim to get a loan with the shortest payment term you can afford and try to make a hefty down payment so you don’t end up underwater in the first place.

Taking any or all of these three steps will help to ensure you don’t find yourself in the mess my friend is in. I just wish I’d been able to give her this advice before she ended up dealing with a financial disaster.

Alert: highest cash back card we’ve seen now has 0% intro APR until 2024

If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR until 2024, an insane cash back rate of up to 5%, and all somehow for no annual fee.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

 Read More