MARK RIEPE: I'm Mark Riepe. I head up the Schwab Center for Financial Research, and this is Financial Decoder, an original podcast from Charles Schwab. It's a show about financial decision-making and the cognitive and emotional biases that can cloud our judgment.
It's 2025 and 50 years ago in 1975, Queen released the classic record “Bohemian Rhapsody.” That song gets lots of attention, so instead I want to show some love for the song on the B-side of the single and that’s the song “I’m in Love with My Car.”
Here’s one of the lyrics:
"Told my girl I have to forget her,
Rather buy me a new carburetor."[1]
Of course, fuel injection largely replaced carburetors in the 1980s.[2] But still, you can see how it encapsulates our love of the automobile. That love shows no signs of waning. In 2024, in the U.S., people bought 16 million new cars.[3] That’s the highest since 2019.
Last year a survey[4] was released and it found that 38% of American car owners love their car and 58% like their car. Those are much higher numbers than I would have guessed. Of the car lovers, 49% of them name their car and even 20% of the likers give their car a name.
The minute people start naming inanimate objects that tells me there's emotion involved. So, when it's time to buy one, psychological pitfalls can interfere with sound decisions. It's also a major purchase, which adds another layer of emotion.
There's a lot at stake when you walk into a showroom. And my guest today can help us to steer around the hazards.
MARK: Patrick Means[5] is a vice president and branch manager here at Schwab. He's been helping clients with financial planning and investing guidance for more than 20 years.
And he has some special insights about buying a car. He wrote an article that's on schwab.com called "7 Car-Buying Mistakes That Could Cost You,"[6] and he's going to talk about that and expand on some of those mistakes and how to prevent them.
Patrick, welcome to the podcast.
PATRICK MEANS: Thanks for having me, Mark.
MARK: Let's start with you telling me about your very first car-buying experience.
PATRICK: First car that I purchased was a Mazda 3. I was right out of college and I didn't have a whole lot of money, but I needed a vehicle to get to work. So I actually went to a used car dealership that I had seen and just did my best to negotiate the pricing, which I don't think I was very successful, but I wanted something that was going to be good on gas because I had a long commute. I was successful with that.
The car looked somewhat decent, had some decent rims and low mileage, so it worked out. I drove it for five to six years, it was reliable. So that was my first time purchasing a car. And yeah, we'll talk more about some lessons learned.
MARK: I love the fact that you’re able to look back on that experience with clear lenses and think about what went right and what could’ve been improved.
Knowing what you know now, what would you say were some of the mistakes you could point out to your younger self?
PATRICK: So when I first purchased the car, again, I was thinking of monthly payment. We'll start there. What can I afford per budget? And although that's important, obviously the purchase price of the car is the most important thing. The second thing is I didn't shop around. I fell in love with one thing that I saw and didn't go somewhere else to compare price.
And then I also didn't really compare terms of financing options. You know, I went to the first place that I thought was a good deal. And I've learned over many more car purchases all three of those things can be traps, and just better ways to do it.
MARK: What about the psychological aspects of the decision and the process? How does that play out with a car purchase?
PATRICK: Cars, first off, I mean they're a personal brand of ours. So we all have our attachments to our brands, the way something looks. So I totally get it. And so although we need the vehicle for many reasons, transporting to work, transporting family, whatever. It's hard to not let some of those looks that you want to attach to yourself, not get involved in your decision. But as much as we can try to eliminate that, I think it's helpful.
And then I think at the same time, you've got to look at what are some other things that you're having to potentially have in your budget in terms of savings or other priorities.
And so this should be something hopefully you can do in addition to that instead of in lieu of. And I think sometimes, again, the attachment to a certain type of vehicle can allow us to stretch a little bit more than what we should.
MARK: Exactly. We want what we want and if there’s a status-symbol element then emotion will trump logic, or at least that’s the risk.
What about the actual process of purchasing the vehicle? It’s a unique experience in many ways.
PATRICK: So a lot of times we'll walk into a dealership and we haven't looked anywhere else. And that's probably mistake number one, right? So now with the access to information through research, I would highly encourage anyone to, if there's a certain vehicle for a reason that you like, look at what the inventory is like around you and just be able to compare because you want to have some leverage there.
The thing is sometimes we'll walk in and we don't know what the true value of the vehicle is especially if, if you're purchasing a used vehicle so Kelley Blue Book is your friend because this should give you a good starting price of where you might negotiate and then as I mentioned before you know of course your monthly cost is important but if you haven't thought about all right well that could vary based on who I finance with or even what my maintenance and repairs might cost.
Those are areas that I'd want to be thinking about before I walk into the dealership. So when you walk into the dealership and you haven't done all those things and you get excited about the car, they give you a number that works, you're just at that point subject to the emotion of the buy and haven't really vetted out all the different options that might be available to you.
MARK: I want to go back to your article on this topic. You wrote that the first mistake is not accounting for your budget and your savings goals. How should people prepare? What are the first questions you need to ask yourself?
PATRICK: Yeah, so I think the first question is, you know, people when they need a vehicle, they're comparing, all right, do I keep what I currently have and it might be having these costs? Or do I go ahead and get something new and maybe that'll reduce some other costs on the back end, but it brings up a car payment, let's say. So I think folks need to look at that and figure out again, what makes most sense for this situation? But I always tell people you want to be thinking about, all right, am I saving for myself first?
And if I'm doing that, this purchase going to take away that? Because I want to try to maintain that as much as I can. In addition to that, right, you want to have a cash reserve built up, preferably before a car purchase, because we're thinking about in the future some expenses that are outside of the budget. And that could also impact the car that you buy, because some maintenance expenses for other cars are more than others. So, you those are some of the things that I think that we want to think about when it comes to the math of it.
MARK: The way you just explained that, Patrick, makes so much sense and yet, we both know that isn’t how everyone approaches this decision. Why do you think that planning to buy a car is something people neglect?
PATRICK: For some reason, we just don't think it's an investment. And I understand that the moment we purchase that vehicle, it depreciates. And so maybe that's part of the mindset. I think sometimes, too, when we're beginning the purchase of a car, it's we need it in an emergency. And so we don't have a chance to pre-plan for it. I think that plays a factor.
But I think I go back to what I said before, think sometimes we just, we're so much, we in love with what we want. The advertising, the things that we've seen and our desires, and so we'll neglect some of that aspect when we really need to take a step back and do more broader research before we make a purchase.
MARK: We like to break goals down into needs, wants, and wishes. For some of us a car is a need; but what you’re saying is that it can also be in the "wants and wishes" categories.
So when you're trying to figure out where it lands on your list of goals and priorities, how do strike the balance between buying the cheapest piece of junk that'll get you from point A to point B, and buying some luxury vehicle that's more than you can afford?
PATRICK: Great question. First, once you know what is reasonable, right? Then you've got to make a decision, do I want used versus new? And sometimes based on the number, right, that you have said I can afford, will dictate that decision, specifically if there's a certain car that you wanna buy, right?
So let's say it's a higher-end car, then the used might be the only option that you could pursue. So then second, you're thinking, okay, so then mileage comes into play and maybe that also will impact the number and what you can afford. And so I think there you're compromising, right? At this point, you're still getting something that you like, maybe it's a little bit more mileage.
And then the third thing is, all right, so now there's all these options that cars have, right? So those things can range from 500 bucks to thousands of dollars depending on the option. So there is where you gotta say to yourself, okay, do I really need this feature that I'm only going to use one time?
I mean, I'm a sucker for sunroofs and I will tell you in Texas not very many times you can use the sunroof because it gets so hot but that's an additional package that maybe I'll cut out again to save me some money.
So the best decisions that I've made have been a combination. All right I started with the price that I knew I could afford and a car that I wanted so I let me give a little bit on the year let me give a little bit on the mileage but still enough that I know that either it's going to be under warranty and it's going to run for a while and also do I need all these extra features and boom I have something that I like, it's in the color that I want, but it's also– I didn't have to break the bank to get it.
MARK:We'll get back to Patrick and more car-buying strategies in a moment. But I wanted to jump in here with another psychological component to buying a car that has to do with your nose.
When I say, "new car smell," you know exactly what I mean. What you're smelling are volatile organic compounds. These are gasses from the new plastic, leather, carpet and seat cushions. That doesn’t sound pleasant, but some people love it so much, that they buy it in bottles and air fresheners. Think of it as a way to recapture the magic of owning a new car. And that’s a real thing.
The reason is, when we smell something that's connected to a meaningful experience – good or bad – our brain links the smell to that memory. Then it stores them together in the part of our brain that’s called the hippocampus.[7] When we encounter that aroma again, it triggers the memory associated with the smell.
The new car smell is also appealing because we associate it with newness, and our brains are wired to appreciate novelty.[8] It can also represent achievement or success. Hey, you got a new car! The new car smell reinforces these positive associations.6
Finally, it can symbolize a clean, pristine environment that can make you feel comfort and satisfaction.6 And if it's a luxury car, which often has an inviting smell that has been researched and added – it makes the owner feel a sense of status.6 A few years ago, high-end car maker Bentley had a scent specifically designed for a concept car. The scent was then incorporated into the manufacturing process.[9]
Now let's get back to Patrick and hear more of his insights on how to be a smarter consumer.
MARK: Patrick, you mentioned a couple of mistakes people make. One is not doing the financing homework. Another is focusing solely on the monthly payment. There are online tools we can use, like the calculator on the website to find what the monthly payment would be. Why is that not good enough and what is actual good financing homework? What does it look like to not focus solely on the monthly payment?
PATRICK: Yeah, so that's a good starting point, right? You got to go in knowing what's within your budget, but they also know the car salesperson, that's how you're thinking. So if you're getting asked that upfront, the way to step back is, hey, so what did you pay for this car? And I want to start negotiating from there because that will ultimately get you to a more advantageous monthly payment. But you don't know based on that monthly payment, right? What they've been in that to get you to that number which could be you could end up paying more over the life of the car. That's the first thing.
Second, you know, I would also not just look at the monthly amount, but compare financing options. The car company might have a better deal or lower rate. Your bank, some credit unions, those things could also impact the monthly payment.
So I would go in to be able to say, well, all right, if I agree with you on this price, great, but what's your financing rate? it's this. All right, my monthly payment will be X, but I've got this option over here. I'm going to go and use them instead. Right. Gives you some more negotiating power, right.
To even drive that monthly cost down lower around the maintenance cost question. I would just say there, you know, just, you know, do your homework. There is so much information now that will tell you car history of which types of cars most likely you'll have to pay more per year, whether it's gas, whether it's repairs, have them made major recalls, major expenses, you know, those could be things that again pop up that you don't know about.
You just see this great looking car, you see yourself looking good in it, but trust me, I have been very much taken advantage of by the car for things that I did not do my research on that I should have known were historic problems of that specific vehicle.
MARK: Let's talk some more about maintaining the car for years to come. When preparing for those maintenance costs, there are different methods you can take. You assume the warranty will cover it. You can count on an emergency savings. You can decide not to prepare and hope for the best. How do you approach that?
PATRICK: Yeah, so it depends on the vehicle and the use, right? So I'll tell you a story. I bought a Targa Porsche and I did not do any of those. I did a poor job of putting money away for savings for that. did not buy the warranty, which would have been difficult for a car at that age when I bought it. And I didn't do any research. You should have known that the clutch often gave out and I was going to be expensive repair. But I will also say because that was a more of a recreational vehicle and not a day-to-day, the need for a warranty really didn't make a whole lot of sense either.
So what I would encourage people to think about is, so when you buy a vehicle, vehicles come today now with a standard warranty and whether it's new or used, if you buy it before that time ends, whether it's a year or mileage, right, that's guaranteed to you for that period of time.
And so if you're saying to yourself, I'm not going to keep this car past that. Obviously, if it's already built in, then don't worry about it. Just make sure you hold to what's already standard. If you're thinking of having a car past that point, I happen to be a proponent of an extended warranty because you can purchase them again outside of this car dealership. There's other third parties that sell them. And I just like having the peace of mind that I might get another four or 50,000 miles extended past the original warranty for anything that could happen on the car that is major.
And I will tell you personally, I have used those and they have saved me thousands and thousands of dollars. And warranties can range in cost, again, depending on the car, you know, maybe from a thousand bucks to something more expensive, five, six thousand, what have you. But again, depending on your car, you're talking about an engine repair, right, or transmission repair.
Those things are astronomical in cost and they typically happen later on in the life of the car, sometimes before 100,000, sometimes after. But if the car has a history of having those things and that 50 to 100,000 mile range, which is when still most people are driving their vehicle, to me, having that peace of mind is huge.
And then what the emergency fund is really there for are your tires. Your deductible if you have to take it in for major repair or you get the crack windshield. It happens here all the time in Texas as well, right? And you got to spend 500 bucks to go replace that. Those are things that you're not planning in your monthly budget that just come up and you want to have a cash reserve to pay for us and to put on a credit card if you can. But that's that's how I would think about it.
MARK: Another form of protection is insurance. How does that play a role and how do people not account for it?
PATRICK: Yes, that's a great question. So I encourage people before you purchase a vehicle, reach out to your insurance carrier and see what premiums might cost on the vehicle. They can vary widely. And I have made the mistake of you're getting to the final purchase. You've got to get insurance to drive the car out. And then all of a sudden, your representative is telling you this is your annual premium. You're like, my gosh, did factor that into the overall cost of the car.
Right? So again, do your homework, reach out, say, hey, I'm thinking about this vehicle type, this model, right? What's the type of protection I should have, you know, full comprehensive or just liability and understand what that cost is going to be before you purchase the vehicle.
MARK: I know you’re a fan of using some third-party resources like Kelley Blue Book. How do you use that?
PATRICK: Yeah, so I mentioned Kelley Blue Book before. Again, that is your friend. And it's helpful for a couple of reasons. One is, again, it'll give you a framework, especially if you're buying a used car, of what the price could be, whether you're buying it from a dealer or a private individual of a starting ground of negotiation. But often folks that are turning in their existing car, as a trade-in for another, don't look at the Kelley Blue Book value to know what it's worth.
So they walk in and the dealer or the private sale gives you a price and you just think that's what you should take. No. Again, that will also give you a good idea of what your car that you might be trading in would be worth. So that's a little nuance that I tell people on the trade-in value, know what that's worth.
MARK: I don’t have the exact number, but lots of cars are leased instead of purchased. What’s your take on that?
PATRICK: And so my thoughts on that are simple. If you're someone who likes a new car every two to three years, you've got the cash flow to make it work for you, and you know you're not going to go over your mileage. Leasing is very attractive to people. Now, there's a ton of other nuances that go into it. If you go over your mileage, turning it back in, that can be complex, but it's simple.
And also it can be less expensive per month if you go that route. But again, as I said, there's some qualifications that I would say that you need to make sure you fit into maybe before you go that route.
MARK: We always tell people to think through decisions and not get rushed. How do you do that with a car decision?
PATRICK: So sometimes when you go into a dealership, you think or they're telling you, you've got to make a decision then because someone else has got a hold on the vehicle and if you don't get it, you're not going to get it. So I tell people at that point, if you're so hung on that particular one, you've already been sold. So be ready and willing to walk out of a location if they're not willing to help you get to the price that you want.
Right, but it goes back to you gotta have homework done prior to know that there are other areas out there that you could get the same vehicle or similar for a better deal. Sometimes, even if you come in with someone else's offer on the table and ask them, you match this?
And just tell them if you can't, understand, I'll leave, if you can, then we'll keep talking. Also gives you a little bit leverage. So if you spend some time, again, going around, doing the research, coming with verified information, not making a decision on the spot, you'd be surprised at how much more leverage that you have in the purchase price of the car.
MARK: Patrick shared great information and tactics. To read his article on this subject, go to schwab.com and search for "car buying." We'll also link to it in the show notes.
I think a good way to look at car-buying, is to ask 2 questions: What do I want in a car? and What do I need in a car?
Think about these questions for your immediate needs, sure, but also think about how you’d answer the questions for the length of time you plan to have the car.
For example, a twentysomething might want a small, sporty car. But then they get in a relationship, have a baby, and that small, sporty car is impractical because the car seat doesn't fit.
You might also want to keep resale value in mind. According to a 2023 article in Motor One, luxury vehicles tend to depreciate the most.[10] Of the twenty listed, the Nissan Leaf is the only non-luxury brand.
And if you've got a Mercedes-Benz GLS, I'm sorry, but its five-year depreciation is the highest at 62.3%.
As Patrick said, you might want to consider leasing if you don't want to worry about resale value or predict your future needs. Sometimes it's not easy to imagine how life will change in five or ten years.
As far as researching, we'll link to Kelley Blue Book, Edmunds, and Consumer Reports in the show notes.
Thanks for listening. I'll be back in a couple of weeks with another show. In the meantime, if you'd like to hear more from me, you can follow me on my LinkedIn page or at X @MarkRiepe. That's M-A-R-K-R-I-E-P-E.
And if you like the show, we'd be grateful for a rating or review on Apple Podcasts or comment on the show if you listen to it via Spotify. We always like new listeners. And if you know someone who might like the show, please tell them about it and how they can follow us for free in their favorite podcasting app. Personal recommendations are especially effective.
For important disclosures, see the show notes and schwab.com/FinancialDecoder.
[1] https://www.azlyrics.com/lyrics/queen/iminlovewithmycar.html
[2] "The Evolution of Fuel Injection," AutoZone.com, https://www.autozone.com/diy/fuel-systems/the-evolution-of-fuel-injection
[3] Eckert, Nora, "US new car sales rose to five-year high in 2024, helped by hybrids," Reuters, January 3, 2025, https://www.reuters.com/business/autos-transportation/consumers-boosted-2024-us-new-car-sales-five-year-high-2025-01-03/
[4] "Is it just a car? Here's why Americans loves their cars," New York Post, June 26, 2024, https://nypost.com/2024/06/26/lifestyle/is-it-just-a-car-heres-why-americans-love-their-cars/
[5] https://www.schwab.com/learn/author/patrick-means
[6] Means, Patrick, "7 Car Buying Mistakes That Could Cost You," schwab.com, August 14, 2024, https://www.schwab.com/learn/story/7-car-buying-mistakes-that-could-cost-you
[7] "The Psychology Behind Smell and Memory," popneuro.com, December 21, 2021, The Psychology Behind Smell and Memory — Pop Neuro
[8] Tori, Anthony, "The Science and Psychology Behind Why a New Car Smells So Good," theo & amelia, September 20, 2023, The Science and Psychology Behind Why a New Car Smells So Good
[9] Kurczewski, Nick, "The Science of the New-Car Smell," Car and Driver, July 10, 2021, https://www.caranddriver.com/features/a36970626/science-new-car-smell/
[10] Webb, Mark, "20 Cars With The Worst Resale Value," Motor 1, updated September 27, 2023, https://www.motor1.com/features/455448/worst-resale-value-cars/
