How to Buy a New Car and Get a Great Deal
Purchasing a new car can be daunting with rising prices and so many choices. By setting a clear budget, researching financing options, and comparing cars, you can make an informed decision that fits your needs and avoids financial strain.
Buying a new car can feel overwhelming, especially with rising prices and so many choices. But with a little research and preparation, you can make a smart, confident decision that fits your needs and budget. The key is understanding the process and getting the best value for your money.
Set Your Budget
Before you start shopping for a new car, you need to know your budget. Will you pay cash or finance? If paying cash, don’t empty your savings, and remember to factor in sales tax, registration, and insurance.
If you’re financing, aim for a monthly payment that’s no more than 15% of your take-home pay. And factor in additional expenses like fuel and insurance, which should be around 7% of your income.
To keep things simple, try to spend no more than 20% of your monthly income on all car-related costs, loan payments, insurance, and maintenance. Having a budget will help you negotiate and not overspend.
Taking out an auto loan is the most popular option but make sure to research financing and get preapproved for a car loan before you start shopping for cars.
Check Your Credit and Get Pre-Approved
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Check your credit score. Before you get pre-approved for a loan, check your credit score to see how it will affect the interest rate and loan terms you’ll get. A higher score means better rates and terms.
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Check your credit reports for free. Get your free credit reports once a year at AnnualCreditReport.com to make sure there are no errors or issues that will affect your credit score and loan approval.
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Get pre-approved for a loan. Shop around and compare offers from different lenders to get pre-approved for an auto loan. Pre-approval will give you the loan amount, interest rate, and monthly payment so you have a budget before you start car shopping.
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Use an auto loan calculator. Once pre-approved, use an auto loan calculator to calculate your monthly payments based on the loan amount, down payment, and interest rate. This will help you set a realistic budget and see how much you can afford.
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20% down payment. A 20% down payment will reduce your loan amount and can improve your financing terms, potentially lowering your monthly payment and interest rate.
Find the Right Car
Choosing the right car is all about balancing your needs, budget, and preferences. Start by researching online, and focus on the features that matter most to you. Check local inventory to see what’s available near you. Don’t forget to look for discounts and incentives that can be stacked with rebates to lower the price.
Assess Your Needs
Choosing the right car depends on your specific needs and how you’ll use the car. If you need a car for daily commute or family duties, practicality should be your top priority. Start by thinking about how many passengers you need to carry, what type of driving you do most often, and if fuel economy is important because of a long commute. If you’re leaning towards an electric car, think about how much range you need. Other important considerations are if you need 4WD, what safety features you prioritize, cargo capacity for your lifestyle, and special needs like space for car seats, towing capacity, and parking or garage space.
Other Cars in the Class
Even if you have your heart set on a specific car, it’s worth checking out other models in the class to make sure you’re making the right choice. The market is full of new options, and a car you haven’t considered might be a better fit for you. Use Edmunds to research and compare vehicles in the same class, focusing on pricing, features, and specs. If you’re unsure which model fits your needs, start by checking out top-rated vehicles in your desired category, like SUVs, and check out Edmunds’ “best of” and annual awards to help guide your decision.
Total Cost of Ownership
When buying a car, don’t just look at the purchase price. Some cars may seem affordable at first, but their long-term ownership costs can be much higher. Consider depreciation, insurance, maintenance, and fuel costs. Two cars may be priced the same, but one may depreciate faster or cost more to insure and maintain. To make an informed decision use Edmunds’ True Cost to Own which will help you estimate these costs and save you thousands over the life of the car.
Schedule a Test Drive
Once you’ve found a car you like, contact the dealership’s internet department to schedule a test drive. They’re usually more transparent with pricing. Schedule test drives for at least three cars back-to-back if possible so you can compare them easily. This also gives you a polite exit from each dealership if you’re not ready to talk price yet.
What to Look for on a Test Drive
Driving experience. Test the car in conditions similar to your daily commute, like stop-and-go traffic or highway speeds. If you drive in the mountains, find a steep hill to climb and test the car on bumps and tight corners.
Comfort and space. Get in and out of the car multiple times and sit in the back seat if you’ll be carrying passengers. Check the cargo space and bring car seats along if needed to ensure a proper fit.
Sound and noise. Turn off the stereo to hear the engine noise (or lack of it for electric cars). This will give you a better feel for the car overall.
Focus on the drive. Don’t get distracted during the test drive. Take your time to evaluate how the car handles and listen to the car. A good salesperson will let you focus on the driving experience.
Pick Your Car
After test-driving several cars, if you’re still unsure, take a day to think about it. Sometimes the right choice becomes clear after a little time. If not, it’s okay to test more cars. There may not be one perfect car, but today’s cars are safer, more fuel efficient, and have more features. The best choice is often personal preference. Don’t rush into buying just to get the process over with. It’s better to take your time than to regret your decision later.
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How to Buy a Car with a Pre-Approved Loan
A preapproved auto loan gives you a budget and lets you compare interest rates from your lender to the dealer’s. Apply for a loan through your bank, credit union, or online lenders like Capital One. Research and choose the best lender for you.
Loan terms of 72 months are common but go with 60 months to avoid higher interest payments. 10% down is standard, and pairing it with gap insurance or new-car replacement coverage will help protect you financially.
Before getting pre-approved, collect your employment and salary info and any other debts. Try to get preapproved within two weeks of shopping to minimize credit inquiries.
How to Buy a Car with Cash
Paying cash simplifies the process and avoids finance charges, but may not get you the best deal. If you’re using more than $10,000 the transaction must be reported to the government and extra paperwork is required. Even with cash, make sure to negotiate the price for the best deal.
How to Trade In a Car
If you have a trade-in, start by finding out its value before you go to the dealer. Use tools like the Edmunds appraisal tool to get an estimate based on your car’s features and condition. Be honest about your car’s condition - most cars are in the "clean" or "fair" category. The appraisal will show three values: trade-in value (what the dealer may offer), private-party value (what you could get for it privately), and dealer retail value (what you might pay for a similar car at a dealership). This will help set your expectations for your trade-in offer.
How to Buy a Car Out of State
If you’re looking for a specific model or trim not available locally, buying out of state may be an option. However, it can be complicated. You may be tempted to buy from a state with lower taxes but remember the sales tax is usually determined by the state where you register the vehicle, not where you buy it. Make sure to factor in any additional costs like transportation fees, or you’ll have to travel to complete the deal.
Find the Right Price
Once you’ve found a car you like, research the price to make sure you’re getting a good deal. Use guides like Kelley Blue Book or Edmunds to see what others in your area are paying. Enter the car’s specific options, as color can affect the price. Check for incentives or rebates on the manufacturer’s website. Also, consider timing - dealers may offer better deals at the end of the month, quarter, or year when clearing inventory.
Negotiate
When it’s time to talk price, come prepared with your research. Check if other dealerships are offering better deals and ask for a price match. Review the contract before signing to make sure everything you agreed upon is in writing. Be wary of extras or add-ons that may be included like warranties or service plans which you may not need. If the finance manager offers you additional products, say no or ask for them in writing. Stick to your budget and don’t be afraid to walk away if the deal doesn’t meet your expectations.
Seal the Deal
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Check the details. Review the final sale price, any additional fees, and the trade-in value to make sure everything matches what was agreed upon.
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Read the contract. Take your time going through the purchase contract and loan agreements to make sure everything is as expected, including interest rates, payment schedules, and the agreed-upon price.
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Verify the trade-in value. If you’re trading in a vehicle, make sure the dealer is paying you the agreed-upon value and that it covers any remaining loan balance on your old car.
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Bring what you need. Make sure you have all the necessary documents to make the process quicker and easier, proof of identity, registration, and insurance.
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Ask for delivery. If you can’t pick up the car in person, ask the dealer if they offer delivery. Not all dealerships offer this.
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Negotiate loan. Even if you’ve been pre-approved for a loan, ask the dealer if they can offer better terms or a lower interest rate before you finalize the deal.
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Beware of add-ons. Be careful of additional products or services the finance manager offers, like extended warranties or gap insurance. These can add to the overall cost of the purchase.
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Take your time. Don’t rush to sign the contract. Review everything thoroughly, including taxes, fees, and registration costs to avoid any surprises later on.
Delivery of Your New Car
When taking delivery of your new car, whether at the dealership or at home, make sure it’s clean, and the gas tank is full. Do a final walk around to check for any damage like dents or scratches. The salesperson should give you a tour of the car, show you how to pair your phone, and explain the features. If you’re short, schedule a follow-up appointment to get a more in-depth tour.
Mistakes to Avoid
Emotions and money. Never buy a car on impulse or the same day you test drive it. Take a few days to think about it, review the numbers, and don’t decide on a high-pressure sales pitch.
Closest dealer. Don’t settle for the dealer nearest to you. Research other dealerships, ask friends for recommendations, and check reviews. Prices can vary by location, so shop around to make sure you get the best deal.
Talking trade-in too soon. Negotiate the sale price first, then talk trade-in. Compare offers from other dealerships to get the best deal for your current car.
Agreeing with the sticker price. The sticker price is just the starting point for negotiations. Compare it to the MSRP to see if there’s room to lower the final price.
Not reading the fine print. After negotiating, pay close attention to the paperwork. Salespeople will often pitch dealer add-ons like warranties or protection plans—make sure you understand everything before you sign.
Feeling like you have to close the deal. You can walk away at any time. Don’t hand over your keys or driver’s license before a test drive, and take your time if things aren’t going well in the negotiation.
Not shopping around. Research other vehicles, visit other dealerships, and get outside financing. Showing the salesperson other options will help your negotiating position.
Conclusion
FAQ
How long will it take to buy a car?
Buying a car can take anywhere from a few days to a few weeks, depending on how specific you are about the model and features. The paperwork usually takes a few hours, but the whole process can take longer if you’re trading in a car or waiting for other customers. To speed it up, get pre-approved for financing and bring the necessary documents. If buying from direct-to-consumer brands like Tesla, it’s quicker as it’s mostly done online.
Can I buy a car without credit?
Buying a car with no credit is tough, but not impossible. Without credit, lenders may require a larger down payment and higher interest rates, which affects both your monthly payment and the loan amount. If you can, it’s best to establish some credit before applying for a loan. Having a co-signer or co-borrower with good credit can help you get financing but keep in mind they’re taking on a big responsibility for the loan.
When to buy a new car?
The best times to buy are at the end of the year when dealers are clearing out inventory or at the end of the model year. And holidays like Black Friday. Shopping during these times will get you the best deals.
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