How to Buy a Car

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Point of Interest

Making a confident purchase when buying a car is easy if you know exactly what you want, do your research, and get preapproved for a loan before making a deal.

It’s easy to understand why many dread the car buying experience. Buyer’s remorse, fear of overpaying or purchasing a lemon are all legitimate concerns. To get the best deal possible and avoid these issues, it’s important to understand that buying a car includes far more than merely signing on a dotted line. It’s an entire process that, if done thoroughly, will help you get the most out of your money and allow you to drive home positive that you’ve done your due diligence.

How to buy a car 

1. Know your needs

Figuring out what you need out of your vehicle should be the first step as it will help you narrow down your options. Don’t just focus on the primary utility, though. If there are special features that you simply can’t live without, make sure you include those too.

You should be a bit future-minded at this stage as you will most likely be driving this vehicle for several years to come. Knowing what you need now and anticipating what you’ll need in the future is a great start in making the best decision possible.

2. Determine your budget

Figuring out how much you should spend on a car involves more than finding out how much money you have in the bank. Even if you have enough to pay off a vehicle instantly, if it means depleting your savings then it’s not worth it. With the average cost of a new car sitting at $37,876 as of March 2020, many people will find buying a car cash is out of reach.

If you’re like most people, you’ll need to finance your new car. The best way to figure out your budget for financing is to follow the 20/4/10 rule. You need at least 20% for your down payment, finance for no longer than four years, and don’t let your total monthly vehicle expenses exceed 10% of your income. Use our auto loan calculator to see how much would be your monthly auto loan payment.

3. Pick a car and do more research

After figuring out how much you can afford, you can begin picking out cars. Once you have a car picked out, you need to dig into the details. The things you should be researching are:

  • Reliability
  • Maintenance costs
  • Customer reviews
  • Cost of extra features
  • The fair value of the car

If any of these things set off red flags, then you should look at other makes and models. Take your time with this stage. You must find a car that fits your lifestyle and needs.

4. Find Dealers and test drive

Finding a car is one thing, and finding where you can get your car is another. Look around at the different dealers in your area and see if they have the car you want in stock. One dealer might have some features and colors another lacks, so be sure to look around.

Once you narrow down your options, test driving becomes essential — especially if you’re buying a used car. The fastest way to do a test drive is to schedule an appointment in advance, although walk-ins are also welcome.

6. Get pre-approved for a loan

Before you negotiate any sort of price, you should have a loan offer for the car you want. Knowing how much you need to pay gives you incredible power when trying to get the best interest rate possible.

For loan offers, you can go to banks, credit unions or other private lenders.. Each lender will have slightly different terms and rates. For example, Consumers Credit Union offers an APR as low as 2.99%, while a lender such as LightStream will cater more toward people with excellent credit.

Most lenders will allow you to go through the preapproval process entirely online — this can save you time in the end.

7. Negotiate deal

With a preapproved loan application in hand, now is the time to approach the dealer to make a deal. This is where you should double-check that the car has all the features you want and conduct an inspection to ensure the car isn’t damaged in any way.

When you finally sit down and negotiate the price and financing options of the car, remember that you aren’t beholden to the preapproved offer you brought in. In some cases, the dealer may offer you a better rate. If they do, just make sure you aren’t agreeing to other terms or features you don’t want. Always compare different auto loan rates to make sure you’re getting the right deal for you.

While some fees are avoidable, there are generally four types of fees that you might end up paying on top of the cost of your car.

  • Taxes: As determined by your state.
  • Registration fee: The cost associated with the dealer having to register the vehicle for you.
  • Destination charge: Cost dealer paid to have the car delivered from the factory. Usually, this is non-negotiable.
  • Processing fee: Cost of the dealer doing the paperwork. This is similar to how origination fees work for personal loans.

8. Close the deal

Double-check the fine print and make sure that you’re paying for exactly what you want. Look over the loan agreement again and confirm you know exactly how much you’ll pay each month, who is the holder of your loan and how long your loan term is.

Take your time with this step and ask any questions you have about the agreement.

If everything looks great, then you are ready to sign. Once you do, you’ll be the owner of a new car. You can either drive off the lot yourself or have the dealer deliver the car to your home. Either way, your car should be filled with gas before it’s handed to you.

Tips to get the best deal

Trade-in your old car

Trading in your old car is a great way to get some extra costs knocked off your new vehicle. Before you do this, make sure you know the value of your trade-in. It’s not uncommon for dealers to undervalue this, so come to the table prepared.

Avoid bogus extra features

Most dealers will try and tag on unnecessary add-ons when you purchase your car. These are often expensive additions that can push you over your desired budget. You should avoid things like:

  • Extended warranties
  • Gap insurance from the dealer
  • Tire and wheel packages
  • Window tinting
  • Unnecessary add-ons

Take a buddy with you

There’s nothing wrong with doing car shopping with a friend or family member. If you’re someone who might be easily pressured by a dealer, then this is a good way to help you stand your ground to get the best deal possible. Just be sure to bring someone along who will be a great second opinion on the deal and vehicle you’re looking at.

Never be persuaded by monthly payments

A common tactic amongst dealers is to show you how much you’ll pay per month for a car. While monthly payments are important when budgeting, the interest rate is what you need to focus on the most. You don’t want to be spending a great deal more in interest because those are funds that aren’t going toward your actual loan amount.

Evan Manwell

Evan Manwell is a personal finance writer based out of Portland Oregon. He has worked closely with both banks and credit unions to write about personal loans, credit cards, student loans, cryptocurrencies, and advances in fintech.