How to Buy a New Car: Factors You Need to Know

Written by Kim PinnelliReviewed by Anders Skagerberg, CFP®Updated: 15th Apr 2022
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Buying a car is exciting, but it’s a big purchase that can be a costly mistake if done wrong—knowing how to buy a new car, what to look out for, and how to get the most for your money. Check out my guide below on how to get the best deal on a new car.

How Should a Beginner Buy a Car?

If you’ve never bought a car before, you’re in for a treat. It’s fun and overwhelming all at the same time. The key is to prepare, budget, and take your time. Don’t rush into a purchase, and don’t let a salesperson tell you that you’ll miss out on the car you want if you don’t buy it now. Buy a car when you feel good and ready by using these steps.

How to Buy a Car (Step-by-Step)

#1. Research Vehicles Online and In-Person

Before looking at vehicles in person, I highly recommend researching vehicles and their features online. Sites like Edmunds.com and each car manufacturer’s website provide the information you need about what each car includes, its safety ratings, and add-on options.

Once you research vehicles online and have narrowed down your options, head to the dealership to see which cars you like best. When you’re in person, you can ask the salesperson specific questions about the vehicle that you may not have gotten answered online.

#2. Test Drive Multiple Cars

In your search for the perfect car, I suggest you look at several cars from different manufacturers or different models within a manufacturer.

Test drive the cars to see which you are most comfortable driving, and which offers your passengers the most comfort and room. Think about how you’ll use the car and make sure it fits those needs. If you have kids, bring them with you on the test drive to see how well they fit and what they think of the car’s comfort and ride.

#3. Consider Both New and Used Cars

No one said you can only buy a new car. You may be able to get a great deal on a used car for the same make and model, saving thousands of dollars. Since cars are depreciating assets, you save yourself the initial loss a new car buyer experiences when they lose 10% just driving off the lot.

You may find used cars with barely any miles, including those that were demo vehicles or test-driven cars. Always have a used car checked out to ensure it doesn’t have any major mechanical issues, and get its Carfax report to ensure it wasn’t in any accidents to ensure you’re getting as good of a deal as you think.

#4. Set a Budget

Before you shop for a car, you should know how much you can afford. Decide if you’re paying cash, a combination of cash and financing, or you have a trade-in and will finance.

All-cash buyers have more negotiating room with a dealer, but even buyers with financing from a private bank are like cash buyers since you don’t need financing from the dealer.

Either way, figure out how much you can afford in your budget and stick to it. Don’t look at cars over your budget, and don’t try to push it to the limit. You’ll regret it after a few months when you have that high car payment that you can barely afford.

#5. Find the Perfect Car

With your budget in mind and all your research done, it’s time to find the perfect car. You aren’t obligated to buy the car from the dealer you first test drove it with if they aren’t offering the best deal.

First, determine which car is perfect for you and settle on the features, color, and add-ons. The features and color you want in a car may limit finding the car. Some dealers will bring one in from another dealer, and others won’t, so you may have to travel to find your perfect car.

#6. Negotiate With the Seller

Once you find the perfect car, it’s time to get down to the nitty-gritty and negotiate. This could play a role in where you buy the car. Some dealers negotiate well to get the sale, and others stick to their guns.

Don’t overspend just because you found the perfect car and can’t get the price you want. The beauty of using the internet to buy a car is you can put offers in at several dealerships and see who will negotiate with you the best without ever leaving the comfort of your home.

#7. Decide on Financing

As a new car buyer, you have several financing options. Like I said earlier, you can pay all cash. This is the least expensive option. You’ll usually get the best deal, and you won’t pay any loan fees or interest charges.

Most buyers need some sort of financing, though, and you have options.

  • Dealer financing – You can get financing directly from the dealer. This is best for buyers with bad credit since dealers work with many (sometimes hundreds) auto lenders to find someone who will accept your situation. Dealers make money on your financing, though, so keep that in mind as you negotiate the terms of the sale.
  • Bank or lender financing – You can also get private financing from a bank or lender. Private financing is separate from the dealer, makes your deal a ‘cash deal’ since you’ll walk in with a cashier’s check to pay for the car. You don’t need perfect credit to get a private loan, either. If you aren’t sure where to look, try an auto loan aggregator that has access to hundreds of lenders they can match you with.

>> More: How to Get a Car Loan

#8. Compare Rates and Lenders

It’s best to have offers from at least three lenders. You can then compare the interest rate, fees, and overall cost of the loan. Make sure you always look at the bottom line. How much is the loan going to cost over the entire term? That helps you put your financing options into perspective, choosing the one that will be most affordable long-term.

>> More: See the Best Auto Loan Rates

#9. Plan Your Trade-In

If you own a car that you’ll trade in, talk to the dealer about it. You can either trade it into the dealer and accept the offer they provide or sell it privately. Sometimes you’ll make more money selling the car privately, but it may take time. If you’re in a hurry, a trade-in may be a good option, but always check other options like selling your car to CarMax to see who gives you the best offer.

#10. Finish the Deal

If you’ve wrapped up your financing options and found the perfect car, it’s time to finish the deal. This means heading into the dealership’s finance office and paying for the car either with the financing they arrange or financing you already received unless you’re paying cash.

You’ll sign some paperwork and become the owner of your new car!

#11. Update or Get Car Insurance

Before you drive off the lot, the dealership will require proof of car insurance. Contact your insurance agent and change it to your new car if you already have insurance. If you don’t have insurance yet, shop around for the best rates and set up your insurance so you can prove it before you drive off the lot.

What Do You Need to Consider Before You Buy a Car?

If you’re buying a used car, here are some things you should consider.

Mileage

There isn’t a right or wrong mileage a car should have, but think about your goals for the car. How much will you use it? How long do you expect to keep it?

Find out how the make and model you’re thinking about holds up at high mileage and what common problems car owners experience at each stage.

Wear and Tear

Used cars will have some wear and tear, so look closely to see how it was treated. If you’re lucky enough to find a car someone barely drove, you may get away with a great deal. Many used cars, though, show their use. Decide what you’re comfortable accepting and what should be a ‘hard no.’

Maintenance and Repairs

Ask for maintenance and repair records for the vehicle. Make sure the car was well cared for by the previous owner or owners. If there aren’t well-kept records for the car’s repair and maintenance, you may want to look elsewhere.

Sales Taxes

Everyone pays the sales tax, even on cars. Make sure you include the amount of sales tax in your area in your budget when preparing to buy a car.

What Is the Cheapest Way to Buy a Car?

Buying a used car is the cheapest way to buy a car. You’ll avoid the immediate depreciation and only pay what the car is worth if you negotiate right. You can buy a used car from a dealership or an individual. You may have more luck negotiating the price if you work with an individual.

What Is the Best Month to Buy a Car?

The best month to buy a car in October. This is when dealerships want to get rid of their ‘old models’ and make room for the newest models, released in October. The good prices continue into November and December as they still try to get rid of their inventory and give good deals for the holidays.

How Much Do You Need to Put Down a Car?

The ideal down payment on a car is 20%. This gives you decent equity in the car and offsets the immediate deprecation of new cars’ experience. You can put a lower down payment of 10% down on used cars since they already had their initial depreciation.

If 10% – 20% is too much for your bank account, though, put down what you can without causing yourself financial strain.

Do Dealerships Register Cars for the Buyer?

Dealerships do register cars for buyers, but not for free. Keep an eye on the administrative costs they charge to ensure you know what you’re paying to get the car.

Can You Buy a Car with a Credit Card?

Legally you can buy a car with a credit card, but most dealerships won’t allow it. If they do, they’ll only allow you to put a small amount on the credit card because they get charged a fee for every charge they accept. For example, you may be able to charge the down payment but take financing out for the rest.

Should You Buy a Car with Cash or Get Auto Financing?

If you can buy a car with cash, you’ll save the most money because you won’t pay loan fees or interest. Most people can’t pay cash for the entire cost, though, so auto financing isn’t a bad deal as long as you shop around to get the best APR, fees, and terms.

>> More: 5 Best Guaranteed Auto Loans

Bottom Line: How to Buy a Car

Knowing how to buy a car and doing most of your research before stepping foot in a dealership will give you the best results. Be an informed buyer, know your financing options, and be willing to shop around to find the best deal!

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Kim Pinnelli
Kim Pinnelli

Kim Pinnelli is a Senior Writer, Editor, & Product Analyst with a Bachelor’s Degree in Finance from the University of Illinois at Chicago. She has been a professional financial writer for over 15 years, and has appeared in a myriad of industry leading financial media outlets. Leveraging her personal experience, Kim is committed to helping people take charge of their personal finances and make simple financial decisions.