Buying a new car is a big deal in more ways than one. Selling for over $40,000 on average, a new car could be among the most expensive purchases you’ll make. The new car buying process can seem complex and even frustrating without the right help, especially if you’re a first-time car buyer. Here’s a step-by-step guide on how to buy your next new car without any hassles.
- Figure out how much you can afford
- Pre-qualify for a car loan
- Research cars
- Compare prices
- Go for a test drive
- Sell or trade in your current vehicle
- Get your insurance ready
- Seal the deal
Depending on your situation, you may have to do some of these steps out of order or at the same time. What’s really important is that you consider each one and prepare as much as you can before signing on the dotted line.
Step 1: Figure out how much you can afford
Your first step is taking a hard look at your budget and figuring out the answers to some key questions. Ask yourself:
- How much can I get for my trade-in?
- Do I have enough for a down payment?
- How big of a monthly payment can I afford?
- How’s my credit?
- How much do I need for taxes and registration?
Unless you’re paying cash, your budget for a new car probably revolves around your monthly payment. Each monthly payment is a combination of interest, fees and your principal debt. Just remember that, once it comes time to buy, you want to pay as little as possible over the long term.
A convenient way to set a cap on your new car purchase is getting pre-qualified for a loan.
Step 2: Pre-qualify for a car loan
If you’re financing your next vehicle purchase, the smart play is often to get pre-qualified or preapproved for auto financing through a bank, credit union or online lender before you start shopping. Doing this can help you know how much you can borrow for your new car, along with what interest rate and loan term you’re getting.
Getting pre-qualified or preapproved isn’t necessary for buying a new car, but arranging your own financing lets you shop around to make sure you’re getting a good auto loan. This has several possible advantages, including:
- Lower interest rates
- More leverage when negotiating vehicle pricing
- More flexibility if you have a bad credit score
While the terms “pre-qualified” and “preapproved” are sometimes used interchangeably, they do have different meanings. Pre-qualification is usually less intensive, but it’s also less certain. Think of pre-qualification as an estimate of what type of loan you may qualify for. Getting preapproval is a more thorough process, but you should wind up with a more detailed loan offer to use when shopping for a new car.
The alternative is financing through the dealership, and that’s not always a bad decision. Dealership financing options can be competitive with outside financing, although the rates may be slightly higher due to the “finder's fee” added on top of the base “buy rate” offered by the dealer’s preferred lender. Dealerships may also offer special financing incentives, ranging from 0% interest rates to discounts on certain options and equipment.
The problem is that you don’t know what your options are unless you check with other lenders. For more information, read our guide to car loans.
Once you know how much you can afford, you can begin shopping for a new car in earnest.
Step 3: Research cars
Whether you’re visiting a local car dealership or buying a car online, it’s smart to figure out what vehicles you’re interested in before you start shopping. Think about your needs and consider how you prioritize things like:
- Vehicle configuration
- Passenger capacity
- Performance specs
- Safety ratings
- Reliability scores
- Available features
If safety is your top priority, consider a vehicle with excellent safety ratings and driver-assist features. If fuel efficiency is non-negotiable, consider a hybrid or a pure electric vehicle.
Other features may be nice to have, but they aren’t a deal-breaker if they’re not available. Power sunroofs, heated and ventilated seats and a premium sound system often fall into this category, depending on your preferences.
Once you have an idea of what you’re looking for, start by checking dealers’ inventories and online car buying sites, like Carvana, Vroom or CarMax, to find the right car.
Step 4: Compare prices
Comparing actual vehicle prices is a safe way to make sure you’re getting a good deal, and it can also help you set expectations for car values in your area. While online estimates are a good starting point, your local market may differ.
These comparisons can even help you when it comes time to negotiate the price of a car later on. Citing your other options to a salesperson shows them that you know what you’re doing and that you’re not willing to pay more than necessary.
Negotiations are also when your choice of financing comes back into play. If you’re relying on dealer financing, salespeople like to negotiate your monthly payment rather than the overall price. However, haggling over this usually leaves you spending as much (if not more) money as before. Pre-qualification and preapproval take that trick off the table (unless the dealer is willing to give you a better annual percentage rate).
Now that you’ve done your research, it’s time to arrange some test drives.
Step 5: Go for a test drive
Getting a hands-on feel for a new car is crucial to knowing if it’s the right one for you. Is its ride height too low or too high? Is the drive smooth or bumpy? Are the seats comfortable? The answers to these questions are subjective, and the only way to answer them for yourself is by taking the car out for a spin.
Test drives have traditionally been a benefit only available at dealerships, but many online car buying sites now offer extended trial periods where you can return your new vehicle if you don’t like the way it drives.
A test drive or trial can make or break any car purchase, so make sure you take plenty of time to get a good feel for the vehicle. Plan a route that covers most of your typical driving scenarios, too.
Here's a quick checklist of what to evaluate during a test drive:
While you’re at it, try out all the features you can and inspect the vehicle to look for any defects or damage, even on a brand-new car.
Step 6: Sell or trade in your current vehicle
If you’re buying a new car, you probably want to either sell or trade in your existing ride:
- Selling your car yourself often gets you more money, but it's a more involved process. Finding a buyer can be difficult, and you may have to either wait until after you’ve bought your new vehicle or risk being without a vehicle for a time.
- Trading in a car at your dealership is much simpler, but you might be stuck accepting whatever trade-in value your dealer offers.
Whichever you choose, research your current car’s value online to find out what it’s worth before you exchange it. If you trade in your vehicle, bring your driver’s license, car registration, proof of insurance and keys. If you financed your old car, be sure to bring information on your previous car loan, too.
It’s also worth mentioning that some people don’t need to get rid of their old car. If you’re passing down your vehicle to one of your children or adding to your fleet, you don’t need to bother yourself with trade-ins or classified ads.
Likewise, if your current car isn’t operational, you may need to go another route to dispose of it, like selling it to a junkyard or dismantling it for parts.
However you get rid of your old vehicle, try not to rush the process or accept less for your current vehicle than you think it’s worth.
Step 7: Get your insurance ready
Even if you don’t have a particular vehicle in mind just yet, now is the time to start shopping for car insurance. Depending on what type of new car you’re looking for, your monthly premium may go up or down, and you don’t want to have your budget ruined by an unexpected cost.
Each state sets its own minimum insurance requirements, but we usually recommend going with a stronger policy than what’s required. Plus, with a new car, you’ll generally need comprehensive and collision coverage along with liability insurance to satisfy lender requirements anyway. Your lender may also require gap insurance, which covers the difference between the car’s actual value and the remaining loan amount in the event of a total loss.
While you may want to stick with an insurance company you’re already working with, it doesn’t hurt to get quotes from multiple insurers and see what else is out there. Compare insurance costs and coverages, and see if there are any bundling deals available.
Step 8: Seal the deal
Look out for anything that your seller may have snuck in, like unnecessary add-ons.
The final stage to buying a new car is signing the purchase agreement, but don’t rush to get through this formality. Before you make it official, verify the terms of the contract you're about to sign. It can be intimidating, but this last step might matter the most. Whatever’s in your contract usually overrides any other info you’ve been given.
Your new car should come with a manufacturer’s warranty, but many dealerships also offer extended warranty plans too. These can be a smart purchase, but vehicle service contracts are often available from third-party sellers for less. Don’t let the salesperson pressure you into paying for anything you don’t want, and remember that you can get an extended warranty later on from a third party instead of signing up for one now.
Once you close the deal with a new car, you still need to make sure it’s registered with the DMV and insured. However, these processes differ by location and insurance provider, so look into your specifics to make sure you’re roadworthy.
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