Buying a brand new car is exciting, but it’s a good idea to prepare, ask questions and understand the process first. We put together some of our best tips to guide you through the seven steps of purchasing a new car.
Step 1: Figure out how much you can afford
The first step is thinking about the cost of a new car. Take a hard look at your budget and 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, budgeting for a new car revolves around your monthly payment, which is a combination of interest, fees and your actual loan debt. Just remember that when it comes time to buy, you want to pay as little overall as possible. One of the most helpful tools for setting a cap on your new car purchase is getting prequalified for a loan.
Step 2: Prequalify for a car loan
Getting a loan prequalification or preapproval from a bank, credit union or online lender isn’t necessary for buying a new car. However, it has several advantages over dealership financing. Essentially, prequalification lets you shop around to make sure you’re getting a good loan. Potential benefits include:
- Lower interest rates
- More leverage when negotiating vehicle pricing
- More flexibility if you have bad credit
For more information, read our car loans guide. Once you know how much you can afford, you can begin shopping for the right car in earnest.
Prequalification lets you shop around to make sure you’re getting a good loan.”
Step 3: Research cars
It doesn’t matter if you’re visiting a local car dealer 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 take a look into these aspects of different vehicles:
- Performance specs
- Safety ratings
- Reliability scores
- Available features
Once you know what you’re looking for, start checking dealers’ inventories and online car buying sites to find the right car.
Step 4: Exchange your current vehicle
If you’re buying a new car to replace your old vehicle, look into either selling or trading 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 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 these items with you to the dealership:
- Driver’s license
- Car registration
- Information on your car loan
- Proof of insurance
- Car keys
This step is a way to dispose of your old vehicle, but it’s also an important step in funding your new car purchase. Don’t rush the process or accept less for your current vehicle than you think it’s worth.
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 it too low or too high? Is the drive smooth or bumpy? Are the seats comfortable? The only way to answer these subjective questions is often by visiting the seller and taking the car out for a spin yourself.
Here's a quick checklist of what to evaluate during a test drive:
Try out all the features you can and take a tour around the vehicle to look for any defects or damage, even on a new car.
Step 6: Compare prices
Whether you’re shopping from dealerships or car buying sites, comparing prices is a safe way to make sure you’re getting a good deal. This 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 also help you when it comes time to negotiate car prices. Citing other offers to your salesperson shows them that you know what you’re doing and you’re not willing to pay more than necessary.
This is also when your choice of financing comes back into play. If you choose dealer financing, salespeople like to negotiate your monthly payment rather than the overall price, but this usually leaves you spending as much (if not more) money. Prequalification and preapproval take that trick off the table unless the dealer is willing to give you a better annual percentage rate.
Step 7: Seal the deal
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 often overrides any other info you’ve been given.
As you read this contract, look out for anything that your seller may have snuck in, like unnecessary add-ons. Your new car should come with a manufacturer’s warranty, but many dealerships also offer extended warranty plans. 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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