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How to buy a new car

The A-to-Z process, including what to say to the dealer

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    Buying a new car can feel daunting. With the average new car costing around $48,000 in March 2023, according to Kelley Blue Book data, your new car may be the third-largest purchase of your life — behind your home and education.

    And while the process may be lengthy, it doesn’t have to be difficult. By following these steps, you’ll get the right car at a good price with minimal hassle. From how to find the perfect car to exactly what to say to the dealership, here’s a step-by-step guide on buying a new car.

    Key insights

    • Buying a new car is a lengthy process, but if you follow the right steps in order, it can be simple and satisfying — and you can rest easy knowing you got a good deal.
    • Before committing to a new car, consider that the true cost to own a $50,000 car with taxes, insurance, fuel and other costs is around $1,250 a month.
    • Sites like Autotrader, CarEdge and Reddit can slash your research hours and help you find the perfect car.
    • You can lower your cost of ownership by raising your credit score before getting preapproved, getting multiple quotes for insurance and pitting dealers against each other to get the best possible price.

    Buying a new car: a checklist

    So, what’s it take to buy a new car smartly and efficiently? Our checklist offers a step-by-step guide.

    Step 1: Consider the true costs — and whether you need a new car at all

    We love cars, but there’s no denying that car ownership is expensive. The average monthly payment on a new car has been soaring; according to Edmunds, the average auto loan payment on a new vehicle reached a record $730 in the first quarter of 2023, with 16.8% of new car buyers signing for a monthly payment of $1,000 or more — also a record.

    And that’s just the car payment. There are also other costs to consider:

    • Registration, taxes and fees
    • Insurance
    • Fuel/charging
    • Maintenance and repairs
    • Parking
    • Depreciation

    AAA estimated that in 2022, it cost $10,728, or $894 per month, to own a new vehicle. Granted, newer vehicles come with warranties to cover repairs needed due to factory defects, and some EVs come with free charging for the first few years.

    But, overall, the cost of a new car is much higher than just the monthly payment. That’s why it’s best to work backward from the true cost of car ownership when formulating your budget for a car. You might decide that, for now, it’s best to just give your old car a wax and a tuneup to make it feel new again. Or, alternatively, you could buy used.

    » MORE: Best new car warranty

    Step 2: Determine whether you’ll buy/lease and pay cash/finance

    Once you’ve decided now’s the time to buy a new car, your next step is to make these two big decisions.

    Should you buy or lease?

    A lease is like a long-term rental. In exchange for a lower monthly payment, you get to drive the car for a number of months; you simply hand the keys to the dealer back after the lease term ends — or you have the option to buy it out.

    The chief advantage of leasing is that it’s cheaper than buying, so you can get a nicer car with the same budget. However, leases have mileage limits (often 10,000 to 15,000 annually), and your monthly payments aren’t building ownership equity.

    Some drivers still prefer leasing, however, because after the lease term they can simply walk away. That makes leasing ideal for historically unreliable vehicles with a soaring cost of ownership after year three (e.g., BMWs, Alfa Romeos). But if you see your new car as a long-term investment, it may be better to buy.

    Should you pay cash or finance?

    Even if you’re in a position to pay cash for a new car, you might want to consider the pros and cons first. On the plus side, paying cash means no monthly payment, no interest and no lender insurance requirements. However, it also means you’ll have less on hand to cover the ongoing costs of car ownership or other emergencies.

    It also means you’ll have less to invest in the stock market, where your annual rate of return may exceed your auto loan interest rate, meaning you’d profit in the long run financing the car and investing the cash versus putting all of the cash toward the car.

    » COMPARE: Leasing vs. buying a car: pros and cons

    Step 3: Check your credit score and get preapproved

    If you’re financing your next vehicle purchase, the smart play is often to get preapproved for auto financing through a bank, credit union or online lender before you start shopping. Doing this can help you determine:

    • How much you can borrow
    • What your monthly payment will be
    • How much your credit score impacts your payment

    To illustrate, let’s say you have a 680 credit score and are applying for a $40,000 loan. Because your credit is only “good” in the eyes of the lender, you may be offered a 15% annual percentage rate (APR), resulting in 60 monthly payments of $952, or $17,120 in total interest — not great.

    However, if you bumped your credit score to 720 and reapplied, you might be offered 10%, which would lower your monthly payment to $850 and save you over $6,000 on the loan. You can typically get a free credit score through your bank’s online dashboard, as well as tips on how to improve your credit.

    Getting a preapproval letter from a bank, credit union or online lender also gives you negotiating power with the dealership. Dealers will try to get you to finance through them, but if you bring a preapproval letter into the finance office, there’s a baseline they have to beat to earn your business.

    Some websites suggest showing the dealer your preapproval letter right away so it knows you’re an informed buyer. However, this can dampen a dealer’s hopes of making extra money on you through financing. You want them to think they have a chance at financing; this makes them more likely to negotiate upfront (covered in Step 7).

    Step 4: Pick three to five cars within your budget

    Once your financing is settled, it’s time to move on to the (more) fun part: shopping.

    Some websites that can help narrow your search by budget, features and more include:

    • Autotrader, Cars.com and CarGurus all feature detailed listings of new vehicles currently for sale.
    • Edmunds features new-car listings, professional reviews and a handy True Cost to Own calculator that projects the total cost to own a specific model (insurance, repairs, etc.) for the first five years.
    • CarEdge is run by an ex-salesman and his son and features a rich library of buying guides, email scripts and more in a tell-all fashion. The pair also has a popular YouTube channel.
    • Reddit has a forum called r/whatcarshouldIbuy where you can anonymously post your needs (e.g., “fun car for a single mom,” “offroader under $20K”) and crowdsource suggestions from the greater Reddit community.
    • Autoblog offers industry news, model reviews and expert opinions on the latest automotive trends.

    Have fun with this part. Come up with a list of needs and wants (e.g., safety, reliability, high miles per gallon, sunroof), and use them to set filters. You can cut your research time in half by simply posting your list of wants and needs and crowdsourcing ideas from highly opinionated strangers on Reddit.

    If you choose to purchase instead of lease, don’t forget to factor these elements into your decision making:

    Factory bumper-to-bumper warranties can last anywhere from three years/36,000 miles to five years/60,000 miles, depending on the manufacturer. So if you plan to own a vehicle long-term, you might prefer longer protection.
    While the Lexus RX 350 may not be as engaging to drive as the BMW X5, the Bimmer is expected to cost more in maintenance and repairs, starting particularly in the fourth year, according to Edmunds. Check out Edmunds’ “True Cost to Own” calculator for any cars you’re considering.
    The true cost to purchase a vehicle is the difference between what you paid and what you sell it for later. In the above example, the Lexus will hold 52% of its value after five years, while the BMW will hold just 41%, Edmunds estimates. That might be a consideration if you’re planning to sell after a certain point. All things considered, within a few hours of researching you should have your list narrowed to just three to five vehicles.

    Step 5: Test drive every car on your list

    Test-driving cars is like dating. Sometimes, an ideal candidate on paper turns out to be a disaster in person — and vice versa. That’s why it’s always best to get behind the wheel to see which cars you truly connect with.

    In our experience, the best places for test drives are CarMax and your local dealership.

    Test-driving at CarMax

    CarMax is one of the largest retailers of used cars in the U.S. And even if you’re buying a new car, test-driving a 2021 or 2022 model can give you a similar, if not identical, experience to test-driving a 2023 model.

    CarMax also lets you test drive vehicles from multiple brands in a single visit. If you can’t decide between a Nissan Sentra, Toyota Corolla or Kia Forte, CarMax may let you drive all three of them back to back (if your local CarMax has all three in stock, of course).

    You can book test drives online, and in our experience, the environment is casual and low-pressure. You may even decide that a gently used model works just fine and save yourself a few thousand dollars.

    A quick note: Online-only vendor Carvana also offers “test drives,” but you must first purchase the car; you then have seven days to drive it and return it for a full refund. This can tie up your cash and may prevent you from taking another deal in the meantime.

    » COMPARE: Carvana vs. Vroom vs. CarMax

    Test drive at the dealer

    Many dealerships are franchises and don’t necessarily represent the values and integrity of the brand they’re selling. In fact, dealers and manufacturers don’t see eye to eye.

    Your experience will vary from dealership to dealership, as several reviewers on our site have noted.

    An example: A reviewer in Pennsylvania said one Honda dealer they went to “had the car for 3 weeks and did not diagnose the problem and they gave it back to me with it still making the noise loud and clear.” But they found another Honda dealer in the state “knowledgeable, organized and customer service oriented.”

    The fact that most dealers are franchises will work to your advantage in Step 7. But, for now, you’re just looking to schedule some test drives with minimal hassle and sales pressure. Here’s how:

    1. Call ahead to confirm vehicle availability: Dealership inventory is constantly changing. A vehicle listed online may have been sold this morning, so it’s always best to call ahead and confirm it’s still on the lot.
    2. Act uninterested: Even if a dealer has the car and color you want for a great price, it’s always best to act like you could take it or leave it. Sounding eager and excited may trigger the dealer to push for a quick sale. Expressing interest can also reduce your ability to negotiate, as we'll see in Step 7.
    3. Bring a test drive checklist: While the dealership may have a short, restricted driving route, you can still take plenty of time once you stop to test the air conditioning, infotainment features, sunroof, lumbar support, back-seat legroom, audio quality and more.

    At the end of the test drive, the dealer will inevitably try to rope you into a sales conversation. Be polite but distant, and simply say you’re just in the research stage and keeping your options open.

    Repeat this step for all the vehicles on your list, and soon a favorite is likely to emerge.

    Step 6: Get your insurance ready

    Unfortunately, your car insurance is probably about to go up; new cars are more valuable than older cars, so they cost more for insurance companies to repair or replace.

    To get a quote, you can call up your existing insurance company and simply tell it which make, model and year you’re considering purchasing. You might also consider getting quotes for the other cars on your list to see if there are any big differences in rates.

    Buying a new car is also the perfect time to shop around for quotes from other providers. Thanks to online quote tools, you can usually get five quotes for a single vehicle in under 30 minutes. You might be surprised to find that another insurer offers the same coverage for less money.

    And if you’re not ready to break up with your current provider, you can always bring it a competitor’s offer and ask it to match the price.

    Good to know: Most auto lender agreements require you to have full coverage until your loan is paid off. Full coverage means liability plus collision and comprehensive coverage, so be sure to include all three in your quotes.

    When do I buy new insurance?

    If you don’t already have car insurance, you'll need to have a policy in place before the dealer lets you drive off the lot (it’s the law). You can purchase a policy in advance by supplying the vehicle’s VIN (vehicle identification number) to your insurance provider.

    If you already have car insurance on your old car, most providers will give you a seven- to 30-day grace period before you have to update your policy with your new car. Progressive, for example, gives a grace period of 30 days.

    To complete Step 6 of this guide, you don’t have to purchase insurance yet; just know what it might cost and where you want to get it. The ideal time to buy is right before or after you buy the car, depending on whether you currently have insurance.

    » COMPARE: Car warranty vs. car insurance

    Step 7: Start negotiating (the easy way)

    This is the part most people dread, so we’re going to make it extremely simple for you. There are no complex flow charts or Machiavellian turns of phrase you need to memorize. In fact, getting the lowest price out of a dealer can be done in three simple steps:

    1. Ask the dealer for its best possible out-the-door (OTD) price.
    2. Find similar cars at other local dealers and get their best OTD price.
    3. Keep asking dealers to beat each other’s OTD price, and buy the lowest.

    You can (and should) do these three steps over the phone and via email. Negotiating on-site puts you at an inherent disadvantage because dealers often wear you down.

    The importance of the out-the-door (OTD) price

    Try to focus on the out-the-door price when speaking with a dealer. Dealers tend to describe cost in terms of monthly payments, but ultimately this can make a deal sound better than it really is.

    The out-the-door price is the exact number of dollars and cents you need to pay to take the car home. It’s the absolute final price, including tax, title, tag, dealer fees, extras and more. Framing every conversation around the OTD price takes away one of the dealer’s favorite manipulation tactics: speaking in terms of the monthly payment.

    At some point in the last century, dealers stopped asking how much you want to pay and started asking how much you want to pay per month. Dealers don’t do this because they’re sensitive to your budget; instead, it’s a way of sneaking in fees, upselling you on extras and generally charging you more money overall.

    Let’s say heated seats are $500 extra. A dealer might say, “Upgrading to heated seats usually costs $15 a month, but I think I can talk my manager down to $11.” It sounds like money saved, but in reality, the total price would be $660 for the upgrade.

    When you flip the script, it shuts the door to all these shenanigans. Try something like this: “I’m not interested in the monthly payment; could you please tell me the out-the-door price?” Or you could ask, “What’s your lowest possible out-the-door price on this listing I found online?”

    How to answer “Will you be paying cash or financing?”

    When dealers ask this, they’re trying to determine whether they’re about to make more money off you through financing charges. In general, dealers much prefer financing customers to cash customers, since the former is more profitable in the long run.

    When a dealer asks you this question, it’s best not to reveal if you’re paying cash. If you’re financing, be truthful but don’t mention your preapproval letter. If you’re paying cash, you can say something to the effect of: “I’d like to see what rates F&I can offer, but, for now, let’s focus on the out-the-door price.” (“F&I” refers to the finance and insurance office — this shows you’ve done your homework.

    Once you’ve fended off a dealer’s usual tricks, it’s time to get back to the three steps to effective negotiating.

    Specifically, ask for an actual invoice by email. This reveals any fees or extras the dealer is trying to tack on, from market adjustments to overpriced extras. Tell the salesman you’re open to letting F&I upsell you but that you’d like all extras removed for the time being.
    Remember to use sites like Autotrader and CarGurus to find listings by price.
    If Dealer 2 had the best offer, ask Dealer 1 and Dealer 3 to beat it. If Dealer 3 beats it, go back to the other two. Repeat until the lowest possible price emerges.

    This way, you can quickly squeeze the best possible price out of a dealer with just a few phone calls and emails.

    Step 8: Seal the deal — and skip the add-ons

    It’s time to get your car. Even though you’ve already negotiated a final price over email/phone and you have your preapproval letter ready, it can still take two to four hours to finalize the purchase and get your car.

    To start, you’ll want to schedule an appointment to buy the car. If you can get there within a week, most dealers will place a courtesy hold for you.

    When you arrive, the salesperson you’ve been working with should offer another chance at a test drive and final inspection and hand you a pile of forms to sign. Soon, you’ll be escorted to the finance office, where you’ll discuss add-ons (e.g., protection packages, prepaid maintenance) and dealership financing.

    Generally speaking, you don’t want to purchase optional extras at the dealership. Like food and beverages at a theme park, they’re comically overpriced and questionable in quality. You can get:

    • GPS tracking with an Apple AirTag
    • Nitrogen-filled tires free at Costco
    • Ceramic coats and window tinting from a local specialist for less

    Keep in mind that the dealer has already approved an out-the-door price, so F&I can’t “force” you to purchase any of these items as a condition of the sale.

    The last discussion is financing. The F&I rep will ask if you already have financing, and now’s the time to reveal your preapproval letter. All you have to say is, “I may entertain an offer lower than this one.”

    If you end up going with your original lender, you will work with the lender and dealership to arrange transfer of the funds. You’ll sign many, many more forms and soon be handed the keys. Enjoy your new car — and don’t forget to update your insurance.

    » MORE: How to get cheap car insurance

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      How much do you need to put down on a new car?

      As a general rule, it’s best to put at least 20% down on a new car and 10% down on a used car. Putting more down on a new car helps protect you from going underwater on your auto loan, or owing more than the car is worth.

      When is the best time to buy a new car?

      The best time to buy a new car is during year-end sales events and toward the end of the month. Dealers are incentivized to sell faster in December to meet annual sales goals and make room for new inventory. They may also strike a deal near the end of the month to meet quotas.

      What’s the cheapest way to buy a car?

      There are multiple ways to save money on a new car. You can raise your credit score before applying for financing, get multiple quotes for insurance and negotiate with multiple dealers remotely to get the best possible out-the-door (OTD) price. (See Step 7 above for details.)

      Is it worth it to buy a new car?

      Only if you absolutely want the newest model. Most cars lose 20% of their value in one year, meaning you’ll save thousands getting last year’s model or an older vehicle. Granted, auto loan rates are higher on used cars than new cars, but you can always refinance later.

      Should I buy or lease?

      Buying is better if you plan to keep your car long-term, want to make modifications to the vehicle or don’t want to worry about mileage limits. Leasing might be a good idea if you want to get a new car in several years or prefer to drive a more expensive car but can’t afford the monthly payment that comes with buying.

      Should I get an extended warranty?

      On a brand-new vehicle, you don’t need to buy an extended warranty. You’re covered by the manufacturer’s bumper-to-bumper warranty for at least the first three years/36,000 miles.

      Should I pay cash or finance?

      Even if you have enough cash to purchase a vehicle in full, investing your money while taking out a car loan at a relatively low interest rate could be a better use of your funds. We recommend comparing the finance charges on a potential loan with average rates of return for different investment scenarios — and weighing your attitude toward debt — before making a decision. You might also choose to consult with a financial advisor.

      How should I negotiate with a car dealer?

      It’s best not to negotiate in person; a dealer can wear you down. Instead, ask for the best possible out-the-door (OTD) price via phone and email, and compare the offer with offers from two other dealers. Go back and forth until you find the best OTD price between the three.

      ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
      1. Kelley Blue Book, ”After Nearly Two Years, New-Vehicle Transaction Prices Fall Below Sticker Price in March 2023.” Accessed May 3, 2023.
      2. Edmunds, “Auto Loan Interest Rates Hit Highest Level Since 2008 and Drive Record Share of $1,000+ Monthly Payments in Q1, According to Edmunds.” Accessed May 3, 2023.
      3. AAA, “Your Driving Costs” Accessed May 3, 2023.
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