How to Buy a New Car


There’s a unique thrill in acquiring a brand new car – from the unmistakable new-car scent to the gleaming exterior and cutting-edge tech features. But this excitement is often balanced with the intricacies of the car buying process. Between choosing the perfect model, securing a fair price, and understanding financing options, it’s easy to feel overwhelmed.

woman leaning on new car

We aim to simplify the process, ensuring you drive off the dealership lot with confidence, clarity, and the best new car deal possible.

Key Takeaways

  • Establishing a budget and understanding all associated costs, including insurance, interest rates, and maintenance, is essential before purchasing a new car.
  • Researching reviews, test-driving multiple vehicles, and comparing financing options can ensure that the car you choose aligns with your lifestyle and financial goals.
  • Negotiating prices confidently, understanding dealer incentives, and considering additional costs like gap insurance can help you secure a favorable deal and enjoy a seamless ownership experience.

1. Determine What You Can Afford

Venturing into the world of new cars without a clear financial roadmap can quickly lead to undue stress and unexpected costs. Before you’re dazzled by the latest models at a local dealership, it’s imperative to clearly understand what your finances can accommodate.

Set a Budget

Begin by taking a close look at your monthly take home pay. This will be your starting point, allowing you to determine a range that’s within your means.

The 15% Rule

A prevalent guideline in the automotive industry is ensuring your monthly car payment doesn’t surpass 15% of your monthly take home pay. This ensures you’re not stretching yourself too thin and can comfortably manage the car payment along with other financial obligations.

The Bigger Picture

However, the actual monthly car payment isn’t the sole expense when you buy a new car. Maintenance costs, auto insurance, and potential emergency repairs can add up. It’s wise to factor in these recurring costs to avoid any financial surprises.

Factor in Other Costs

When considering a car purchase, it’s easy to fixate on the advertised sticker price. But the true cost of owning a car goes beyond this initial amount.

Sales Tax

Different states have varying sales tax rates for vehicle purchases. Research your state’s sales tax rate and calculate this additional amount to the car’s price.

Dealer Retail Fees

Dealerships often have fees that can sometimes be negotiated. These might include documentation fees, dealer preparation fees, and delivery charges. Always ask for a breakdown of these fees before agreeing to the purchase price.

Interest Rates and Auto Loans

If you’re not planning to pay cash, you’ll likely need an auto loan. The interest rate on this loan can significantly impact your monthly payments and the overall cost of the car. Your credit score, loan term, and where you finance (whether through a credit union, bank, or the dealership) can all influence this rate. Always shop around to get the best rate and read the terms carefully.

2. Research Before You Shop

A smart buyer is an informed buyer. Before plunging into the car buying process, it’s essential to do your homework. By researching, you’re setting yourself up for success and ensuring that your investment aligns with your needs, values, and financial considerations.

Decide on the Type of Car You Need

Your lifestyle can largely dictate the kind of vehicle you should be considering. If you’re driving through city traffic daily, a compact sedan might be more suitable. Conversely, large families or those who often embark on off-road adventures might lean towards an SUV or minivan.

Function Over Fantasy

While it’s tempting to be swayed by sleek sports cars or high-end luxury vehicles, it’s vital to differentiate between “want” and “need.” A car isn’t just a statement; it’s a tool to get from point A to point B. Prioritizing practicality ensures long-term satisfaction with your purchase.

Look at Reviews and Ratings

Online reviews offer an invaluable glimpse into the real-world performance, reliability, and potential issues of vehicles. Platforms like Consumer Reports and Kelley Blue Book aggregate these reviews, giving potential buyers a comprehensive view.

Expert Insights

The automotive world is vast, but seasoned professionals, like the senior consumer advice editor on renowned platforms, distill the complexities. Their insights, borne out of years in the automotive industry, can guide you towards top-performing cars and those that offer the best value.

Consider Fuel Efficiency and Safety

Rising fuel prices can significantly impact your monthly car expenses. Choosing a fuel-efficient model doesn’t just save money; it also reduces your carbon footprint, making it an eco-conscious decision.

Prioritize Safety

You can’t put a price on safety. Fortunately, continuous advancements in car safety technology — from lane assist to adaptive cruise control — make it easier than ever to find a vehicle that puts safety first. Always check the safety ratings and reviews for insights on how the car performs in real-world scenarios.

3. Evaluate New vs. Used Cars

When in the market for a vehicle, you may want to consider a used car as a cost-saving measure. But will buying used really save you money if you factor in repair costs?

Each choice has its allure, unique benefits, and potential drawbacks. To make an informed decision, it’s essential to weigh the advantages of both and align them with your personal preferences, needs, and financial situation.

The Allure of New Cars

There’s an undeniable charm in knowing that you’re the first owner of a car. This sense of exclusivity and the pristine condition of a brand new vehicle can be deeply satisfying.

Comprehensive Warranty

One of the primary advantages of buying new is the extensive factory warranty that usually accompanies it. This warranty provides a safety net against unexpected defects or malfunctions, often covering the vehicle for several years or a certain number of miles.

Cutting-Edge Technology

From advanced safety features, like adaptive cruise control and lane departure warnings, to entertainment systems that seamlessly integrate with smartphones, new cars are often at the forefront of technological advancements.

Benefits of Used Cars

The moment a new car rolls out of the dealership, it undergoes depreciation. By opting for a used car, you’re bypassing this immediate value drop, allowing you to get a vehicle for a fraction of its original price.

More Car for Your Money

With the money saved from avoiding initial depreciation, you might find that your budget can stretch further in the used car market. What might get you a basic or entry-level new car could potentially fetch a higher-end or luxury used model with more features and better performance.

Established Track Record

While new cars come with the promise of the latest features, used cars come with a history. With tools like CarFax and other vehicle history report services, you can gain insights into a car’s past, its maintenance record, and any potential issues it might have faced. This can help you make a buying decision that can reduce your long-term costs if you can avoid significant repairs.

4. Financing Your Purchase

One of the most critical aspects of the car buying process is figuring out how you’ll pay for your vehicle. While the idea of paying cash upfront might sound appealing, the reality is that most people opt for some form of financing. Knowing the ins and outs of auto loans can be tricky, but with the right information and preparation, you can secure a deal that’s both beneficial and budget-friendly.

Understand Your Credit Score

Your credit score is a numerical representation of your creditworthiness, and it plays a pivotal role when lenders determine your loan eligibility and the interest rate they offer.

How Scores Impact Rates

A higher credit score usually translates to better loan terms. It can mean the difference between securing a low-interest rate versus a more expensive one. Regularly checking your credit report and rectifying any discrepancies can ensure you’re presented in the best financial light when seeking financing.

Financing Options

While many consider traditional banks for auto loans, they’re not the only option. In fact, sometimes they might not even be the best one.

Dealer Financing

Dealerships often provide financing options, sometimes with promotional rates or incentives. However, it’s essential to read the fine print and understand the full scope of the loan terms. It’s always a good idea to compare dealer financing with other options to ensure you’re getting the best deal.

Credit Unions

Credit unions, which are member-owned institutions, often provide more competitive interest rates for auto loans compared to banks or dealer financing. Since they operate on a non-profit basis, they typically pass on the savings to their members in the form of lower rates.

Online Lenders

The rise of online lenders is a testament to the convenience and flexibility the digital age offers. These platforms allow you to secure auto loans without visiting a physical bank or credit union.

Their streamlined application processes can be handled online from start to finish online, often resulting in quicker approvals. Many online lenders also boast competitive rates, occasionally outperforming traditional financial institutions. Additionally, their digital-centric approach means they can offer a diverse range of loan products, tailored to suit various credit scores and buyer preferences.

Down Payment

A substantial down payment can significantly improve your financing options. Not only does it reduce the loan amount, but it can also lead to better interest rates and lower monthly payments, making the loan more manageable.

Trade-Ins as Leverage

If you have a current car, its trade-in value can substantially reduce the purchase price of your new vehicle. Before trading in, research your car’s value using tools like Kelley Blue Book to ensure you get a fair price.

You might be able to sell your vehicle privately, instead, and use that cash toward your down payment. Private sales often lead to a higher selling price than a dealer trade-in.

5. Take a Test Drive

Taking a car for a test drive is more than just an opportunity to enjoy the thrill of a new ride. It’s an essential part of the car buying process that helps ensure you’re making a decision that fits both your desires and practical needs.

The Purpose Behind the Drive

While it’s tempting to focus solely on the exhilarating feel of a new car, remember that the test drive is your best opportunity to evaluate if a vehicle genuinely aligns with your everyday needs. It provides a firsthand experience of how the car performs on the road, its comfort level, and how intuitive its features are.

Schedule Multiple Test Drives

It’s natural to have a favorite or a frontrunner when considering which car to buy. However, limiting yourself to a single test drive can narrow your perspective. By trying out multiple cars, you not only compare and contrast different models directly but also open yourself to the possibility of discovering a vehicle that might be a better fit than your initial choice.

Preparation is Key: Bring a Checklist

The excitement of test driving can sometimes overshadow the primary objective: evaluation. To keep yourself focused, it’s a good idea to bring along a checklist.

  1. Performance: Note how the car accelerates, brakes, and handles curves. Does it respond well when you need to pass another car or slow down suddenly?
  2. Comfort: Assess the seating—both in terms of material and ergonomics. How does it feel during longer drives? Is the cabin quiet or noisy?
  3. Safety features: Modern cars come packed with a range of safety features. Test them out. How responsive is the car’s braking system? Are there any blind spots?
  4. Infotainment and tech: Examine the ease of use of the car’s tech features, including its infotainment system, connectivity options, and navigation.
  5. Space and storage: Consider your typical cargo, whether it’s grocery bags, sports equipment, or luggage. Will it fit? How easy is it to load and unload items?

6. Negotiate for a Better Deal

Entering a car dealership with effective negotiation tactics can save you money and ensure that you are confident and informed throughout the car buying process. Here’s how to master the art of negotiation:

Understand Market Prices

Before you start discussing prices with a salesperson, equip yourself with knowledge about a fair selling price for the car.

Use research tools: Utilize trusted resources like Kelley Blue Book and Consumer Reports to establish a reasonable range for the car’s price. These tools compare dealer retail value, private party value, and trade-in value, giving you a comprehensive picture of what you should be paying.

Look beyond the sticker price: Remember that the sticker price is just a starting point for negotiations. Knowing the market value of the car helps you negotiate confidently and avoid overpaying.

Inquire About Dealer Incentives

Often, car dealerships have promotions or rebates that aren’t prominently advertised but can lead to substantial savings on your car purchase.

Ask proactively: Make it a point to ask the salesperson or finance manager about current car promotions, rebates, or special financing options. These incentives might be related to trade-in deals, end-of-year sales, or manufacturer promotions.

Evaluate the real value: While some incentives are genuine opportunities to save money, others may be offset by less favorable terms elsewhere in the deal. Scrutinize the details and assess the overall impact on your car’s price.

Be Ready to Walk Away

The psychological element of negotiation is powerful. One of your strongest tactics is demonstrating that you are not afraid to walk away if the deal doesn’t meet your standards.

Know your limit: Before you even enter the dealership, decide on the maximum amount you are willing to pay and stick to it during negotiations.

Send a strong signal: If the negotiations reach a point where you’re uncomfortable or the deal doesn’t align with your research, politely thank the salesperson for their time and make a move to leave. This action often triggers a response from the dealership, and they might come back with a better, more acceptable offer.

Trust your instincts: If something feels off or the sale feels too pressured, trust your gut. There will be other opportunities and other dealerships where you may find a more agreeable and respectful negotiating environment.

7. Be Aware of Additional Costs

While the price of the car is often the central focus when buying, there are additional costs that can significantly impact your budget and overall satisfaction with the deal. Here’s a breakdown of some of the essential additional costs to consider and why they matter.

Auto Insurance Costs

Auto insurance isn’t just a legal obligation; it’s your financial safety net in case of accidents or theft. However, rates can vary significantly based on the make, model, and safety features of the car you choose.

Shop around: Before committing to your car purchase, it’s wise to request auto insurance quotes for the models you’re considering. By comparing rates, you can factor in these monthly or annual expenses into your budget.

Safety discounts: Remember, cars with advanced safety features or excellent safety ratings might offer lower insurance premiums. So, in the long run, investing a bit more in a safer car can save money on insurance.

Gap Insurance

For many, the appeal of a new car often comes with the reality of financing most of the purchase price. If you find yourself in this situation, especially with a small down payment, gap insurance becomes essential.

Why it’s important: Gap insurance protects you from potential financial pitfalls. If your new car gets totaled or stolen, traditional auto insurance will only cover the current market value of the car, which can be less than what you owe on your auto loan. Gap insurance fills this “gap,” ensuring you aren’t left with a financial burden.

Assess the Value of Extended Warranties

Extended warranties can offer peace of mind but come at an additional cost. It’s essential to weigh the benefits against the price tag.

Know what’s covered: Take time to understand what the factory warranty covers and for how long. Some modern cars come with extensive factory warranties that might reduce the need for an extended plan.

Cost vs. benefit: Evaluate the price of the extended warranty against potential repair costs. If you’re buying a car known for its reliability, the extended warranty might not be a cost-effective choice.

Read the fine print: Ensure you know what the extended warranty covers. Some warranties might exclude specific parts or require you to get repairs only at certain service centers.

8. Close the Deal with Confidence

Purchasing a car is both a financial commitment and a milestone in many people’s lives. To ensure this milestone is memorable for the right reasons, it’s important to finish strong.

Take Time to Review the Contract

Contracts can be dense and laden with jargon. However, they’re legally binding, so make sure you understand every detail.

Double-check the numbers: Ensure the purchase price, interest rate, and monthly payments match what was previously discussed with the finance manager. Don’t let the excitement of the moment lead you to overlook discrepancies.

Beware of extras: Dealerships may add additional products or services, such as extended warranties, insurance products, or protective coatings. Ensure you understand the cost and utility of each add-on before agreeing to them.

Celebrate Your New Purchase: Taking Delivery

Receiving the keys to your new car is a rewarding experience. You’ve maneuvered through the car buying process, negotiated prices, and made important decisions.

Final inspection: Before driving off, do a final inspection of the vehicle. Ensure there are no dings, scratches, or discrepancies from what you agreed upon.

Capture the moment: Consider taking a photo or two as a keepsake. It’s not just a car – it’s a testament to your informed decision-making and negotiation skills.

Post-Purchase Tips

Your responsibilities and opportunities don’t end once the purchase is complete. Taking proactive steps can ensure you get the most out of your investment.

Prioritize Regular Maintenance

Much like our own health, prevention is often cheaper and more effective than treatment when it comes to cars.

Scheduled checks: Adhere to the vehicle’s recommended maintenance schedule. This often includes oil changes, tire rotations, and brake checks.

Trust your senses: If something sounds, feels, or smells off, it’s worth getting it checked sooner rather than later.

Stay Informed: The Reality of Depreciation

Cars are not typically assets that appreciate. Except in the case of collectibles such as antique or classic cars, as time passes, a car’s value decreases.

Why depreciation matters: If you intend to trade in or sell the car down the line, its resale value will matter. Being mindful of depreciation can influence how you maintain and use the vehicle.

Boosting resale value: Ensure the car stays clean, both inside and out. Keep a record of all maintenance and repairs. These can serve as evidence of good upkeep when you decide to sell.

Remember, while the car buying process is intricate, the journey with your vehicle is ongoing. By continuing to make informed decisions and being proactive, you can enjoy a smooth and rewarding car ownership experience.


Remember, a car isn’t just a purchase; it’s an investment in your daily life. Making informed decisions can ensure you get a good deal and a vehicle that fits seamlessly into your life.

The journey to buying a new car might be complicated, but with the right knowledge, you’re equipped to handle it with confidence. Enjoy the open road!

Dawn Allcot
Meet the author

Dawn Allot is a personal finance writer and content marketing expert specializing in finance, travel, real estate, and technology. In addition to her work at Crediful, Dawn regularly writes for Bankrate, GoBankingRates, and The Balance.