Key takeaways

  • A good rule of thumb for affording a car is to not spend more than 20 percent of your monthly household income on car-related expenses.
  • Research what kind of car you want and test drive the car.
  • Make sure to shop around for loans and go to the dealership with preapproval so you have some negotiating power.

If you’ve spent the past few months dreaming of a new ride in your driveway, you’re probably looking at models, comparing deals and evaluating what add-ons you can afford. Buying a car is a big investment; you’ll need to consider the cost, financing options and negotiating tactics before heading to the dealership. These seven tips for buying a car can help.

7 steps to buying a new car

Wondering how to buy a new car? When you’re ready, follow these seven car-buying tips to make the most of the car-buying experience and walk away with the vehicle of your dreams at a price that won’t break the bank.

1. Figure out what you can afford

You may have your heart set on a specific car, but you won’t be able to take it home unless you can afford it. Consider the monthly payment along with other vehicle ownership costs.

A good rule of thumb is to spend no more than 20 percent of your monthly household income on a new car. This figure should include your monthly car loan payments and all other expenses, like fuel, car insurance, maintenance, repairs and registration fees. For the monthly payment alone, Edmunds suggests that you should aim for no more than 15 percent of your income.

Use Bankrate’s auto loan calculator to get an accurate estimate of what you can expect to pay each month and in interest over the life of the loan. It’s equally important to check your credit as it will determine the interest rate you receive.

2. Decide whether you want to buy or lease

Do you want to drive the car as long as the wheels can stay on? If so, buying is the way to go, and you’ll have the ability to trade or sell the vehicle when you want a fresh set of wheels. However, if you want a new car every three years, consider leasing.

Leasing means that you might get a more upscale car for your money as they often come with lower down payment requirements and a more affordable monthly payment. But you won’t own the car outright, and you’ll need to look out for specific lease terms, such as mileage restrictions and wear-and-tear fees, to avoid hefty penalties.

Consider the vehicles on your radar and weigh the pros and cons of buying and leasing one of them. Bankrate’s calculator can help you estimate potential cost savings of buying or leasing so you can make an informed decision.

Auto Car Purchase
Consider certified pre-owned
Certified pre-owned options can be a great route toward a new car and a cheaper bill. You’ll get reassurance of a manufacturer’s guarantee that you wouldn’t get from a private seller. You can learn how to buy certified pre-owned cars with our guide.

3. Research car options

Start researching your favorite vehicles to find the best car for you. First, visit automaker websites and independent auto information sites to assess the features that are important to you. Note MSRPs (manufacturer’s suggested retail prices) and invoice prices. Then check local inventory listings to see what is available in your area.

Also research any possible discounts. After all, who wants to pay more for a car than they have to? Many automakers offer discounts to students, military members and even members of certain credit unions. These discounts can be stacked and combined with any cash-back rebates on the model, which should be deducted after you negotiate the price. Check the automaker’s website for these incentives before heading in.

4. Determine the true cost

The cost of car ownership is much more than just your initial payment. Use websites like Edmunds or Kelley Blue Book to get a general idea of gas, insurance, repair and maintenance costs in your area — though these numbers will depend on your driving habits.

For even better accuracy, do your own calculation for fuel based on the number of miles you drive annually and get an auto insurance quote on the cars you are considering. You’ll need to give the insurance agent the exact model, trim level, engine and add-ons to get an accurate quote. It’s important to remember that fees, like sales tax, registration fees and documentation fees are not included on the sticker price advertised by dealers.

5. Lock in your financing before visiting the dealership

Dealers don’t just want to sell you a car — they want to coordinate the car loan too. Dealers typically receive a flat fee or a commission on the auto loans they facilitate, regardless of whether the loan is from the manufacturer or a local lender. That can mean less of a deal for you.

Instead of having your dealer do the work, compare auto loan rates at banks and credit unions and get a preapproved offer before heading to the dealership. Getting preapproved by a bank, credit union or online lender doesn’t mean you have to take that deal, but it can help you determine which financing option is cheapest.

You come to the table with more negotiating power if you present the preapproval to the lender.  They might even offer to beat out the rate to earn your business.

To preapproval, you’ll need to provide your personal, employment and income information to the lender. They may also inquire about other outstanding debt obligations you currently have to determine how much of an auto loan you can afford.

6. Test drive

The average loan term today is nearly 6 years, so take your time with the test drive. Make sure that you really love the car, especially if you drive a lot for work or travel.

Don’t hesitate to ask for more time behind the wheel. Spend time in the car while it’s parked to adjust the seats, experiment with the controls and determine whether passengers would be comfortable and if your regular cargo would fit well.

7. Negotiate

Once it’s time to sit down and talk about pricing, come prepared with the research you’ve done. See if other dealerships are offering better deals on your vehicle and seek a price match from your salesperson.

If you’re looking to trade in your current car, save that discussion for after you negotiate the sale price of your new car. Having those conversations separately will help you get a better deal on your current car, and you’ll fare even better if you’ve done research on your current car’s value online.

Before you sign the final contract, go over all the details carefully. Examine any proposed fees and check that everything you negotiated verbally is also spelled out in writing. You should also be prepared to say no to those nice-to-have extras that you might not need or to the entire deal if it doesn’t work for you and the salesperson isn’t willing to budge. Check out these dealer options to skip.

Current state of the new car market

Buying a brand new car today requires some additional considerations. New vehicle average transaction prices (ATPs) are still near record highs, at $47,936 in October 2023, according to Kelley Blue Book. While prices are flat compared to where they were a year ago, new car transactions are about 21 percent higher than they were in October 2020. The comparatively high prices you will likely be met with were caused by a simple issue of supply versus demand.

What’s more, choices from the Federal Reserve to quell inflation have made the cost to borrow higher too. This increase is reflected clearly in the amount drivers are financing. New car purchasers financed an average of $40,184 in the third quarter of 2023 versus $41,665 in 2022, according to Experian.

This all means that you should prepare to spend a bit more on your new car, but following the above seven tips for buying a new car can help save money.

Next steps

Buying a new car is an exciting process, and there is no better feeling than driving off the lot knowing you got the best deal. But before you start your search for the perfect ride, ensure your finances are in order and your credit score is up to par. It’s equally important to assess your spending plan to determine how much car you can afford.

Once you have ironed out all the financial details, shop around to find the best deal on financing so you can negotiate with confidence. Going to the dealership prepared will help you find the most affordable option that works for your budget.