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How to buy a new car

Couple in car dealership
Caiaimage/Martin Barraud/Getty Images
Couple in car dealership
Caiaimage/Martin Barraud/Getty Images
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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 think about the cost, financing options and negotiating tactics before heading to the dealership.

  1. Figure out what you can afford
  2. Decide whether you want to buy or lease
  3. Research 
  4. Determine the true cost 
  5. Lock in financing before visiting the dealership
  6. Test drive 
  7. Negotiate

7 steps to buying a new car  

When you’re ready, follow these seven 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 unforeseen vehicle costs that are bound to come up through ownership.

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

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. 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, 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.

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.

3. Research 

After you set your budget and determine the right type of ownership for your driving habits, start researching the vehicles that have caught your eye. 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. 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 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.

Bankrate tip: Take into account fees, like sales tax, registration fees and documentation fees. Ask the dealer for a detailed price breakdown of the quote so you can see exactly where the fees are coming from.

5. Lock in your financing before you visit the dealer

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.

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 at a bank or credit union doesn’t mean you have to take that deal, but it can help you determine which financing option is cheapest and potentially give you negotiating power.

6. Test drive

Most car shoppers keep their new cars for around six 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 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. You should also be prepared to say no to those nice-to-have extras that you might not need.

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 of the details carefully. Examine any proposed fees and check that everything you negotiated verbally is also spelled out in writing.

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 put the car in drive, go over all of the details carefully. Going to the dealership prepared will help you find the most affordable option.


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Written by
Rebecca Betterton
Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ins and outs of securely borrowing money to purchase a car.
Edited by
Student loans editor
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