How to buy a new car

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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.

11 tips for buying a new car

When you’re ready, follow these 11 tips for buying a new car.

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.

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. Define your meaning of ‘new’

The car will be new to you, but that doesn’t mean it has to have zero miles and that fresh new car smell. Certified pre-owned options can be a great route toward a new car and a cheaper bill, too. These vehicles have to meet a stamp of approval from the manufacturer – the “certified” meaning – so you will get the reassurance of a warranty that you might not get if you’ve been thinking about buying a car from a private seller.

Going this route can save you potentially thousands of dollars; Car and Driver found that a brand-new Honda Civic EX retailed for about $23,500 in 2018, while a 2017 EX with the same equipment cost $21,500. The savings could be even greater with other models.

3. 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.

4. Narrow your choices

After you’ve set your budget and determined 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 (MSRPs)) and invoice prices. Then check local inventory listings to see what is available in your area.

5. Find out what it will actually 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 keep in mind that 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, including trim level, engine and add-on options, to get an accurate quote.

6. 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.

7. Get all the pricing information

The research you did on independent automotive websites should have included the invoice price (for new cars) or wholesale price (for used cars), as well as the MSRP (for new) or the dealer’s asking price (for used).

While invoice pricing on third-party sites isn’t completely accurate, it’s a good indicator of what the dealer paid for the car. Aim to reach an agreement on the sale price that is close to that number before any discounts are applied, and keep in mind that the dealer needs to make at least a few hundred dollars’ profit to cover the operating costs of running the dealership.

Once you’ve determined the sale price, you’ll also need to 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.

8. Research all possible discounts in advance

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 automakers’ websites for these incentives before heading in.

9. Make your calendar your bank account’s best friend

It’s important to consider the time of the year before buying a car. Dealerships typically have their big sales events around spring, fall and the end of the year. That’s when you’ll see an influx of leased cars returned. If you’re looking for a used or certified pre-owned option, these are some of the best times to buy a car.

10. Take it slow with your 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’ll be driving it a lot for work or travel.

Don’t hesitate to ask for more time behind the wheel; you should 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.

11. Before you drive away, drive a hard bargain

Once it’s time to sit down and talk 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’ve negotiated the sale price of your new car. Having those conversations separately will help you get a better deal on your trade-in, 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, examining any proposed fees and double-checking 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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