According to Experian, the average monthly payments for new and used cars were $735 and $523, respectively, in the first quarter of 2024. As a first-time buyer, numbers this steep can feel intimidating and even more overwhelming. But confidence is all about preparation. 

7 steps for buying your first car

Take time before heading online or to a dealership to understand the key steps to buying your first car.

1. Determine how much you can afford

The key to a successful buy is determining how much you can afford. Your credit score, monthly income and the type of car you want should all factor into this decision. Strike a balance between fitting your budget and finding a car right for your needs.

When budgeting, look at the out-the-door price, not just the sticker price that you see advertised. The true out-the-door price is the entire cost you will be expected to pay, including dealer fees and taxes. Once you have that number — or a suitable estimate — factor in your typical salary and take advantage of a car loan calculator. It will tell you the monthly cost to finance the vehicle.

Bankrate tip
Car ownership comes with unexpected costs so be sure you have room in your budget for any extra expenses.

2. Save for a down payment

The down payment for your future vehicle is the initial lump sum that you pay for it. Aim to cover at least 20 percent of the purchase price, which might take some time to save.

Being patient and saving up for a large down payment is likely worthwhile if you can delay getting a car until you have the funds. It will save you money overall and lower your monthly costs.

If you can’t wait, you can make a lower down payment. However, you may not get a good rate with your lender. In this case, consider a less pricey vehicle instead. The less you pay overall, the less you will need to save for a down payment.

3. Take a look at your credit history

If this vehicle is your first large financial investment, it is possible that you don’t have a lengthy credit history. If this is the case, check your credit history to determine what loan options are available.

Your credit score is the primary factor lenders consider to determine the interest rates that you will be offered. The better your credit, the more favorable your interest rate will be.

Check your credit score before talking to a potential dealer. It is worth waiting to get your credit in good shape before applying for vehicle financing if you can. If you have a limited credit history but no negative marks, check out first-time car buying programs.

4. Decide what car is right for you

Choosing which vehicle means considering factors such as:

  • Durability and reliability.
  • Number of seats.
  • Safety features.
  • Gas mileage
  • The weather where you live.

Check out Edmunds and Kelley Blue Book for these stats. They also have information on vehicles’ typical sales prices.

This is also a good time to determine if you want a new or used vehicle. While a new car is exciting, certified pre-owned (CPO) can give you a lower price tag while boasting new features and a manufacturer-backed warranty. And if you aren’t in a hurry to purchase, you can save money by waiting for seasonal sales or deals.

5. Prequalify for financing

After gathering information on the type of vehicle you wish to purchase and your financial history, apply with lenders that offer prequalification. This step is vital to saving money and putting you in control when choosing the best financing option available.

Prequalification differs from full approval. A prequalified option isn’t a done deal. Rather, preapproval will give you an idea of potential rates and terms. You will still have to fill out a formal application afterward. But you can focus your efforts on the lender offering the best auto loan rates.

You will need the following when you apply to prequalify:

  • Average income and finances.
  • Personal information.
  • Employment information.
  • Any current debt.

6. Head to the dealership — in person or online

After prequalifying for a loan and setting your sights on your dream car, it is time to begin the car-buying process. Ideally, you should look online to see what vehicles are available in your area. Most dealers have their inventory on their websites, allowing you to set up appointments.

It is important to get behind the wheel of your potential car and take it for a test drive before you buy. Be sure to adjust the seat, measure if it fits in your garage and determine if it can handle your day-to-day routine.

But you are not limited to the dealers local to you. Online dealers like Carvana and TrueCar give you access to a national inventory of used cars. You can browse and get financing without leaving the house, and when you pick a car, you get up to a week to test drive your car and have it inspected by a mechanic.

7. Negotiate

Negotiation can feel intimidating, but getting the best deal requires standing up for yourself. Come prepared with any paperwork needed, a firm understanding of your credit history and the right questions to ask. But the bottom line is this: be prepared to walk away if you can’t get the deal you deserve.

When the time has come to close the deal, remain steadfast on the agreed-upon number. You can expect the dealer to push for additional fees and add-ons. Say no to options like fabric or paint protection when an add-on like gap insurance might be more useful.

Next steps

Negotiation can feel intimidating, but getting the best deal requires standing up for yourself. Come prepared with any paperwork needed, a firm understanding of your credit history and the right questions to ask. Focus on the purchase price, not the monthly payment. And be prepared to walk away if you can’t get the deal you deserve.