Whether you want to benefit from the latest tech and safety features or just prefer a reliable vehicle with a long-term warranty, buying a new car might work better for your finances and preferences than a used car. However, from choosing the right new car with the features you need to financing your purchase, the new car-buying process can be confusing. Take a look at this guide to make finding a suitable car, weighing your financing options and negotiating your purchase much easier.
Starting the New Car-Buying Process
Before shopping for a new car, carefully consider both your budget and vehicle needs. Doing this research makes the process of comparing vehicles easier, since you know which features to look for and what kind of price range you have.
If you have money saved to buy a car with cash, then you might already know your budget. Otherwise, take a look at your current income and expenses, and then consult a car affordability calculator. You can use this tool to input a doable monthly payment along with any expected trade-in value and down payment. Then, you can input data about your preferred car loan term, state sales tax rate and estimated interest rate to see the maximum car loan for which you'd likely qualify.
Jot down some key features your new car should have as well as preferences for size, make and model. For example, think about the gas mileage, the number of passengers the car accommodates, how much trunk space you need, which safety features you prefer, whether your driving conditions warrant all-wheel drive and which vehicle colors and interior you prefer. You can also consider any desired tech features like OnStar, cameras and entertainment systems.
Read More: How to Buy a Car
Exploring Vehicle Options and Pricing
You should now have enough information to start researching different vehicle makes and models that fit your needs and your budget. You can check out manufacturer's websites directly to see demos and read specifications, or you can use a new car finder website like Kelley Blue Book to narrow down options based on price, year, features and fuel economy. The car-finder tools will also let you search by car size and category as well as do a side-by-side comparison.
As you research vehicles, keep in mind that the price you see is the manufacturer's suggested retail price rather than the exact amount a car dealership would charge. Your actual sales price will account for discounts like promotions and rebates, trade-in value and any extra items you add, like an extended warranty. Therefore, you may pay more or less than the MSRP, so leave a little cushion in your budget to account for this as the price will also vary by dealership.
When you see a car that checks off all the must-haves on your list, make a note of it. To make it easier to find a vehicle and negotiate a good deal, it helps to pick a few different new car options rather than stick to one specific make and model.
Thinking About How to Pay
Start thinking early on about whether you prefer to pay cash or finance your car. While paying cash can save you money and hassle since you won't need to worry about paying interest or going through the loan approval process, it can deplete your cash reserves and limit your car options unless you have a lot of money saved. Financing a car can be easier to budget since you just pay monthly and it can help you build credit. But the downsides include paying interest, needing to have good credit to obtain financing and experiencing the risks of fees and repossession if you can't pay.
If you go with a car loan, you need to meet certain financial criteria to move forward, and the requirements can be stricter for a new car than a used car due to the higher purchase price and amount borrowed. For example, while bad credit auto loans exist for used cars, you need to show a good credit score – in the upper 600s or higher – or have a creditworthy co-signer help you meet this requirement. Your income is also crucial. While you might think you can fit a car payment into your budget, the lender makes that determination using your income and debts.
Considering Car Loan Options
If you want to take out a car loan, you can either seek it yourself or let the dealership help you. There are pros and cons to both options, and credit score and income requirements apply in either situation.
- Direct car loan: You can look at lenders online or seek out local banks and credit unions that offer auto loans. This usually means filling out a brief preapproval form with basic income, expense and desired car information to see a potential loan amount and terms. You can do this at multiple financial institutions to find an offer you're satisfied with. You may complete all the loan application steps online or visit the lender during the process. Benefits include the chance to score a better interest rate and having time to closely research the loan terms before you make a decision, while the downsides include more effort and the potential to miss out on dealer financing specials.
- Dealer-arranged car loan: Although you ultimately get the loan through an external financial institution, this option involves letting the dealer do the work of submitting your application and getting loan offers. You get to choose an offer the dealer presents to you, and all the paperwork happens right at the dealership. The convenience of this option and the potential to get a special financing offer for certain vehicles are clear benefits. But downsides include often getting a higher interest rate due to markup plus feeling pressured to make a quick decision without time to thoroughly research loan offers.
Regardless of which new car financing option you choose, be prepared to present proof of your earnings and have your credit files unfrozen, if needed, so that the lender or dealership can run your credit application. Any co-signer needs to do the same since the lender uses their financial information in determining your approval.
Read More: How Does Financing a Car Work?
Researching Places to Buy Cars
When buying a new car, you typically need to purchase it through a dealership. However, you're not stuck having to choose a new car that's available on a local lot right now. You have the flexibility to buy from a dealership in another city or state and either pick up the car or have it shipped. Or you can get a made-to-order new car from a manufacturer and pick it up at a local dealership. But before turning to these options, it helps to check out the inventory locally and see if you can find your preferred vehicle there.
While you could drive to dealerships and look at the cars in person, you could also choose the more convenient route of shopping for a new car online. You can visit the websites of local dealerships and search for a vehicle directly or use a site like CarMax to locate a car within a certain radius of your home. To get the best deal, search for multiple options, since some dealerships might offer extra discounts or offer you more money for a trade-in vehicle. Some dealerships might also throw in add-ons like vehicle upgrades or gift cards, especially if you're shopping for a car around a holiday.
If you don't find your desired car at a dealership and decide to go one of the other routes, be aware of some pros and cons. On the con side, buying a new car and shipping it from a location far away may mean you don't get a chance to test drive the vehicle or see it in person before making your decision. In addition, the car could get damaged during the shipping process. On the other hand, ordering from a manufacturer can allow for the most customization but can become costly due to a freight charge. And remember that you still have to visit a local dealership to pick up the car and finish the purchase.
Requesting New Car Quotes
Regardless of which method you use to find your new car, you should continue the car-buying process by requesting a quote, which you can usually do on the dealership's or manufacturer's website as well as car shopping websites like Edmunds and Kelley Blue Book. Depending on the source, you might see an online form to fill out, a phone number to text or call or an email address to contact a salesperson. Mention which vehicle you're interested in and whether you have a car to trade in. They may ask about your financing plans since special promotions might apply for borrowers.
You can request quotes from multiple dealerships to make sure you find the best offer. When you get a response from the salesperson, you don't have to take that price as the final one you'll pay for the car, because you can start the negotiation phase of buying a new car before you even visit the dealership for a test drive. You can also negotiate arrangements like having the dealership bring the car to you so that you can save a trip, but consider at least doing a test drive before opting for this convenient option.
Doing a Test Drive
Once you find a potential car and dealership, you should arrange a test drive before you proceed with finalizing the price, paperwork and payment. While you might not need to worry about wear and tear or defects as much with a new car compared to a used one, you still need to inspect the new car before you get in and during the test drive to make sure it's in excellent condition and you like the way it drives. During the process, listen for any strange sounds, watch for any warning lights on the dashboard and make sure the car handles well and operates exactly as expected.
Finishing the New Car Negotiation
If everything checks out on your test drive, you can finish the negotiation process if you want to buy that vehicle.
While you likely already learned about deals during the price quote, don't hesitate to ask if there's anything else, like special discounts for people affiliated with certain employers, universities or the military. You should also have a trade-in estimate that you can negotiate separately to get more money. If you're offered an extended warranty plan or upgrades like car mats or special rims, these must be added to the quote, and you should see if any deals are available for these extras as well.
If the negotiation doesn't work out and you think you can do better elsewhere, don't feel bad about leaving and trying another dealership. Buying a new car is a major financial decision, so it's nothing to rush.
Read More: How to Negotiate a Car Price
Completing the New Car Purchase
Once you're ready to buy your new car, the next steps depend on how you plan to pay for the vehicle.
Cash buyers usually present a cashier's check. If you're using a direct lender, you contact them with information about the car to finalize your loan application and get ready to sign the final papers. Those seeking financing at the dealership can complete an application onsite. Expect to show documentation, like your driver's license and proof of car insurance, regardless of how you pay for the new car.
Once you have the payment sorted out, you complete the purchase contract and other important car documents, make any down payment and get the keys to your new car. You should receive a folder of paperwork detailing the car purchase, loan terms and any extras as well as a user's manual for the car.
- Santander Bank: 8 Steps To Buying Your First Car
- Cars.com: Car Affordability Calculator
- Kelley Blue Book: Car Finder
- Car and Driver: Car MSRP vs. Invoice: Everything You Need to Know
- CarMax: Introducing Love Your Car Guarantee
- Edmunds: How to Order a New Car From the Factory
- NerdWallet: Emailing the Dealership: Getting a Quote on Your Dream Car
- Nationwide: 5 Straightforward Test Drive Tips
- U.S. News & World Report: 12 Tips for Negotiating With a Car Dealer
- iGrad: Understanding the Paperwork Involved in Buying a Car
- Experian: Should I Finance or Pay Cash for a Car?
- Consumer Financial Protection Bureau: What Is the Difference Between Dealer-Arranged and Bank Financing?
- Experian: How to Qualify for a Car Loan
Ashley Donohoe has written about business and technology topics since 2010. Having a Master of Business Administration degree, bookkeeping certification and experience running a small business and doing tax returns, she is knowledgeable about the tax issues individuals and businesses face. Other places featuring her business writing include Zacks, JobHero, LoveToKnow, Bizfluent, Chron and Study.com.