How to Buy a Car
If you've decided it's time to buy a car, this major financial decision can offer appealing benefits, such as the freedom and convenience to travel whenever you want as well as the ability to customize your vehicle unlike you could with borrowing or leasing a car.
However, the car buying process requires an array of decisions, such as what type of car to buy, how to pay for it, whether to trade in any current car and how to find good offers at a dealership or through individual sellers. Before making an offer on a vehicle that interests you, use this guide to prepare for your car purchase so you don't miss any important steps.
Common Reasons to Buy a Car
Whether you're interested in a new car or a used car, you might have arrived at that decision when your current car finally broke down, or you might have never owned a car before. You have options to buy or lease a car in such scenarios. While leasing is like renting a vehicle for a few years and following certain rules, buying leads to ownership and thus offers several perks if you're financially able to go that route.
For example, buying the car in the first place tends to be a cheaper decision than leasing a vehicle and then buying it at the end of the lease. With a car you own, you usually have some trade-in value for your next vehicle as well. You also get control over any add-ons you want with your purchased vehicle, and you can make cosmetic and functional modifications as long as they're legal in your location.
Although cars are subject to depreciation, which can make a large impact on new cars early during ownership, your purchased vehicle will still be an asset to you. You can also get some tax breaks for owning a car, especially if you use your car for business purposes.
Read More: The Best Ways to Buy a Car
Important Car-Buying Considerations
You should be aware of some drawbacks that might impact you depending on your finances and preferences as a driver. After all, buying a car is a major decision, and while there are laws in some states to help buyers who bought vehicles that have problems, you usually can't return the car just because you decide you don't like it shortly after signing the paperwork.
Buying a car usually comes with a down payment and a commitment to larger monthly payments than you'd have with leasing. And along with the purchase price, taxes and any interest and fees involved with buying a car, you have ongoing costs to consider to determine whether you can afford car ownership. A car you buy may have a warranty at first, but after it expires you're responsible for repairs and any regular maintenance costs. So, you should consider both the financial aspects and the work involved with owning to decide if it's right for you.
Determining Your Vehicle Needs
If you've decided on buying a car, you should do some initial research and determine your needs so you know what to look for when it comes to the right vehicle, financing option and buying location.
This research requires considering the following:
- Car models and makes: If you're loyal to a certain car brand, then determining your next vehicle might involve researching the manufacturer's products and taking advantage of comparison tools you can often find on carmakers' websites. On the other hand, you can read reviews and recommendations from organizations like Consumer Reports and Kelley Blue Book to get an idea of recommended cars for specific shoppers. For example, some vehicles are aimed at people who want to focus on safety, while others offer products geared toward families or auto enthusiasts. In any case, you'll need to consider how much space you need and the number of seats for passengers as well as whether you want a sedan, convertible, coupe or crossover.
- Car features: If you're not focused on the latest technology or safety features, then you might just look for cars with basic features like anti-lock breaks, power locks and windows and a decent stereo system. On the other hand, you can find cars with advancements such as touchscreen consoles, automated braking in emergencies, parking assist cameras and cruise control to make driving a safer and more pleasurable experience. Of course, such features add to the price tag of your vehicle, so you'll need to make a list of needs versus wants and keep your budget in mind when you start shopping for cars.
- Car condition: Once you have an idea of the type of car and features you want, you should also decide whether you'd like to get a used or new car, since this decision can impact you in more ways than financially. Used cars come in many makes and models and usually cost less, so you can pay in cash or get a smaller car loan. However, they can also have issues with reliability, lead to higher interest rates and may lack a warranty. Buying new can help you get a warranty, take advantage of the latest features, and not have to worry about how past owners took care of the vehicle. Do know, though, that new cars do come with a higher purchase cost for these benefits. Higher car insurance rates and the impact of depreciation can take away some of the appeal for certain purchasers.
Assessing the Affordability of Cars
Whether you plan to borrow money or pay in full for your next car, many factors can impact how expensive of a new or used car you can afford.
If you plan to pay with cash, you're limited by the amount of money you have saved. You also need to decide how much money to leave in your savings for an emergency or for future repairs, especially if you buy an older car.
When financing is in your plans, then costs to consider include your down payment, expected trade-in value (if applicable) and monthly loan payment. Keep in mind that car loan payments vary from person to person – even for the same loan amount and car – since factors like your credit score, loan term and any special offers will apply. So, carefully consider your budget and credit profile.
Using a car affordability calculator can take some of the guesswork out of the process if you plan to finance a vehicle. You can enter your maximum preferred monthly payment along with details like the down payment and trade-in amounts, interest rate, term and sales tax to get a maximum vehicle price. You should consider existing debts and your income to check affordability and assess the likelihood of getting a loan for the amount you want.
Examining Places to Buy Cars
Knowing your car needs and your budget prepares you to look around at different places that sell cars. Your options come down to buying from a dealership or private party, and you can often complete the car-buying process online or in person.
When it comes to dealerships, you have those affiliated with certain automakers like Ford, Volkswagen or Chevrolet where you have both used and new car options. Buying from associated dealerships can come with perks like attractive warranties, the convenience of an onsite repair shop and the ability to get manufacturer discounts alongside any trade-in offer.
There are also independent dealerships that tend to focus on used cars. Independent dealerships may not always offer a warranty, usually don't have a service shop and may have a narrower car selection. However, these places tend to have inexpensive cars and may offer financing programs for poor credit.
Buying from a private party ranges from looking for people offering their cars for sale in your neighborhood to looking at online classifieds and traveling to the vehicle or having it shipped. Since such sellers don't have overhead like car lots, you could get a lower price, and if you're willing to travel, you can likely find the type of car you want.
However, buying from a private party requires extra research. You need to investigate the vehicle history report and get the vehicle inspected, as you often won't have a warranty, and problems such as salvage titles can show up and cause you headaches.
Getting Quotes on Potential Cars
Now you can continue your car-shopping process by researching the inventories available through dealerships or private parties and contacting them by phone or email to get quotes and start the negotiation process.
If it's a dealership, you could also visit the lot to speak to a salesperson if you want to look at potential cars in more detail before you come up with an amount you're willing to pay. When corresponding with the seller, be sure to mention if you have a vehicle to trade in since that amount usually gets deducted from the car price and impacts your quote. Some dealerships offer special offers to certain people like veterans and students, so it helps to ask about programs available.
As your quotes come in, think back to your vehicle needs and budget. Compare factors like features, age and mileage, and do further research on specific cars to determine which seem the most reliable and fitting. Once you've decided, you can go see the vehicle in person and request a test drive to see how the car runs and spot any potential issues before you sign any deal or pay money. This also gives you the chance to determine if you want any add-on, like an extended warranty or cosmetic upgrades.
Looking at Payment Options
Before continuing with the purchase, decide whether you'll use an auto loan or pay in full with cash. If you're buying from a dealership, both options are possible, but you most likely need to pay with cash if dealing with a private party sale.
If all you can afford is a down payment, then financing can make car ownership more accessible as long as you can afford the expected monthly payment and understand that interest charges will probably add to the purchase price of your car.
You can get auto financing at the dealership, local credit union or bank, or through online lenders if you have a good credit score and sufficient income. You can expect to go through a preapproval process and get a document showing you the qualifying loan amount, interest rate, payment and other terms. You can submit requests to multiple lenders to find the best deal.
If you've been saving and have enough cash for a car, avoid spending so much cash that your savings run dry. While cash might be the only option for a private sale, if you're buying from a dealer, consider whether cash is the best choice, since you can sometimes find financing offers that waive interest or offer significant discounts on the car. You might especially consider financing if you have good credit and can take advantage of such deals since you might not end up with much interest and can keep or invest your savings.
Buying the Car
With a car and payment method chosen and a test drive completed, you can expect to complete paperwork such as a sales contract, title and registration forms, insurance verification and contracts for add-ons like extended warranty plans. You'll probably need to show your driver's license and insurance card, and if you're getting financing at a dealer, be prepared with proof of income and your employer's contact information.
Throughout the process, don't skip reading the papers so know what you're signing, and especially make note of the vehicle's price and your monthly payment amount. If you're trading in a car, you'll need the title and you'll complete papers transferring ownership. When all the paperwork is done and you've made a successful deal, you'll get the keys to your new car and see your hard work pay off.
Knowing Your Next Steps
Your next steps include completing any necessary steps at the department of motor vehicles (if the dealership doesn't handle that for you) and keeping your car maintained so it runs properly. If you have auto loan payments, you need to keep up with those until the car is paid off.
If you experience issues with car payments, contact the lender to ask for a deferment or discuss other options that can help you avoid further credit damage or repossession. If you bought from a private party, keep in mind you need to register the car, get a title transfer and pay any taxes at the department of motor vehicles.
For vehicle maintenance, your dealership may provide a manual with guidelines, or you can find suggestions on car manufacturer websites otherwise.
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- Kelley Blue Book: How to Buy a New Car in 10 Steps
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- iGrad: Understanding the Paperwork Involved in Buying a Car
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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.