Buying a Car

Buying a car can be a stressful and frightening experience. You have to choose the car, haggle with dealers or private sellers, possibly determine financing and even contemplate what to do with your old car. It can be overwhelming if you’re not prepared. Fortunately, we can help you get ready so that your car buying experience can be as easy and stress-free as possible. All you have to do is follow some simple steps we’ve outlined for you and you’ll be enjoying your new wheels in no time. These steps include the following:

  • Decide your budget.
  • Think about what you’d like to buy.
  • Explore financing issues.
  • Do online research.
  • Shop for your car online or in person.
  • Test-drive the car.
  • Finalize the base price.
  • Negotiate the deal.
  • Handle the finishing touches.
  • Familiarize yourself with key state-specific information.

1. Decide your budget.

Shopping for a CarThe first step in buying a car is to decide how much money you can afford to spend. If you’re going to buy a new car, you generally don’t want to pay more than 20 percent of your monthly income for a car payment. Figuring out the amount you can comfortably part with every month will also help you determine whether buying a new car is really even feasible. Additionally, if you decide you can afford to purchase a new vehicle, figuring out your optimal monthly payment amount will help you decide if a longer or shorter car loan is in order.

Used cars change the equation. These vehicles can be bought either from dealers or from private individuals and their cost can vary dramatically. Since buying a used car generally involves completely paying for it up front rather than making monthly payments, here you will instead need to figure out how much money you can afford to spend altogether for the automobile. Then you can use that amount when determining what sort of used car you should purchase.

Make sure you also take into account a couple of things. First, if you buy a new car, your auto insurance rates may go up. It’s worth your time to check with your insurance company first, as they can give you a rate quote. Factor that quote into your budget as well. Second, keep track of any changes in gas mileage or gas tank size between your current car (if any) and your new car; that can also add to extra costs on a monthly basis.

2. Think about what you’d like to buy.

Once you have an idea of your budget, the next step is to figure out what kind of car to buy. First, write down a list of everything you need in the car. Is it going to regularly be traveling a long distance? If so, you’re going to want better gas mileage. Are you going to be taking your kids and their team to practice? You’re going to want a car with more seating. Once you have a list of everything you need the car to do, you have your “absolutely required” list.

Now think about everything you’d like the car to have. Do you want a sunroof, an MP3 player or the ability for the car to parallel-park itself? Write down everything you want and you have your options list. If the car automatically comes with these — or if you can add them cheaply or as part of a package — that’s ideal, but they are not crucial to whether you buy the car.

The best way to think about the difference between need and like is to think about whether you could purchase the item in question for the car at a later point. If you think you could, then it’s not a need.

3. Explore financing issues.

For many buyers, financing a car loan is one of the most stressful parts of buying a car. The reason for the stress is that they don’t deal with the loan until they’re already in the dealership and have the car they want. Sometimes this can be the correct choice, if the dealer is offering a 0 percent (or very close to that) annual percentage rate on the loan. But in general, the interest rate you will get by financing a car through the dealer is going to be higher than what you can get if you do the work yourself.

So consider getting the car loan financing figured out before you ever walk into the dealership. Credit unions, banks and online loan companies all offer car loans and it is very often worth your time to use one of them. The lending process is simple: you apply for a car loan, they check your credit and application, and then they offer you a loan amount and the terms of the loan. In most cases, the loan isn’t signed unless you actually buy the car.

The advantage to going this route is that you enter the dealership with terms already settled and the total amount you can pay already planned. That way you are less likely to splurge on extras or not pay attention to the fine print. It’s like having a budget when you go shopping — you know the most you can afford to pay and it’s easier to stay under that amount.

Do note two things. First, getting a loan this way will mean your FICO (credit) score will drop five to six points for a few days because the loan company has checked your credit. Second, make sure you get a credit report first so that you can fix anything that’s wrong before you go this route.

With a used car, the same rules apply, although the loan repayment period is generally going to be shorter with a dealer. A loan from another company might be equally long, which in the case of a used car may mean lower payments.

4. Do online research.

These days, you can find out almost anything you want to know about cars. Between car company websites, consumer data and customer reviews, you have a wealth of information on cars at your fingertips.

So use that information. Start with the major car makers’ websites to find the general types of cars that you think you might like to buy. Remember the following facts when looking:

  • Make is the term for the company that made the car (e.g., Chrysler, Ford, Honda, etc.).
  • Model is the term for the specific vehicle (e.g., Fusion, Accord, etc.).
  • Trim level is the term for specific improvements to the base model of a particular car, such as special wheels, technology upgrades or different interior seats/upholstery.
  • Blue book value is the term for the suggested retail price, per the Kelley Blue Book, that a dealer may ask for a car based on the vehicle’s make, model, mileage and other key features.

By looking at the cars that are currently available on the market, you can get a basic idea of the sort of car you would like. In general, try and limit yourself to no more than three cars from which to choose. Anything more and you are going to have a hard time deciding on a final choice. And of course, if you end up not liking any of those first three, you can always come back and look some more — with a better idea of what you actually want.

Also remember that although automakers put cars with every possible combination of features on their websites, you may not find those combinations easily at a dealership. Dealers tend to only buy for their lots the cars that are big sellers, so if you find a combination that you really love but that you can’t easily find on a lot, you may have to either settle for something close or wait the standard eight to 12 weeks for a custom order of your ideal vehicle.

If you’re buying a used car, the general idea is the same. Looking around online can not only help you figure out what sort of car you might like but also, with a check of online pricing guides specifically, give you a much better idea of what a car is worth. That is important information to have if you don’t want to end up overpaying to either a dealer or individual seller.

5. Shop for your car online or in person.

Buying a Car Most people hate going into car dealerships. The stereotype of the “pushy car salesman” remains common and, for some consumers, dealing with salesmen who are perceived to be so pushy can be stressful. The advantages of going into the dealership, however, are also part of what makes car buying fun. You get to walk into that pretty showroom and take a firsthand look at all the various available car models, you can immediately test-drive a car that strikes your fancy, and you can talk to a real, live person and ask lots of questions.

There is another option in today’s world, however, and that is to go through the Internet. Many car dealerships now offer the ability to complete almost the entire car buying process online. Going this route has its own advantages.

First of all, you can deal with the dealer via email on your time and from the comfort of your home instead of at the dealership, which can lessen the stress and potential confrontation. Also, since most online car salespeople make their money on volume instead of on a specific car, you can often get a much better deal by going through the Internet. The flip side here is that the online price will have little room for haggling; when negotiating with a salesman at a brick-and mortar dealership, however, such room still exists.

The choice is yours. Some people complete practically the entire shopping process online, some only get a price quote online and then go to the dealership to do the rest, and some people enjoy conducting the whole process in person. Go with the option that allows you to feel most in control.

6. Test-drive the car.

Dealers love it when customers test-drive a new car. They know that many people fall in love with the vehicle when they get inside it and immediately become determined to own it.

So does that mean you should never test-drive a car? Not at all; you absolutely must test-drive a vehicle before you buy it. Car models differ quite a bit from one another, and you need to find the one that best suits you. Here are things to consider during your drive:

  • The seat: Does it fit you? Is it comfortable? Is there appropriate headroom and leg space?
  • Instruments: Are they easy for you to follow? Can you reach everything without a problem?
  • The backseat: Is there enough space for whomever you expect to ride back there? Are the seatbelts comfortable?
  • Visibility: Can you see out of the back window? Are the mirrors sufficient?
  • Drive capability: Does the car accelerate well? Does it brake efficiently?

Make sure you test-drive the car in as many different circumstances as possible. Tell your dealer what sort of test drive you want to make; most times, the dealer can make it happen. Chances are that, if you buy the vehicle, you are going to end up spending a great deal of time in it in the future. Therefore, you want the car to be one where you feel comfortable and safe.

For used cars, the test drive is even more important. You can often spot minor technical problems during it. If you’re going through a dealer, you can then speak to them about repairing the problems before you buy the car. If you’re dealing with an individual owner, you can negotiate the price down because of the needed repairs.

7. Finalize the base price.

Once you’ve found your car, it’s time to determine exactly what its base price is going to be. If you’ve gone through the buying process online, you probably already know the price more or less. If you’re strictly taking the brick-and-mortar dealership route, the initial price quote will be on a sticker on the car (this is the “sticker price”). Recognize that the price quote is what the dealer wants you to pay for the car; what you can actually get the car for is often much lower.

If you’re getting price quotes in person, never immediately buy the first car for which you get a quote. Why? Because you absolutely must do some checking around on prices before settling on one dealer’s offer. Different dealers charge different prices for the same car, so visit and investigate several dealers in your area before you agree to a particular one’s terms.

8. Negotiate the deal.

When you finally have settled on the car you want, the price quote and the place you’re going to buy it from, then you’re ready to negotiate the deal. Negotiation is a nice word for haggling, and in the car business there is still a great deal of haggling to be done. Here are the things you’re likely to discuss when negotiating:

  • Extras: Packaged either as groups (such as a “sports” package that comes with fins, better wheels and a spoiler) or individuals, extras are add-on features that raise the car’s price beyond the original sticker price. It is possible to negotiate almost any extra on a car, but in general it is only worth attempting to get extras that are specific to the car model (such as spoilers and interior seating or technology). While dealers often stock other extras such as tires, car covers and stereo systems, you can often get these for much cheaper from other sources. Also be aware that extras can increase the total cost of your car very quickly — so remember your budget and don’t splurge.
  • Extended warranties: The choice of whether to get an extended warranty depends entirely on what you intend to do with the car. If you plan to trade in the vehicle for a new one as soon as you finish paying it off, there is no point to an extended warranty. If, however, you expect to use this car for many years — or if you simply want to cover your bases and not have to worry about engine repairs for longer — it can be a good choice. Here is one example of where Internet research can really come in handy. Check out the car model you want to buy online and see what its common repair issues are. If none of those are covered by the extended warranty, then skip it.
  • Rebates: Dealers often offer rebates at the same time they offer a low interest rate. In many cases, it’s better to take the rebate and immediately use it to lower the price of the car. That lowers the amount you pay for financing, which in turn lowers the interest you pay on that loan. Note that you can take the rebate even if you got financing from another company.
  • Old car trade-in: If you are going to be trading in your old car as part of the deal, you’ll want to make sure you get the most you can on the trade-in. Be sure you clean the car really well before you bring it in to the dealer so you can get the best value on it. Check the value of the car first online, as well. Knowing what your car is actually worth gives you a strong position to negotiate from when you talk to the dealer. Finally, remember that the dealer gets more profit from selling a used car than from selling a new one, so you can push them a little on what they’ll give you for it.
  • Loans: If you walked into the dealership with a loan already sorted, then you’re ready for this part. If not, make sure you read every piece of the loan that the dealership offers. Dealerships may add random “junk” fees to the loan in order to make a better profit, especially if the rate is very low. If you do not understand every single cost attached to that loan, ask the dealer. If they cannot give you a sound explanation, walk away.

9. Handle the finishing touches.

At this point, you should be ready to sign the loan and drive off in your new car. But there are still a few things you need to know:

  • Title and license: The car dealership will generally handle your vehicle’s title and license with the state Department of Motor Vehicles (DMV). However, you will get charged for this, so make sure you know how much that is going to be. It will be included in the final deal, but be careful, as it can suddenly push the total price beyond your budget if you don’t plan for it.
  • Car insurance: In almost every state, you must either have your new car insured with liability insurance or pay a substantial fee or cash deposit to the state before you can drive the car off the lot. Most people choose to get car insurance. This isn’t complicated to do. Just call your insurance company and give them the information they ask for. They will send you an insurance card or notice that you will need to give to the dealer before you take the car.
  • Get everything in writing: Make sure the car quote is in writing. Make sure the loan is in writing. Make sure that anything you were offered by the dealer is in writing. This reminder is even more important when dealing with a used car, either from a dealer or from an individual seller.

10. Familiarize yourself with key state-specific information.

No matter where you live, it is advisable for you to be aware of important state-specific legal information relating to automobile purchasing. At some point in the car buying process, or perhaps before you even start it, you should familiarize yourself with the pertinent information for your state regarding such things as car buyers’ legal rights, vehicle emission standards, lemon laws, vehicle titles and fees. Be sure to take advantage of the resources available here at and read up on your state’s specific car buying requirements. Also, double-check with your state’s motor vehicle department that the information you have read is accurate and current. Once you’ve done that, you can buy a vehicle with confidence.