It takes some planning to get the best bargain on a new automobile purchase, whether you’re upgrading or purchasing your first vehicle.
The MarketWatch Guides team has put up a list of helpful ideas on how to purchase a new automobile to make the process go more smoothly. Everything from setting a budget to haggling with a vehicle dealership will be covered. When you’re ready, check the lowest rates on car loans from top lenders and get prequalified—something we strongly advise.
Important lessons learned:
- To save time and get the greatest bargain at a dealership, research the automobile you desire and obtain preapproval offers from several lenders.
- To avoid debt and save money on interest, you might pay for a vehicle with cash.
- You have to register your new vehicle within the stipulated time period in your state once you’ve bought it.
1. Make a Budget
Be sure you can afford the automobile you want before you go into a shop. This extends beyond the vehicle’s retail price. It also covers the amount you want to finance, the size of your down payment, and the total amount you will pay, interest included.
Examine Your Financial Situation
Examine your finances before creating a budget for the purchase of a vehicle. You will need to get data regarding:
- Your credit score as of right now
- Your take-home income after taxes
- Every ongoing cost
- Any pertinent amounts on bank accounts
When purchasing a car, many buyers are concerned about their credit ratings, and for good reason. Which loans you qualify for and how much your interest rate will be depend on your credit score. On the other hand, certain lenders and lending markets focus on helping consumers with bad credit get vehicle loans and refinancing. Even some lenders do not need a minimum credit score.
Furthermore, you should think twice about buying a new automobile if your debt-to-income ratio—that is, the portion of your monthly income that is allocated to debt—is too high. However, many lenders think you’re in excellent standing to get vehicle finance if your ratio is less than 40%.
As a general guideline, you should aim to have your monthly automobile expenses—which include the loan payment, insurance, and gas—total no more than 20% of your monthly income.
Verify the Trade-In Value of Your Car
Make sure you know the trade-in value of your present vehicle before visiting the dealership if you want to trade it in. You can determine the market worth of your automobile based on its age, mileage, and condition by using websites like Edmunds.com and Kelley Blue Book. You’ll be able to determine what you can afford to purchase by knowing how much your automobile is worth.
You may not have a vehicle to trade in if this is your first time purchasing a car. However, by putting the appropriate down payment on your automobile, you could still be able to shorten the length of your loan or decrease your monthly payments.
Prepare for The Shock of Stickers
According to Kelley Blue Book, the average price of a new automobile hit a record high of $48,808 in June 2023. Nevertheless, despite this high average, price increases brought on by pandemic-related supply chain problems have decreased year over year. In an effort to slow inflation, automakers and their dealers have started to stockpile inventory.
You may still wind up paying more than the manufacturer’s suggested retail price (MSRP) even with the increase in inventory availability due to demand-related price rises. A dealership isn’t going to try to close a purchase by offering you incentives or rebates. Many purchasers are willing to pay the asking price.
Examine your buying options.
A range of buying alternatives may be within your budget, depending on your financial circumstances. When buying a new car, most consumers utilize financing alternatives, but prepared purchasers may buy their cars outright with cash.
Purchase Directly
The main benefit of paying cash for a car is that you’ll pay less in interest and other financing expenses. Nevertheless, using cash to purchase a new automobile might deplete savings and negatively affect your financial situation.
Financing an automobile entails upfront expenditures and general financial risk for many drivers.
Financing
With financing, purchasers may pay down the cost of a new automobile over time. Banks, credit unions, lending markets, dealerships, and internet lenders are among the sources of financing available to borrowers. Online lenders function in the same way as traditional brick and store lenders, although they often have lower overhead.
By making on-time payments, financing may help customers establish credit and lower the upfront cost of purchasing a vehicle. However, because of high interest rates, consumers with bad credit can wind up spending more money altogether. Thankfully, there are lenders that specialize in poor credit auto loans.
2. Choose the Car You Want
When you have a clear understanding of your purchasing alternatives and available money, it’s time to choose the vehicle of your choice. To locate the best automobiles for your requirements and budget, search internet dealerships, car listings, and in-depth vehicle reviews.
Take a Test Drive of the Car
Make sure you drive the vehicle on a variety of roads throughout your test drive. Consider how you might use it to go about town or on your commute to work.
Because so many dealers provide online inventory choices, you may confirm in advance if a vehicle is in stock and schedule a test drive. By doing this, you may choose a time that works for you and avoid having to compete with other clients for the dealer’s attention.
Online Method for Purchasing a Car
Car purchasers may purchase autos totally online at several dealerships. In this case, the vehicle could be driven to you for a test drive by a nearby dealer.
Verify Reliability Scores
When you’ve narrowed down your options to a few models, research their dependability ratings on websites like as YourMechanic, Edmunds, and RepairPal.com. You may use these websites to search up individual cars and model years and see an estimate of the yearly repair expenses.
Although a new automobile should not need repairs for many years, it’s good to plan ahead and determine how much money you’ll need after the manufacturing warranty ends.
Examine Warranty Protection
Examine the warranties offered by products that catch your eye. Bumper-to-bumper factory warranties typically span three years or three thousand miles to five years or sixty thousand kilometers. The normal duration of a powertrain warranty is 4 years or 50,000 miles to 10 years or 100,000 miles. These manufacturers provide some of the longest powertrain warranties:
- Hyundai
- Genesis
- Kia
- Mitsubishi
3. Find the Price of the Car
Next, determine the buying price of your preferred automobile. It is critical to do this before visiting a vehicle dealer, since the closest one may not offer the cheapest pricing.
Call a couple dealerships in your area that carry the model you desire. Inquire about the pricing, including any extra features the vehicle has. In addition to contacting your local dealerships, try using internet sites like Carvana.
Once you’ve gathered a few prices, one will stand out. You may provide this pricing to your local dealer as the price to beat. You may also utilize resources like Edmunds.com to find out how much folks in your neighborhood are spending for the similar model.
4. Get Preapproval Offers
If you want to finance your vehicle, we suggest being pre-approved for a car loan before visiting the dealership. A preapproval from a lender indicates complete approval for a certain loan amount.
This gives you a maximum budget and makes it simpler to haggle with dealership personnel. You’ll also know whether a vehicle is within your price range without having to wait for the finance department to do the figures.
Preapproval is not the same as prequalification. Preapproval requires a complete application and a thorough credit check, but it provides you with explicit conditions from the lender, including an interest rate and maximum loan amount. Prequalification does not harm your credit, but it is just an estimate of what you could qualify for. You may or may not get those terms if you submit a complete application.
Compare Lenders Before Buying.
The finance you choose may have a significant impact on your auto payment, interest rate, and overall loan cost. If you go to the dealer without completing any homework, you may find yourself in debt from the start. This occurs when you loan more than the automobile is worth.
Instead, we suggest that you compare loans before visiting a dealership. First, get a couple prequalifications to determine the best interest rate and loan payment for your budget. An online vehicle loan calculator allows you to simply compare deals. Then, when you go to the dealer, you may use other offers as leverage to negotiate better conditions.
5. Take It Slow at the Dealership.
Now it’s time to go to the dealership. If you’ve followed the car-shopping stages above, you’re ready with:
- Your maximum budget.
- Value of your trade-in car
- A preapproval for a vehicle loan, including prices and terms
- Understand the models you desire and their warranties.
Do not divulge too much information at once. The salesman will begin asking questions and directing you through the sales process, but don’t feel obligated to provide answers before you’re ready. If you have a trade-in, don’t talk about its value right away.
First, ask the salesperson for the vehicle’s all-in pricing. Compare it to other prices you find in town or online, and inform the salesperson of the lowest price you have seen. Ask whether the automobile has any installed extras or dealer markups, since they will increase the price.
After you have a solid price from the dealer, you may discuss your trade-in and its worth. If you have printed appraisals from a few industry websites, that’s even better. If the dealer attempts to undervalue your trade-in, you can always sell it yourself instead.
Examine Dealer Financing Terms Carefully.
Once you enter the dealership’s back room, the finance manager understands that you simply want to complete the transaction and drive your new vehicle home. However, now is the moment to be very careful. The management may attempt to pitch you on a given monthly payment regardless of the loan’s term, interest rate, or total amount. Be forceful and state you don’t want a loan for so many months or a rate higher than the rates you qualified for.
Show the finance manager your pre-approvals from other lenders. Ask them to beat those prices, and threaten to walk away if they can’t. With a preapproval, you may call another lender and acquire a funded loan that same day, allowing you to buy the car yourself.
In fact, you may do this ahead of time to avoid dealership financing entirely. Banks, credit unions, and internet lenders may collaborate with dealership finance departments to fund vehicle loans, so you don’t have to go with dealership financing if you can obtain a better interest rate elsewhere.
Beware of dealer add-ons.
Once you’ve determined your purchase price and trade-in value, you’ll need to decide if you want add-ons such as protection goods or gap insurance. We suggest being wary of dealer add-ons.
If you desire an extended warranty, check sure the dealer provides a truly factory-backed plan. If not, you can wind up with a third-party plan with more limitations than advantages. There are several respectable extended auto warranty providers to compare later.
Gap Insurance
Gap insurance pays the difference between your loan debt and the value of your car if it is wrecked or stolen. Gap coverage may provide piece of mind if you are concerned about wrecking your vehicle, but it may not be worth it if you can make a significant down payment on your vehicle.
6. Complete the car purchase.
If you’ve discovered the perfect automobile and selling price, the last step is to finish the transaction. You have two alternatives when purchasing from a dealer:
Complete all papers at the showroom. You will then drive your new vehicle home. This is what most people are aware of.
Request that the automobile and papers be brought to your house or business. A salesman and assistant will deliver your vehicle, as well as the bill of sale, title, and final loan conditions, if applicable. You will check the car and sign the papers if everything seems to be in order.
Following the purchase, the salesman should guide you over the vehicle’s primary features. This includes assisting you with connecting your phone and configuring applications in the infotainment system. You may also schedule an appointment in the next week or two for a more thorough walk-through.
Get auto insurance.
Finally, get auto insurance for your new vehicle straight soon. Most states make it unlawful to drive without insurance for any length of time. Many regional vehicle insurance providers and a large supplier offer same-day insurance. You will not be permitted to drive off the dealer’s lot without insurance.
Register your car.
The registration procedure may range greatly depending on location, since each state has its own set of regulations. The majority of states mandate that you register your car within 30 days of purchasing. If you’re unclear where to register your car, contact your local DMV or licensing department for further information.
Before going to your local DMV or tag office, acquire any relevant paperwork and information. Requirements vary by state, so contact your local agency for a comprehensive list of necessary information. You may be requested to provide:
- Vehicle title or registration card.
- Completed car title application.
- Odometer disclosure.
- Driver’s license.
- Proof of valid insurance
- Tax receipts
- Consider refinancing.
If you are unable to get an optimal rate throughout the buying procedure, you may still have choices. Refinancing your automobile could make sense if:
- Market interest rates have come down.
- Your credit score has increased.
- You have positive equity.
- You require decreased monthly payments.
- You should change lenders.
While refinancing may be beneficial for certain borrowers, it is not the best solution for everyone. You should avoid refinancing your vehicle if you already owe more than it is worth, you purchased it within the previous six months, or you have recently taken out additional loans or lines of credit.
How To Buy a New Car: The Bottom Line
When purchasing a new automobile, we suggest planning carefully, researching the market worth of your vehicle, and obtaining preapproval from a range of dealers and lenders. It may take some time to discover the appropriate automobile in this market, so check online inventories often.
Recommendations for automobile loans
Obtaining a preapproval allows you to negotiate a cheaper interest rate at the dealership or avoid dealer financing entirely. AutoPay and myAutoloan are our top selections for vehicle loans.
AutoPay: The Best Overall Auto Loan.
Once you’ve decided on a car, you may utilize AutoPay to fund the loan. You may also use it to become pre-qualified and present it to the dealership during negotiations. Whatever you chose, AutoPay’s professionals can assist you throughout the process. AutoPay offers no application costs and only a credit score of just 560.
PenFed Credit Union: The Best Credit Union Loan.
PenFed funding is accessible in all fifty states, with loan durations ranging from 36 to 84 months. If you’re looking for lenders to compare while purchasing a new automobile, PenFed provides competitive purchase loan rates for well-qualified consumers. The credit union likewise charges no application costs, although it does demand a credit score of at least 650.
