Buying a car is the largest purchase people typically make besides buying a house. If you do your research and prepare yourself, the car-buying process can be a stress-free experience. And if you stick to a budget and look for the best deals, you might even save some money when you buy your car.
9 Steps to Buying a Car
Buying a car shouldn't be a one-day event. Although you could visit your closest dealer, pick the car you like and take out a car loan, that's not the most cost-effective way to get a car.
Instead, start by deciding how much can afford to pay for a car and researching the features that you want. By the time you get to the dealership or meet with a private seller, you should know what kind of car you want and the price you're willing to pay so you can negotiate effectively. Follow these nine steps to make a smart car purchase.
1. Set a Budget
Before you start looking for cars to purchase, determine how much you can afford to spend. You shouldn't spend more than 15 percent of your net pay on your monthly car payment, according to online automotive industry resource Edmunds. For example, if you get two paychecks a month and each one is for $1,500, your car payment should not exceed $450.
Don't forget to budget for the down payment. The average buyer puts down about 10 percent of the cost of the vehicle, according to Edmunds. The larger your down payment, however, the smaller your monthly payment will be.
2. Research Your Options
Before you visit a dealership or start contacting private sellers, look at car manufacturer, used car dealer and third-party review websites to get an idea of what's out there. Make sure you identify all the promotions you might be eligible for and keep in mind that your closest dealer might not offer you the best price for what you want.
3. Compare New and Used Cars
Although new and used cars are very different, figuring out how to buy a used car or how to buy a new car is similar. When you start researching prices, you'll get a better idea of whether a new or pre-owned car is better for your needs. In addition to lower prices, used cars generally come with lower insurance premiums and longer depreciation times.
Used cars, however, might involve higher maintenance costs, especially if they are out of warranty. Buying a new car can give you peace of mind because you know its history and you'll likely get a warranty with it.
4. Determine How You’ll Pay for Your Car
If you aren't going to pay in cash, get preapproved for a car loan, because you want to buy your car as cheaply as possible. When you go to a dealership with a preapproved loan, you won't have to take whatever financing option it offers if it's not the best deal. For example, you might be able to get a better car loan rate at a local credit union. If you have a car to trade in, research how much you can expect to receive for it.
5. Compare Purchasing Options
Going to a dealership isn't the only way to buy a car. You can visit used car lots, take advantage of private party deals and even buy a car online. One good thing about going to dealerships, however, is that federal law requires them to disclose certain information about the car.
Private parties are generally not covered by these laws. If you find a used car online, get to know the seller by reading online reviews and ratings — and have a mechanic inspect the vehicle before you purchase it, especially if you purchase a car from an individual. An inspection should run you about $100, according to the Federal Trade Commission.
6. Shop for Car Insurance
Shop for car insurance before you buy your car so you can find the best deal. If you get to the dealership and fall in love with a vehicle, you might get stuck purchasing insurance at the last minute, which is something you don't want to do when you buy a car.
7. Test Drive Cars
When you find a vehicle you're seriously interested in buying, it's time to take a test drive. Bring a friend or family member along on the drive — they might notice things that you don't.
Check the interior and exterior for damage and make sure you drive in the traffic conditions you typically experience. For instance, if you know you sit in stop-and-go traffic, see what it's like in the car you choose. If you can, test drive the car on the freeway to see how it runs at full speed.
8. Negotiate the Price
Research the average price buyers pay for the type of car you want before you go to the dealer. Make your opening offer lower than the maximum you're willing to pay so you have some room to negotiate. If you don't want to negotiate, several dealers now have a no-haggle policy — the price you see is the price you get.
9. Beware of Costly Add-Ons
Once you've agreed on a price, the salesman might try to add on extras, like rust-proofing, an extended warranty and interior finishes. If you have your heart set on leather seats, it might be worth it, but don't buy something you don't really need and make sure you understand how the final total price will affect your monthly payment.
Once you've finalized your purchase, get the title transferred into your name. The forms you need vary by state, so contact your state's department of motor vehicles to make sure you complete the necessary paperwork.
Natalie Campisi contributed to the reporting for this article.