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Before you browse down a row of cars, learn how to buy a car and negotiate the best deal

How to Buy a Car » Auto » How to Buy a Car



Buying a car is one of the biggest and most expensive purchases a person will make in their lifetime — and one that they may make several times. This guide shows you the steps you need to take when purchasing a car and doing so wisely.

Step 1: Check your budget

Before you set foot in any dealership or start shopping online, you need to ask how much you want to pay. Unless you are a cash buyer, this question comes down to the monthly payments you can afford with an auto loan.

Hopefully, you’ve read other articles on about how to set up and use a budget. If not, you should begin by setting a general household budget to gauge what you can afford.

Once that is done, review your budget to determine how much you can dedicate to a new vehicle. If you already have a car, you should know how much you spend on gas, maintenance, insurance, and payments. Depending upon the type of vehicle you choose, it might even be lower. Most new cars will usually offer better gas mileage, so you might save a little on that end.

Step 2: Check your credit

Your credit score will determine how much a lender allows you to borrow and at what interest rate. Most lenders use FICO to make their lending decisions and you’ll want your credit to be in its best shape before applying for financing.

One active step you can take in improving your credit score is to review your credit report for errors. When the difference of a few points can mean thousands of dollars, it’s important to make sure your credit is as accurate as possible. Credit report errors can be corrected by disputing any mistakes directly with the credit bureaus, but may take several weeks to be corrected.

Step 3: Get your financing in order

Now that you know your credit is in order, you can get your financing in order. You can get pre-approved for a loan through any bank, credit union, or traditional lender. And if you want to have the upper hand in the car buying process. get pre-approved for an auto loan before stepping foot in a dealership — you’ll also have much more negotiating power.

Dealerships prefer to have financing go through them (so that they make money on the loan, rather than the banks). If you’re pre-approved, they’ll need to offer you a better rate and terms than your lender offered.

Note, if your credit score is not in the best shape and you can not take the time to improve it be prepared to pay higher interest on an auto loan with bad credit.

Check the payments

Once pre-approved, you will know what your payments should or could be based on how much you want to spend. Then match up that figure with your current budget. You can also use a loan calculator and see how much payments would be based on the purchase price and down payment you will make.

Tip – Take your pre-approval offer to dealerships when you shop so you can compare it with offers from the dealership.

Here is what you can expect your rates to be based on your credit rating, with the average interest rates for both new and used cars in all five credit score categories.[1]  

Credit score categoryAverage loan APR for a new carAverage loan APR for a used car
Deep Subprime (300 to 500)14.08%21.32%
Subprime (501 to 600)11.53%18.55%
Non-prime (601 to 660)8.86%13.28%
Prime (661 to 780)6.40%8.75%
Super Prime (781 to 850)5.18%6.79%

Should I finance, pay cash, or lease a car?

Purchasing a vehicle outright saves you all the interest payments. Interest can significantly increase the total cost of your vehicle. For example, with a loan of $23,000 (27,000 – $4,000 down), at 3.48% interest for 72 months, the total interest paid will be $2,517.91.

That’s a lot of interest, but most Americans don’t have enough money lying around to buy a car outright.  About 85% of car buyers will finance their next vehicle[2]. On the bright side, interest rates are at historic lows, meaning that you can get some great deals with good credit. However, if you have sub-prime credit, be prepared that your interest rate and total interest charges will be much higher. Make sure to shop around to ensure you get the best rates and terms.

Leasing has some benefits, especially for self-employed and corporate clients, but leasing is generally more expensive and is not good if you plan on keeping the car for more than a year or two. When you lease, you are essentially renting a car rather than buying it. You also need top-tier credit to get a lease.

Tip – If you decide to lease, negotiate the price of the vehicle first. Don’t let the dealer know you plan to lease until you have the sale price set.

Step 4: Choose the right car to fit your lifestyle

There are a lot of cars, trucks, and SUV’s out there, and those choices can often get overwhelming. Josh Clinton, general manager of Hollywood Chrysler Jeep, advises that when it comes to buying a car, “The vehicle is the most important part—you have to find one that meets your needs.”

Try to find a vehicle that works best for your lifestyle. If you’re a parent, a mini-van may provide the room you need for kids’ activities. If you are a commuter, you may want to consider a small sedan that gets high MPG (miles per gallon). If you transport a lot of materials, a pickup or SUV may be what you need.

Also, make sure that the vehicle you want fits your life and budget. Don’t buy a status symbol. If you’re on a budget, stick to cars with high reliability and good safety ratings. Remember that vehicles depreciate in value quickly, so splurging on a car may not be the wisest move if you don’t have things like emergency savings and well-funded retirement accounts.

Tip – Avoid “what ifs” when looking for a new style of vehicle—where you try to account for every scenario where you may need your car. If you’ve never needed to rent a different style of vehicle to meet a need, your priorities lie elsewhere.

Step 5: Decide how and when to make the purchase

Next, you need to decide when you want to buy and take possession of that new car. This is something you want to plan out. It does take time to buy a new car. You will have to research the model you want, visit a few dealerships, negotiate, and take care of all the steps we list in this article. You may even need to dedicate an entire day when you’re not working to go through the final buying process at the dealership.

Tip – You should go to at least three dealerships when looking for a new vehicle.

When is a good time to buy a car?

You also want to time your purchase to get the best-negotiating power. There are traditionally better times of the month and year to buy a car. According to General Manager Josh Clinton of Hollywood Chrysler Jeep, “Traditionally the end of the month is the best time to buy a car… also traditionally at the end of the year, that’s when you’re seeing the previous year’s models being heavily discounted… and incentives are also traditionally better at that time of the year.”

Step 6: Decide where to buy and start shopping

If you live in a city or a suburb, you shouldn’t need to go far to purchase your new car. Most standard vehicles should be available at local dealerships. You shouldn’t have to travel far unless you are looking for a brand-new or rare model.

However, if you find a better deal at a dealership further away, then do what is in your best interest, especially if it’s the exact model with the same features you are seeking. Just keep in mind that if you want to get your car serviced at the dealership, it’s in your best interest if it’s close by.

Tip – If you plan to use a dealership for service, make them the last dealer you visit and have them match your best offer. You’ll have a better relationship that way.

Buying a car online

If you don’t like to negotiate and dislike the dealer experience, you can buy a car online and even deliver it to your house. Purchasing a vehicle online isn’t that much different than buying anything else online. They will list an exact price, and that’s what you’ll pay, plus fees, some of which, like financing, are negotiable.

If you don’t feel comfortable negotiating, you can take this route. However, you may wind up paying a higher price. Many dealerships have online sales as well but be aware this is a hybrid system, and you’ll wind up in the dealership anyway. Still, it’s an excellent first step to getting a lower price.

Step 7: Prepare to negotiate for the new car

Before you ever set foot on a car lot, you want to be ready to negotiate with the sales agent to get the best price possible. The more preparation you do beforehand, the more likely you will be to get a good deal.

Find the right price

Finding the correct price of the car doesn’t have to be complicated. It’s a matter of research. After you have figured out the type of vehicle you want and the trim level and options, you can go online to sites such as KellyBlueBook. You’ll be able to see the price of the car based on the dealer invoice, as well as a fair purchase price based on your area. But, simply because the fair purchase price says a certain amount doesn’t mean you have to pay it. You’ll want to look for the invoice price on the car and make an offer from that figure.

Make sure to have this information with you when you go to the dealer, so you’re equipped to negotiate. During price negotiations, the salesperson will start from the MSRP (Manufacturer’s Suggested Retail Price), which is higher than the invoice price and the fair market price.  But that’s not where you have to start. Don’t worry about MSRP. Outside of inflated prices during the pandemic, no one pays those prices.

Research all possible incentives in advance

This goes without saying. Get all the buyer incentives you can. Incentives are usually offered to first responders, the military, people who repurchase the same brand, students, and others—car reporting sites like list those incentives. Negotiate the car price first, then “remind” the dealer of the incentives, so you’ll be paying less.

Tip – Remember incentives belong to you, not the dealer. Don’t let a dealership factor incentives into the price they offer.

Step 8: Prepare to negotiate your trade-in

Most people trade in a car when they buy one. It’s great for the dealership, but is it great for you? It may not be in your best interest in many cases because you will be selling at a lower price than you could get elsewhere.

The art of the trade-in is psychological. You think your car is excellent, but someone at the dealership will walk around your vehicle and find many tiny things wrong with it. A scratch or a dent will be over-emphasized. Slightly worn tires suddenly have to be replaced, and so on. Don’t fall for it. Be sure to clean and detail the car before you show it for appraisal.

Get a pre-written offer first

Before you go to your dealer, you can “shop” services that make written offers to buy your car. This way, you will be prepared for the negotiations about your used car. Invest in a few trips to places such as CarMax, AutoBuy, or other similar services. These companies will give you a written offer for your vehicle. Keep that with you when shopping around for your car. After you have negotiated the price of the new car (do that first), the dealer will try to make an offer on your current vehicle.

At this point, the dealer and the salesperson have invested a lot of time in the deal, and they would rather not lose it. Let them make an offer, and if it’s higher than what those other services wrote down, then take it. But it likely will be much lower. Now is the time to show them the price offered by the other company and stand firm.

Don’t worry about the dealership; they will be making plenty of money on the sale of the new car to you, as well as markup on your old car. The price of the old car makes no difference to your salesperson either. Be prepared to cancel the deal if they won’t agree, or at least come very close to the written offer.

Consider selling it yourself

You could also sell your old car on your own. You may make the most money this way, but it also comes with risks and requires time and effort. Unless you personally know the buyer, you could get scammed, or there could be theft. It’s up to you.

When you’re at the dealership, be respectful during negotiations

Something that is missing from many transactions, including the automotive industry, is respect from both the consumer and the dealership. In that way, some dealerships are better than others, even with the same brand. You should look for highly recommended dealerships on sites like, Yelp, or Google.

In our interview with General Manager Josh Clinton of Hollywood Chrysler Jeep, when asked about negotiating, he stated. “The nicer you are, the kinder you are, the more understanding you are… you’re never going to get the results you want by strongarming somebody … I will do whatever I can to help someone who is treating me with respect.”

Tip – Treat the salesperson with respect, but still be firm in your demands.

Step 8: Inside the finance office

After negotiating the price of your car and your trade-in, the third level of buying a vehicle is navigating the finance and insurance office (F&I). This is another area where dealerships and even used car lots make a lot of extra profit. Some good products are available too, but you have to determine the actual cost of those products and determine if they make sense to you.

Make sure to compare all of the expenses that come with buying a car, including:

  • Monthly payments
  • Total interest charges
  • Other charges include fees, taxes, and F&I offerings
  • Total cost

Dealer financing

Earlier in this article, we talked about financing and getting pre-approved for a loan. When you go to a dealership, they will undoubtedly offer you dealer financing. Generally, if the rate is lower, then this will be a good deal for you. But understand that the dealer does make money from financing you, and they are not required to give you the lowest price. However, you can negotiate and ask for the absolute lowest rate. You should also ask if the financing is from the dealership (via a third party) or directly from the manufacturer.

There are three general types of auto financing:

  • Dealer-arranged financing: When the dealer goes through different lenders they have a relationship
  • Captive financing: Offered directly by the manufacturer
  • By Here, Pay Here: Offered on some used car lots for people with bad credit who would not otherwise qualify for a loan

Buying a service contract

Getting a service contract on a car can be a good deal and possibly save you a lot of money on repairs. A misconception is that a service contract is the same thing as an extended warranty. Warranties are only given by the manufacturer. A dealer will be selling you (or attempt to sell you) a service contract. A service contract does NOT extend or replace a manufacturer’s warranty.

Dealer service contracts are priced based on the type of vehicle. More reliable vehicles will have less expensive service contracts, while less reliable cars will have more expensive service contracts.   Make sure that your service contract can be used outside of your dealership in case you move.

Additionally, check that your service contract doesn’t duplicate what’s already covered in the warranty. Ask for the actual cost (not just monthly) and how long the coverage lasts. You’ll also want to know precisely what is and is not covered. Find out who is the issuer of that contract as well. When you do your shopping at each dealership, ask about the cost of a service contract.
Tip – You can purchase an extended service contract online. Price some out first before you are in the dealership’s finance office.

Read the sales contract completely

Make sure you read the sales contract thoroughly. In addition to service contracts and financing, there are GAP insurance premiums, disability insurance premiums, and other items and costs in contracts. Most of those are optional and may not be needed. When you opt to buy things such as an extended warranty, make sure you pay the least amount possible.

Double-check the finance charges and rates for the car loan. You should also ask for a list of the finance companies that the dealer has available, ask what their finance rates are, and if those finance companies have any additional charges. Remember to ask about the total cost of everything on the sales contract. Do not just accept the prices of additional services because they look small on a monthly basis.

Tip – Be sure to look at the fine print when buying a vehicle online or in person. If there are hidden charges, find out what they are and try to eliminate them. Always question what you don’t understand.

Step 9: Finalize the car sale

At this point – IF EVERYTHING IS TO YOUR LIKING – sign the needed paperwork and let them prep your car. If you don’t like something, don’t sign the paperwork and be firm on precisely what you want. The more time you (and they) put into the deal, the more negotiating power you have. Congrats on the new car.

Tips for negotiating when you are at the dealership or used car dealer

  • Always start from the lowest price point and move up.
  • Have your numbers ready when you begin negotiating, so you can refer to it.
    • This way, you can respond factually when asked how you came to your figures – the salesperson will ask that question.
  • Don’t be afraid to say no.
  • Ask for everything about the car to have a price attached to it. Have the dealer print it out.
    • Cross out things that you don’t want or dealer-installed items.
    • Cross out extra fees and charges.
  • If the deal is not to your liking, you can get up and walk out.
    • When you do so, often, the dealer will let you have your conditions.
    • Remember, you are the buyer, and you owe them nothing.
  • During the negotiation, if they make you sign a sheet that says, “If you can meet my terms, I’ll buy today,” understand that it has no legal authority.
  • Be prepared for the back and forth; the process does take time.
  • Agree on the new car price first, have that in writing, then negotiate the cost of your trade-in.
  • Try to avoid taking your kids to the negotiation. They can be a distraction.
  • Be prepared to make the deal and drive home with the new car.
    • If you’re not ready to buy, don’t take it further.

New car add-ons you should avoid

Even when you get a fantastic deal on price, payments, and financing, however, it’s easy to obliterate any savings when you add unnecessary features, services and warranties that the dealership insists are essential. And why wouldn’t the dealership try to upsell?

New car add-ons bring high-profit margins to auto dealerships, according to automotive resource So, how can you avoid letting a financing manager push you into purchasing new car add-ons that you should leave behind in your rear-view mirror?

1. VIN Etching

Dealerships may offer the add-on of “VIN etching,” where the dealer etches your car’s Vehicle Identification Number (VIN) into the lower corner of the windshield. Touted as an anti-theft measure that can help police quickly identify a stolen vehicle, some auto insurance companies may even give you a discount if you have VIN etching.

However, most dealers charge $300 or more for this feature, which carries a huge profit margin, says Instead, buy a VIN etching kit online or from an auto parts store at a cost ranging from $20 to $50 and do it yourself.

2. Nitrogen fill for tires

If a salesman tells you that filling your new car’s tires with nitrogen will save you money on gas, stop wheel rot and offer better overall performance, that may seem like a wise purchase. The cost for a “nitrogen upgrade” can range from $100 to several hundred dollars if the add-on is part of a bundled package.

However, certain nitrogen claims may be inflated, according to, which has its own new tire recommendation: “Save your money and stick with air.”

3. Rustproofing

Most auto manufacturers already include highly advanced rust protection on all new cars, according to So don’t let a financing manager bully you into purchasing a rust-proofing add-on for hundreds of dollars more.

Dealerships won’t provide better rust protection than the rust-proofing that comes with a new car when it rolls out of the manufacturing plant, anyway, so skip that add-on. If rust protection is already included as a charge in the vehicle price, “insist that you won’t pay for it,” says Autotrader.

4. Extended warranty

New cars come with the manufacturer’s standard factory warranty, which typically covers the vehicle for up to three years or 36,000 miles, whichever comes first, according to the Federal Trade Commission (FTC). However, a dealership may insist that you need to purchase an extended warranty for anywhere from $1,000 to “several thousand dollars” in addition to the factory warranty, says the FTC.

In some cases, you may benefit from an extended warranty but don’t cave to the pressure just to wrap up the time-consuming paperwork. Instead, find out how long the factory warranty lasts and what it covers. You probably don’t need an extended warranty that overlaps coverage with the car’s factory warranty that’s included in the price.

If a dealer tells you that you must buy an extended warranty to qualify for financing, generally a false claim, call the lender to make sure before signing loan documents, according to the FTC. Always review loan documents carefully before signing to make sure the cost for an extended warranty wasn’t added covertly.

5. Pinstriping

Who doesn’t want some spiffy pinstriping on a new car? But that doesn’t mean you should pay $300 to a dealer who offers the feature as a costly add-on.

If you must have pinstriping, pass on the dealer add-on and shop around instead for a good deal at an independent car repair or body shop to do the job for less than half what the dealer charges, recommends auto site

The challenges of buying a car

Due to labor and parts shortages caused by the pandemic, especially computer chips, inventories of new cars are at historic lows. This shortage has also affected the supply of used vehicles. As a result, prices overall are much higher, and dealerships are offering fewer incentives. Until supply chains adapt and production returns to normal levels, buying a car may be more expensive.

General Manager Josh Clinton of Hollywood Chrysler Jeep discussed the shortages during an interview with “… right now I’d say it (the chip shortage) is affecting us as much as ever, and we were hoping to see relief by the first quarter of next year, the way it is going at this moment, I don’t see that happening.” He continued “it’s driving up prices from the manufacturer, we’re seeing increases in MSRP (Manufactures’ Suggested Retail Price), but we’re also seeing incentive decreases…a year ago would have seen thousands of dollars in incentives.” Mr. Clinton suggested that shortages and other issues might persist from the next six months to a year from now.



What do you need to know before buying a car?


You’ll need to know the type of car, how much it should cost, how much financing you are approved for, the difference between a lease and a loan, and if you can afford it.


What are the four steps to buying a car?


Research, financing, selling (your old car), buying the new car.


How long should you keep a car before buying a new one?


You should keep a car for as long as you can. If your vehicle has become unreliable or repairs will cost more than the car is worth, it may be time to replace your vehicle.


Do’s and don’ts of buying a car?


Do comparison shop for vehicle cost and financing. Do your research. Don’t be unprepared. Don’t agree to any terms and conditions you don’t want.


What should you say when buying a car?


Always ask questions and ask why the price is as high as it is, don’t be rude, but be factual instead. Say that you are pre-qualified.


What should you not say when buying a car?


Don’t say that you are buying all cash, especially if you aren’t. Don’t say you don’t know pricing or finances.


When is the best time of year to buy a car?


The best time to buy a new car is around August and September, typically when new models are introduced. The end of the year is also an excellent time to buy a car. Typically there are more incentive programs at the end of the year.


When is the best time of the month to buy a car?


Try to purchase a car towards the end of the month when salespeople have to reach their quota.


What should you bring with you when you buy your car?


Bring the title to your old car and any research you did to get lower pricing and financing if it’s not online. You should bring your license and insurance. If you have not cleaned your vehicle out, bring a box to transfer personal items from one car to another.


What should you not do before buying a car?


Don’t apply for other new credit because the inquiries can lower your credit score.


How much should I spend on a car?


You should only spend what you can afford in your monthly budget and see if you can go lower than that. Spending too much on a depreciating asset can hurt your long-term financial future.


How much does it cost to buy a car?


You may wind up paying from 8-10% in fees. This also includes local taxes and other government fees. You can and should negotiate the prices of other fees. The cost of the car varies by model, year, and your negotiations.


How Much Could You Save?

Just tell us how much you owe, in total, and we’ll estimate your new consolidated monthly payment.