Buying a car? The ultimate how-to guide and checklist |
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Car buying guide

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What you need to know to drive away in the right car for the right price.

Buying a car is a big investment, one you’ll be paying off for years to come. There are a number of steps that come with the purchase from finding the dealership, the car and the financing. It’s worth taking your time to make sure you’ve made all the right choices, and our guide will help you discover how to find the best car at the best price.

How to choose a car

Start by determining how much you want to pay and the car models you’d like to look at. This makes comparing prices and features easier as you start to narrow down your search and come to a final decision.

Determining a price limit

Ideally, the amount you spend on a car should be determined by your income and monthly budget. According to Consumer Reports, the average car loan lasts about five and a half years, though you’ll save more money by keeping your loan term short.

Find a balance between the length of your loan and your monthly payments. You’ll pay less per month with a longer term, but interest will stack up, increasing the total cost of your car. If you’d like to pay as little as possible, a used car with a short term and a large down payment or trade in will save you the most money. If your budget is more flexible and you can afford larger monthly payments, list your must-have features first and narrow your car search based on these.

A good rule of thumb is to spend no more than 10% to 15% of your annual income on your vehicles. This includes payments for all cars you have, insurance, gas and other expenses that inevitably crop up when you own a car. Your price limit for your next car should be calculated with these in mind. Say you’ve already dedicated 5% of your annual budget to your current vehicle. That leaves 5% to 10% for your new car payment and the increase in insurance premiums.

Narrow your car options

Let’s face it: the number of models of cars out there can be overwhelming, and that’s before you get into the features.

Start by determining the basics. How many seats do you need? Will you be driving in the city or in the country? Do you have a trusted car brand or style? These questions help you narrow down your search.

Think about the features you want. The MPG, safety rating and price can play a large role in your final decision. If you’re visiting a dealership, it’s likely you’ll have your choice of color and most newer-model cars come equipped with bluetooth. However, other features like sunroof, navigation systems and automatic start are not standard in every car and could make a difference in your choice.

Visit a car lot and take a look at some different vehicles in person, or keep your search entirely online until you’re ready to test drive. What’s important is that you dedicate time to reading reviews and comparing your options carefully so you’re not stuck paying for a car that you’re not happy with.

Shopping for a car locally?

Test drive a new car in your area Test drive a used car in your area

Where can I buy a car?

Many people choose to go to a dealership or buy through a private sale, but you have more options to explore.

Where to buyHow it worksWhat it’s good for
DealershipVisit a car lot and shop for your next carYou can examine a large selection of vehicles, test drive a few and get advice from experts on your selection. Since there are both new and used dealerships, you should be able to find a car within your price range.
Private sellerBuy a used car directly from a private seller, typically the previous ownerIf you’re after the best price possible, buying from private sellers is often the way to go. Make sure you know how to check the car thoroughly before making your purchase.
Demo carsFind a lightly-used car used for test drives and demos by a car dealershipThis might be a good option if you want to buy almost-new car and want to get a good price on a recent make and model. However, the savings can vary and your options are limited. In addition, demo cars might be fitted with extras that you don’t necessarily want but will pay for anyway.
Imported carsImport a car from overseasIt’s safe to say that this will never be the cheapest option as it involves a range of additional taxes and expenses.
However, sometimes it might be the only way to get a vehicle not available in the US.
Car auctionsBid on car at an auctionThis can be one of the most affordable ways of buying a car. In fact, car dealers often buy stock at auctions. The downside is that the quality of auctioned vehicles and the quality of their discounts vary, so research to find what that car is worth and inspect it to get a good price.

To find a good price on the car you want take your time to compare dealerships, private sellers and other options.

Decide whether you should shop online or visit a dealership

What should I keep in mind when buying a new car?

Once you decide on what kind of car you want, its features and the price, consider the price, loan and amount of insurance you’ll pay.

Your price should reflect something you can afford either to pay for upfront, through your trade in or with monthly payments. If you’re taking out a loan, you’ll choose from either a secured or unsecured loan. Secured loans tend to cost less and have lower monthly payments because the lender uses your car as collateral. That means, if you default on your loan the bank can repossess your car. Unsecured loans can be more expensive, but you can usually take out more than you need to cover other expenses.

Finally, consider the safety features of the car and if they will lower your insurance rates. Insurance is based on lots of factors and the model and features of the car will impact your premium. For example, you’ll pay less for a minivan or sedan than a convertible or small sports car.

If you’re buying a used car, have it checked out by a mechanic. A mechanic can check the car for damage caused by an accident or any engine troubles. It’s likely a mechanic will check the body, interior and under the hood. If you find anything wrong with the car, push the dealer to fix it, haggle for a cheaper price or simply let the car go.

Shop for new cars locally

Tips for haggling and paying less

Before you visit a dealership or contact a private seller do your research. First, look on sites like National Automobile Dealers Association (NADA) or Kelly Blue Book to see what the car you want is worth. You can search for make, model and year of a car and find the market rates.

Another way to be prepared is to apply for preapproval online. There are a number of lenders that offer preapprovals with competitive APRs and terms to bring into a dealership. If the dealer wants your business he’ll try to beat that deal.

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How can I pay for my car?

There are a few financing options available and can depend on your financial situation. Often, deciding on your financing is just as important as deciding your car.

Pay for the car outright: You always have the option to dip into your savings and pay for the car without taking out a loan.

  • You’ll avoid interest charges since you won’t owe money to a lender.
  • It can be difficult for most people to save up enough money to buy a car, especially a new one from a dealership.

Dealership financing: This is when you get a loan from the car dealer. The dealer usually goes to a third party lender and acts as the middleman. Typically, both the dealer and the lender get paid through the interest.

  • It’s often convenient to get a loan when you buy your car.
  • Dealer financing might not be the most cost-effective choice. Dealers have an incentive to charge more interest, and you’ll be taking out a loan in a high-pressure sales environment so you won’t be able to compare your options.

Car loan from a bank or alternate lender: A car dealer might offer you a loan on behalf of a bank or car financer, but you might want to go directly to the lender and cut out the middleman.

  • There’s a wide range of options available, and you can consider the loan terms at your own pace rather than at the car dealership.
  • Make sure your loan matches your vehicle type. Sometimes there are conditions around the types of vehicle you can get.

Find a car loan broker: You can also go through a broker that will find financing for you from one of its affiliated lenders.

  • A broker can compare suitable options on your behalf to help find something to meet your needs, especially if you don’t have the best credit and need help finding a loan.
  • Brokers charge additional fees for their services, and you’ll need to check the terms and conditions of their services before you apply.

Preapproved car loans: This is when you get approval from a lender for a certain amount and then find the right car after.

  • It helps you know where you stand financially and how much you can borrow. Preapproval lets you know your price range, and might give you an edge when negotiating with dealers.
  • The amount you qualify for doesn’t necessarily include all expenses and other taxes, so it’s important to make sure you aren’t caught short when you make you final purchase.

What extra costs should I budget for?

The sticker price of the car is the main expense, but not the only one. Make sure you have enough to cover all the related expenses, both during and after purchase.

  • Extras and modifications: The price you get at the dealer will depend largely on which features and extras are thrown in. This can turn the price thousands of dollars either way. If you don’t care about the modifications, skip them and avoid overpaying for something you won’t use.
  • Increased insurance premiums: When you add a new car to your policy, you should be prepared to pay more on your insurance each year. Contact your provider before you purchase a car to see how much the make and model might impact your premiums.
  • Registration: For new cars you’ll have to pay a fee to register it. And if you’re buying used, you’ll need to pay a fee for the transfer of registration/ownership. The cost of renewing your registration or registering a new car depends on your state, whether you can get any concessions and other factors.
  • Maintenance and fuel: It’s worth planning for operating costs. The cost of fuel and routine car maintenance depends on the type of car and how much you drive.
  • Car loan repayments: If you’re not careful these might become a major headache. You should know how much the repayments costs before taking on a car loan.
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Are cooling-off periods legal?

While there is a federal cooling-off period for many purchases, cars aren’t covered. This means that when you buy a new car and drive off the lot, you’re stuck with the deal you’ve made.

If you do get cold feet and want to return a used car, you may have more luck. Depending on the dealer, you may be able to return your car. Each lender is different, so if you research this aspect before you finalize your purchase.

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Rates last updated October 23rd, 2018

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Name Product Product Description Minimum Credit Score Term of Loan Requirements Car Loans
Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.
Varies by lender
Must be a US citizen with a current US address and employed full-time or have guaranteed fixed income.
Auto Credit Express Car Loans
Get connected with an auto lender near you, even if you have bad credit.
Typically 3 to 6 years
Must be employed full-time or have guaranteed fixed income of at least $1,500/month and be a current resident of the US or Canada.
LendingClub Auto Refinancing
Lower your monthly car payments and save on interest through a fast and easy online application process.
Fair or poor credit
Minimum of 2 years
Car must be less than 10 years old with fewer than 120,000 miles. Current loan must have a balance between $5,000 and $55,000 and at least 24 months left in its term.
MotoRefi Car Loan Refinancing
A car loan connection service for borrowers looking to refinance.
1–6 years
Must have an income of at least $2,000/month and have a vehicle with less than 100,000 miles. Car Loans
Get up to four offers in minutes through one simple application. Multiple financing types available including new cars, used cars and refinancing.
24 to 84 months
Must have a Social Security number; make $24,000+/year; have no open bankruptcies.
LendingTree Auto Loans
Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out.
Typically 1 to 7 years
Must be a US citizen and 18+ years old. Must have good to excellent credit.
Capital One Auto Financing
You could qualify for a car loan of up to 40000, but not all dealers accept this bank's financing.
Good to excellent credit
36 to 72 months
Valid street address; existing Capital One accounts in good standing. Car must be a 2006 model or newer with less than 120,000 miles.

Compare up to 4 providers

Bottom line

Buying a car is a long process that can be stressful and confusing, but you can make it more simple by knowing what type of car you want beforehand and learning about your financing options.

Frequently asked questions

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Kellye Guinan

Kellye Guinan is a writer and editor with and has years of experience in academic writing and research. Between her passion for books and her love of language, she works on creating stories and volunteering her time on worthy causes. She lives in the woods and likes to find new bug friends in between reading just a little too much nonfiction.

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