Most Americans own at least one vehicle, or live in a household where someone does. So buying a car is a reality you’ll probably have to face sooner or later — even if you can put it off for a while. Might as well do your best to get a good deal on it, right?
It’s not rocket science. Whether you buy from a traditional dealership or a direct-to-consumer retailer, heed our advice here to save money on your next new or used vehicle while reducing the stress inherent in the car-buying process.
Important Tips for Buying a Car
Follow these tips for buying a new or used car. Note that for best results, you need to get started well before you ever set foot in a dealership or complete your online vehicle purchase.
1. Do Your Research
Knowledge is power. Arriving at a car lot without first researching the car you want to buy is a mistake. You can find out just about anything you want to know about a car online. Edmunds.com, Consumer Reports, and Kelley Blue Book (KBB) are great places to start researching cars in your price range.
If you’re considering buying a new car, your goal is to find the “invoice” price, not the MSRP. The “invoice” price is what the dealer paid the manufacturer for the car. This is often surprisingly close to the MSRP or list price, but knowing exactly how much room the dealer has before they actually lose money on the deal will nonetheless come in handy once price negotiations begin.
If you’re thinking about buying a used car, research the recent resale prices for that specific car model. This data will give you more bargaining power than going in cold (or using outdated data from previous years). If you plan to trade in your current car, research market values for your vehicle too. Knowing the value of your trade-in can also be a powerful bargaining tool.
2. Look Into Prefinancing Options
Many people obtain financing from the car dealership, but this isn’t always fiscally responsible. Outside specific, time-limited promotions that may come with other strings attached, dealership interest rates can be much higher than loan rates from banks and credit unions. Yes, even in a low-rate environment.
Your current bank or credit union is one of the best places to start researching car loan rates, and you can obtain “relationship discounts” you won’t find anywhere else.
To speed up the process and obtain multiple financing quotes at once, use an aggregator like LendingTree, which compares up to five competing quotes at once.
Use Credit Karma to check your credit score beforehand and get a sense of the interest rate you’re likely to qualify for. If your score comes in lower than you’d like, consider putting your car purchase on the back burner and working to improve your credit and pay off debt.
While you’re at it, sign up for Experian Boost. This free program may boost credit scores derived from your Experian credit report by considering beneficial information that usually has no impact on your credit score, like on-time utility payments.
Once you obtain a quote from any financial institution, get it in writing. You can then present this quote to the dealership and use it as leverage to negotiate a lower interest rate.
3. Shop Around
Unless it’s an emergency, shop around before you buy a car. I have an established rule whenever I shop for a car: I always make sure that I walk out of at least one dealership. This way, I always know their rock-bottom price, which they often give me just before I leave.
It might also make sense to explore out-of-town car dealerships. Dealerships price their vehicles differently depending upon their location.
Once you’ve settled on your vehicle make and model and know where you plan to purchase the car, use a reputable valuation resource like TrueCar to get an accurate estimate of what you should pay for your new or used car.
Then double-check TrueCar’s pricing using at least one other reputable resource, like Kelley Blue Book. Both TrueCar and KBB (and some of their competitors) sell new and used cars, either directly or through partnerships with dealerships and direct-to-consumer sellers. This sets up enough of a conflict of interest that it’s best not to take one platform’s word for it.
4. Utilize the Internet
It’s easier than ever to buy a car online through websites like Carvana or direct-to-consumer manufacturers like Tesla. Going this route has three significant benefits.
First, you completely avoid the hassle of dealing with annoying salespeople. It could also help you avoid a negotiation misstep that results in your paying more than you should.
Second, you could end up with a much better final price due to the fundamentally different incentives inherent in the online car-buying process. A salesperson on the showroom floor is trying to negotiate the highest price possible since their commissions depend on a percentage of the sale price. By contrast, an Internet sales manager typically makes a fixed salary and gets paid a bonus based on volume.
Finally, purchasing a car online is more convenient than visiting multiple dealerships. At this point, virtually all reputable dealerships list current inventory on their websites and third-party sites, and they welcome Internet sales. And nondealer outlets like TrueCar, KBB, eBay Motors, and their direct-to-consumer sales partners are all excellent options with impressive new and used car inventories. You can also find used cars for sale on Craigslist, but I wouldn’t recommend it because these Craigslist scams are so common.
Fair warning: If you do decide to buy a used car online, you should still test drive the car and have it checked by a mechanic to make sure there are no issues or problems.
5. Buy a Car You Can Afford
If you’re considering buying another car before your current vehicle is paid off, you should seriously reassess whether or not you can really afford to buy another car. You don’t want to be saddled with an upside-down car loan.
A much better option is to wait until your current vehicle is paid off. Then set aside the money you used to put toward your monthly car payment in an interest-bearing account for one year while continuing to drive your old car.
For example, if your current car payment was $300 per month and you follow this strategy for just one year, you’ll have more than $3,600 to use as a down payment on your next car. Just make sure you’re not digging into your savings or your emergency savings fund to buy a top-of-the-line car. Buy within your means.
6. Negotiate Terms
Think of buying a car as a chess match — a battle of wits. Remember, next to buying a house, purchasing a new car is one of the most important investments you will make in life. You may be paying off this car for the next four, five, or six years.
So let the salespeople know upfront that you won’t be taken for a ride. Do everything you can do to negotiate the car loan and knock the purchase price down. Start with a ridiculous number and work backward. If the salesperson gives you an offer that includes a monthly payment of a certain amount based on a 60-month loan, tell them you want the same payment with a 48-month loan.
Enter the dealership with confidence, stick to your guns, and don’t feel bad about walking away from any offers. It might also be helpful to practice your negotiation strategies and tactics to prepare.
7. Look at Both New and Used Cars
Buying a gently used car is regarded by many as the best way to save money when purchasing a vehicle. The logic is that new cars depreciate considerably the moment you take them home from the dealership.
But buying a used car isn’t always the smartest choice from a financial standpoint. Used car pricing is sensitive to supply and demand, which can vary regionally, and macroeconomic conditions (used car prices tend to increase when the economy is weak).
Bottom line: Don’t write off a new car entirely, especially if you plan to hold onto your vehicle for the long term. Most depreciation occurs during the first five years of ownership, after which the net cost of ownership (of which depreciation is a major factor) declines significantly. The gap between the final lifetime cost of a gently used car retailing for $20,000 and a similar new car retailing for $25,000 isn’t as wide as you’d think.
8. Buy Based on Purchase Price, Not on Monthly Payments
Car dealers are notorious for offering an enticing monthly payment to potential buyers. Do not be misled. If this payment is attached to a 72-month loan, then it’s really not that attractive at all.
Always negotiate based on the purchase price of the car, and not the monthly payment. Also make sure you know the “full” purchase price of any car you buy. There could be many extra, hidden costs factored into the price, including various taxes, car preparation and delivery fees, and dealership costs you won’t know about unless you ask.
9. Don’t Mention Your Trade-In or Special Discounts, If Any
Play your cards close to your vest in all aspects of the car-buying process, especially when you have a trade-in. Don’t mention your trade-in until the end of the buying process. The dealer will likely use this information against you.
For example, say you’re looking at a $22,000 car, and the dealer’s rock-bottom price for that car is $18,000 (although he won’t share this information with you). If you have a trade-in worth $2,000, the dealer might offer to give you the car for $20,000 plus the additional $2,000 for the trade-in, for a total purchase price of $18,000.
If you hadn’t mentioned your trade-in, you could have negotiated the price down to $18,000 and then told the dealer about the trade-in, resulting in a final purchase price of $16,000. Negotiate these two aspects of the car-buying process separately. First, negotiate the best possible deal you can get for the car you want to buy, then go to work on getting the most for your trade-in.
Likewise, don’t mention any special discounts you bring to the dealership, such as from working in the auto industry or accumulating credit card rewards with a manufacturer’s co-branded credit card.
10. Factor in Insurance Costs
Always factor costs for car insurance premiums into the purchase price of your car. After all, the cost of insuring a car is a significant factor in the vehicle’s overall cost.
Start by getting insurance premium quotes online from multiple reputable insurers, like Allstate or Liberty Mutual. Be prepared to provide information about the car’s make and model and personal information including your age, marital status, and driving record.
Sports cars have higher premiums than conventional cars, but some cars have higher insurance rates for other reasons. For example, the Honda Accord, Honda Civic, and Toyota Camry are favorites among car thieves because of their higher resale values. As a result, the insurance premiums for these cars can be more expensive.
11. Avoid Impulse Buying
Prevent impulse buying by conducting extensive research before you buy a vehicle. Buying a car on a whim is a risky endeavor. You might realize after it’s too late that you can’t afford the car, or you may find its performance doesn’t meet your expectations.
By researching the make, model, and style of the car and reviewing insurance rates and financing, you should be able to put yourself in a car you’ll enjoy for many years to come.
12. Don’t Purchase the Add-ons
Buying a new car is a major purchase, and you might be paying it off over the next several years. If you finance the car, the overall costs for accessories will skyrocket, so keep the add-ons to a minimum. You don’t really need heated seats, and you can buy a portable GPS navigation unit online for much less than expensive built-in systems.
Rust-proofing is another add-on you don’t need despite what the salesperson might tell you. VIN etching, a rear camera, and a dealership maintenance plan are more add-ons you don’t really need.
13. Don’t Buy the Extended Warranty
The extended car warranties dealerships offer are expensive. Even worse, the coverage is often very limited and doesn’t cover the costs of many types of mechanical failure in new or used cars.
If you’re buying a new car, it should come with a manufacturer’s warranty that provides ample coverage for your vehicle. If you’re looking at a used car, keep in mind that many still have valid manufacturer’s warranties.
You especially want to avoid the extended warranty if you’ll be financing it as part of your car loan. The total cost of the warranty, including interest, will be exorbitant. Your best option is to simply deposit that money in a savings account for potential vehicle repairs and maintenance.
14. Always Test Drive the Car
Ninety percent of people who buy a new car test drive it first. Do not be among the 10% who don’t. You want to test drive the car for many reasons, but comfort should be foremost in your mind. There are some cars you just won’t feel comfortable driving. If this is the case, move on.
If you have children, bring them along on the test drive. Their comfort level is important too — and trust me, they will give you their honest assessment of the car. In addition to comfort, look for the following:
- Idle. The car should be smooth and quiet.
- View. Ensure the view from each of the mirrors is acceptable and you have a straight-line view of all dashboard gauges.
- Controls. Flip on the air, locate the turn signals, and turn on the windshield wipers. Ensure that everything is easy to use. Some people find their fingers are too big to handle certain switches, buttons, or levers in some cars.
- Handling and brakes. Make sure the car responds when you push the accelerator or brakes. Cars vary significantly in sensitivity, and you want to choose a car that best fits your preferences.
15. Visit the Mechanic When Buying Used
If you’re planning to buy a used vehicle, it’s essential to have the car thoroughly checked out by a mechanic before finalizing the purchase. They’ll inspect the car and look for unusual signs of wear and tear, as well as potentially concerning issues you wouldn’t find on a cursory visual inspection.
Any mechanical problems or maintenance issues the mechanic finds may determine whether or not you buy the car. The mechanic’s report may also provide you with leverage to negotiate a lower purchase price.
In the end, buying a car is a major purchase, and it’s important to research each and every aspect of the process. Educating yourself ahead of time helps you go into negotiations as prepared as you can be, increasing the chances that you’ll get the best deal possible on a new or used car. You’ll thank yourself later for those lower-than-expected monthly payments.