How To Buy a Car and Drive Away With a Bargain in 6 Easy Steps

How to buy a car: animated image of a grocery cart with a photo of two cars above it.

Buying a car should be straightforward with internet car shopping, competitive pricing, and the ability to browse cars at your fingertips. However, that isn’t always the case.

I am currently in the process of buying a new car, and with the inception of CarGurus, Tesla’s business-to-consumer selling model, and the used car market being in an overall rough shape, things are anything but simple.

The good news is that with all of these options, it’s easier than it has ever been to score a bargain on a new car. You just have to know what you’re looking for, know what you can afford, and know what kind of deal the dealerships are expecting to make.

Following this simple 6 step process will help you to find the car that you need, at a price that you love.

1. Determine Your Needs and Budget

If you head up to the dealership without knowing what you want or how much you’re willing to spend, I promise you, the dealership salesman will be more than happy to decide that for you. If you start with your dream car and then work your way backwards into your budget, you will likely end up spending more than you intended.

In most cases, here is the car buying mistake most people make:

  • They find the car they want
  • They use dealership or bank financing to fit the car into their budget
  • They end up with a car that has high payments and long loan terms
  • The car depreciates significantly before they even come close to paying their car off
  • Or, they lease the car

Budgeting for a car is vital. After housing expenses, automobile expenses are the most costly budgetary item for adults.

Knowing this, be sure always to follow these car buying budgetary guidelines:

  1. Your car’s value (whether new or used) should not exceed 25% of your gross income. For example, a person who makes $60,000 a year should only purchase a $15,000 car.
  2. The total monthly payment, insurance, and fuel costs shouldn’t exceed 10% of your budget. That will keep you in line with your debt to income (DTI) ratio and prevent you from exceeding your DTI score when home buying.

Once you know your budget, then it’s time to determine what you need in a car.

Consider factors such as your daily commute, the size of your family, and any specific cargo requirements you may have. For example, if you have a long daily commute, you might prioritize fuel efficiency and comfort.

If you have a large family, you'll need to consider seating capacity and safety features. Or, if you frequently transport bulky items or equipment, you'll want to ensure ample cargo space.

2. Research and Narrow Down Options

Start by researching different types of vehicles, including sedans, SUVs, trucks, and more. Consider your lifestyle, preferences, and needs to determine which type of vehicle best suits your requirements.

Once you've identified the vehicle types that interest you, evaluate key factors such as fuel efficiency, safety ratings, reliability, and resale value. Fuel efficiency can help you save money on gas in the long run, while high safety ratings and reliability ensure peace of mind and minimize maintenance costs. Additionally, considering resale value can be beneficial if you plan to sell or trade in your vehicle in the future.

Utilize Online Resources

Take advantage of online resources to research specific vehicle models and compare features and prices. Visit car review websites, browse forums, and explore manufacturer websites to gather information and insights from experts and fellow consumers. Pay attention to user reviews, ratings, and expert opinions to gain a comprehensive understanding of each vehicle's strengths and weaknesses.

I recommend:

  • Consumer Reports
  • Kelley Blue Book
  • J.D. Power
  • CarGurus 

Create a Shortlist

Based on your research, create a shortlist of potential vehicles that align with your criteria and preferences. Narrow down your options to a select few models that meet your needs and budget while offering the features and capabilities you desire.

3. Choose Your Purchasing Method

Financing a car is the most common purchasing method, but it’s not your only option. Begin by exploring various financing options available to you, including auto loans from banks, credit unions, and online lenders.

Each financing option comes with its own terms, interest rates, and eligibility criteria, so it's essential to shop around and compare offers to find the best fit for your needs and financial situation. Consider factors such as the loan term, down payment requirements, your credit score, and monthly payments to make an informed decision.

Get Pre-Approved for a Loan

If you’re leasing or paying cash for your car, ignore this step. Otherwise, before shopping for a car, it's wise to get pre-approved for a loan from your chosen lender. Pre-approval involves submitting your financial information to the lender, who will then determine the loan amount you qualify for and the interest rate you'll be charged.

Getting pre-approved not only gives you a clear idea of your budget but also allows you to negotiate with sellers from a position of strength, as you'll already have financing secured.

Consider Leasing as an Alternative

In addition to traditional auto loans, consider leasing as an alternative to buying a car outright. Leasing involves renting a vehicle for a set period, typically two to three years, and making monthly payments for its use.

While leasing may offer lower monthly payments and the opportunity to drive a new car every few years, it also comes with limitations, such as mileage restrictions and potential fees for excess wear and tear.

4. Set up a Test Drive and Inspection

Test driving a car is a must, but avoiding a car salesperson is also a top priority for some if they’re browsing. The key to navigating the overly ambitious car salesman is to call ahead and schedule a test drive with the internet manager.

Set up a few appointments on weekdays since others won’t be there and avoid just dropping by. That will help you drive the car and get a feel for the vehicle without sitting down and pretending to enjoy the small talk!

Stay firm on your stance that you’re simply browsing and not interested in purchasing just yet.

Conduct a Thorough Inspection

Before making a final decision, thoroughly inspect the exterior and interior of the vehicle for any signs of damage or wear. Check for dents, scratches, rust, and other cosmetic imperfections on the exterior, as well as any missing or malfunctioning parts.

Inside the car, inspect the upholstery, dashboard, and controls for cleanliness, functionality, and signs of excessive wear.

Don't forget to test all the features and amenities, such as the air conditioning, sound system, and power windows, to ensure everything is in working order.

Consider a Pre-Purchase Inspection

For used cars, especially those sold by private sellers, it's advisable to hire a qualified mechanic to perform a pre-purchase inspection. A professional inspection can uncover any underlying issues or mechanical problems that may not be immediately apparent during a test drive or visual inspection.

The mechanic will thoroughly examine the vehicle's engine, transmission, suspension, brakes, and other critical components to assess its overall condition and identify any potential issues.

5. Negotiate Price and Terms

Once you’re sure that everything is giving green lights with your chosen car, conduct thorough research on market prices for the vehicle you're interested in.

Utilize online resources, such as car pricing websites and recent sales data, to determine a fair purchase price based on the vehicle's make, model, year, mileage, and condition.

Negotiate With Confidence

When negotiating with the seller or dealership, be assertive and prepared to advocate for the best possible deal. Use your research findings to justify your offer and seek discounts, incentives, and favorable financing terms.

Be open to compromise but remain firm on your bottom line. Don't hesitate to ask for additional perks or concessions to sweeten the deal, like a longer warranty, a lower interest rate, cooler wheels, or whatever other feature may be available to you.

Know When To Walk Away

Don't feel pressured to agree to a deal that doesn't align with your budget or expectations. Be willing to explore other options or revisit negotiations with different sellers if necessary. Sometimes, walking away can lead to a better offer or help you avoid buyer's remorse in the long run.

6. Finalize the Purchase

Before finalizing the purchase, carefully review all documents provided by the seller or dealership. This includes the sales contract, financing agreement, and warranty information.

Pay close attention to the terms and conditions, including any fees, interest rates, and warranty coverage.

If you have any questions or concerns, ask for clarification before signing on the dotted line.

Once you're satisfied with the terms outlined in the documents, arrange for payment to complete the purchase. After payment is arranged, complete all necessary paperwork to finalize the purchase.

This includes registering the vehicle with the appropriate authorities and obtaining insurance coverage.


How Much Do You Have To Put Down on a Car?

While you don’t have to put anything down when purchasing a car, you can use a trade-in to help offset the costs or follow the recommended amount of 20% down. If you buy a $40,000 car, you would want to put at least $8,000 down. That will not only lower the monthly payments but should indicate the affordability of your purchase.

What Is the Cheapest Way To Buy a Car?

The cheapest way to buy a car is to get a loan from your bank and purchase used from a private party. However, with warranties and such, many will elect to purchase certified pre-owned at a dealership and finance the car. The average car loan is 5-6 years or 60-72 monthly payments.

Author: Josh Hastings


Josh writes about ways to make money, pay off debt, and improve yourself. After paying off $200,000 in student loans with his wife in less than four years, has been featured on Forbes, Business Insider, Huffington Post, and more! In addition to being a life-long entrepreneur, Josh and his wife enjoy spending time with their chocolate lab named Morgan.