How to buy a new car – Forbes Advisor

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Although the process of buying a car can seem overwhelming, especially since there are more options than ever, there are strategies to help you find the right vehicle while saving you from unnecessary debt. .

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7 tips for buying a new car

If you are ready to buy a new car, here are some tips that will help you:

1. Know your budget

Before you start looking for cars, it’s important to know what you can reasonably afford and whether you want to pay cash for a vehicle, take out a loan, or set up a lease.

In May 2022, the average cost of a new car was $47,148 while the average of a used car was $28,312, according to Kelley Blue Book (KBB). With these high prices, most borrowers rely on an auto loan to finance a new car. If you opt for a loan, make sure that the monthly payments that come with it will fit comfortably into your budget.

Also consider the trade-in value of your current car (if any) and how much you can spend on a down payment. You can use our auto loan calculator to estimate your monthly payments and overall repayment charges.

In addition to considering how much you can afford to spend on a car, think about what you might pay for gas, maintenance, repairs, and auto insurance. It’s generally recommended to keep the total cost of your car to 15% or less of your monthly take home pay.

2. Look for cars within your budget

After determining what you can spend on a car, you will need to decide what type of vehicle will best suit your needs. As you research different options, consider which features are most important to you, such as performance, gas mileage, cargo space and safety ratings. Also think about all the extra details you want, like heated seats or a premium sound system.

Plus, be sure to look at ownership costs, reliability, and market pricing to help narrow down your choices. Resources such as Consumer Reports, Edmunds, JD Power and KBB can be helpful in this regard.

3. Research resellers, online retailers and private sellers

Depending on the cars you’re considering, you might have the option of working with a dealership, online retailer, or private seller. Here’s how they generally work:

  • Dealers. These are companies that have entered into a contract with one or more car manufacturers to sell new or used cars directly to customers. Dealerships usually list all of their inventory online, making it easy to see if they have the vehicle you want. Many also offer in-house financing and help you with the documents required by the Department of Motor Vehicles (DMV).
  • Online retailers. If you know exactly what car you want, you can consider buying a car online from a retailer like CarMax, Carvana, or TrueCar. This type of website will find the vehicle you are looking for based on manufacturer, model, year, mileage, condition, and proximity to where you live. You can then choose to pick up the car or have it shipped to you.
  • Private sellers. They are simply people who have chosen to sell their cars on their own. Because a private seller doesn’t have to make a profit, you might get a better deal on a used car this way compared to buying from a dealership. However, there is also little protection for you as the buyer after purchase if something is found to be wrong with the vehicle. In addition, you will have to manage the DMV documents yourself.

4. Get pre-approved if financing with a lender

If you’re considering taking out a car loan to pay for your new car, be sure to shop around and compare your options with as many lenders as possible to find a good deal. Auto loans are available from a few types of lenders, including online lenders as well as traditional banks and credit unions. If you already have a bank account, you could qualify for discounts if you also get a car loan from that bank.

Additionally, many lenders offer a pre-approval option. This allows you to see your personalized rates after providing some basic information and agreeing to a soft credit check that won’t impact your credit score.

Keep in mind that most dealerships offer in-house financing which you might also consider, which might be easier to get if you have bad credit. If you walk into the dealership with a pre-approval letter from another lender, the dealership could negotiate a better deal with the lender they partnered with. You can compare this with the pre-approved terms offered to you to see which is the best deal.

5. Go for a test drive

After you’ve narrowed down the cars you’re interested in into a manageable list, you’re ready to test drive them. It’s usually best to try cars one after the other so the experiences are fresh in your mind, so set aside a morning or afternoon for that. Let the dealership know in advance what time you want to drop by so they can have the right vehicles ready and waiting for you, and predetermine an itinerary that includes both city and highway driving.

Once behind the wheel, take note of the interior layout, smooth and comfortable ride, acceleration and braking capabilities, and handling. Listen for squeaks, rattles, vibrations, or engine noise that could signal a problem.

In addition, talk to the seller who accompanies you. They will likely be able to share more information about the vehicle than is found in your online searches.

Above all, don’t feel like you’re spending too much time with a vehicle, this is an opportunity for you to do your due diligence.

6. Negotiate your purchase

After testing the cars, you’ll hopefully know which car you want to take home. If you’re ready, you can begin the negotiation process with the dealer or seller.

If you’re buying from a dealership, it’s you versus a professional negotiator – and that’s when you put that pre-approval to work for you. Having a pre-approved loan puts you in the category of a cash buyer, so don’t let the salesperson drag you into a discussion about monthly payments if you’ve already settled that with your lending institution.

Go slow and ask questions. If you’re considering saying yes, be sure to educate yourself on the potential fees to ward off a dealership who attempts to assign bogus fees in an attempt to make a profit. And finally, don’t be afraid to walk away if the negotiations are going badly or if you feel disrespected.

7. Understand the terms before signing the agreement

If you and the seller reach an agreement, you are ready to proceed with the purchase of the car. But before that, there are a few things to check:

Rates and terms, if financing

If you have already been pre-approved by a lender and wish to obtain a loan, you will need to complete a complete application and submit all required documents, such as tax returns or pay stubs. This process will require a rigorous credit check which could result in a slight temporary drop in your credit score.

Keep in mind that to qualify for a car loan, you will usually need:

  • Good credit. This usually means having a credit score of at least 670. Some lenders also offer bad credit car loans, but these usually come with higher interest rates than good credit loans.
  • Verifiable income. Lenders want to see if you can afford to repay the loan.
  • Low debt-to-income ratio (DTI). Your DTI ratio is the amount you owe in monthly debt payments relative to your income. For an auto loan, your DTI ratio should not exceed 50%, although some lenders may require ratios lower than this.

If you are approved for a loan, be sure to read the terms of the loan carefully to understand the interest you will be charged and the fees that come with the loan.

Compulsory fees and paperwork

Be prepared to complete the required paperwork for the DMV and pay mandatory fees, such as sales tax and registration and title fees. If you work with a dealer, they will usually take care of the paperwork for you, but beware of documentation fees in exchange for this service.

If you’re buying from a private seller, you’ll need to go to your local DMV to take care of it. You will usually need at least a signed title and bill of sale from the seller.

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