5 tips for buying a new car

If you’ve spent the past few months dreaming of a new ride in your driveway, you’re probably looking at models, comparing deals and evaluating what add-ons you can afford. Buying a car is a big investment. You’ll need to consider the cost, financing options and negotiating tactics before heading to the dealership. These five tips for buying a car can help.

1. Figure out what you can afford

You may have your heart set on a specific car, but you won’t be able to take it home unless you can afford it. Consider the monthly payment along with other vehicle ownership costs.

A good rule of thumb is to spend no more than 20 percent of your monthly household income on a new car. This figure should include your monthly car loan payments and all other expenses, like fuel, car insurance, maintenance, repairs and registration fees.

For the monthly payment alone, Edmunds suggests that you should aim for no more than 15 percent of your income.

Use Bankrate’s auto loan calculator to get an accurate estimate of what you can expect to pay each month and in interest over the life of the loan. It’s equally important to check your credit as it will determine the interest rate you receive.

2. Decide whether you want to buy or lease

Do you want to drive the car as long as the wheels can stay on? If so, buying is the way to go, and you’ll have the ability to trade or sell the vehicle when you want a fresh set of wheels. However, if you want a new car every three years, consider leasing.

Leasing means you might get a more upscale car for your money as they often come with lower down payment requirements and a more affordable monthly payment. But you won’t own the car outright. Plus, you’ll need to look out for costly lease terms, such as mileage restrictions and wear-and-tear fees, to avoid hefty penalties.

Consider the vehicles on your radar and weigh the pros and cons of buying and leasing one of them. Bankrate’s lease vs. buy calculator can help you estimate potential cost savings of buying or leasing so you can make an informed decision.

3. Research car options

Start researching your favorite vehicles to find the best car for you. First, visit automaker websites and independent auto information sites to assess the features that are important to you. Then check local inventory listings to see what is available in your area.

Keep your eyes out for any potential discounts. Many automakers offer discounts to students, military members and even members of certain credit unions. These discounts can be stacked and combined with any cash-back rebates on the model, which should be deducted after negotiating the price. Check the automaker’s website for these incentives before heading in.

4. Lock in your financing before visiting the dealership

Dealers typically receive a flat fee or a commission on the auto loans they facilitate, regardless of whether the loan is from the manufacturer or a local lender. That can mean less of a deal for you.

Instead of having your dealer do the work, compare auto loan rates at banks and credit unions and get a preapproved offer before heading to the dealership. Getting preapproved by a bank, credit union or online lender doesn’t mean you have to take that deal, but it can help you determine which financing option is cheapest.

You come to the table with more negotiating power if you present the preapproval to the lender. They might even offer to beat out the rate to earn your business.

5. Negotiate

Once it’s time to sit down and talk about pricing, come prepared with the research you’ve done. See if other dealerships are offering better deals on your vehicle and seek a price match from your salesperson.

If you’re looking to trade in your current car, save that discussion for after you negotiate the sale price of your new car. Having those conversations separately will help you get a better deal on your current car, and you’ll fare even better if you’ve done research on your current car’s value online.

Before you sign the final contract, go over all the details carefully. Examine any proposed fees and check that everything you negotiated verbally is also spelled out in writing. You should also be prepared to say no to those nice-to-have extras that you might not need or to the entire deal if it doesn’t work for you and the salesperson isn’t willing to budge.

Mistakes to avoid

Outside of the best ways to buy a new car correctly, there are also some important missteps to look out for.

• Mixing your emotions and your money: Never buy a car on impulse or the same day you test drive it. Instead, give yourself a few days to think it over. Before you make a final decision, look at all the numbers in the security of your own home, where you can make a more rational, analytical decision — and avoid a high-pressure sales pitch.
• Choosing whichever dealership is closest to you: Don’t just go to the dealer closest to home. Ask around, learn from friends’ experiences and research reviews. Dealerships charge based on ZIP code, so the exact same make, model and trim may cost more or less depending on where your dealer is located.
• Talking trade-in too early: Request to negotiate the sale price of your potential purchase first, then talk trade-in. Better yet, compare offers from multiple dealerships. You don’t have to trade your car in at the same place you buy from, so see where you can get the most money out of your current ride.
• Agreeing with the sticker price: The sticker price you see on the showroom floor is rarely the final price you pay. Instead, it is a starting point for you or your trusted negotiator to lower your final cost. Compare the sticker price to the manufacturer’s suggested retail price (MSRP), which you can find on sites like Kelley Blue Book.
• Not reading the paperwork: Negotiation is only the first half of the hurdles you must jump through at a dealership. The sales team will take you to the finance office afterward. Prepare to be pitched dealer add-ons, like extended warranties, wheel protection, interior protection and more.

One of the most essential aspects of car buying to remember is that you are allowed to walk away. You don’t need to close the deal the day you enter a dealership. To stay in control, never hand over your keys or driver’s license before a test drive. Some salespeople hold onto these items to keep you in the showroom for longer.

Ultimately, shopping around will help you feel more comfortable walking away if negotiation isn’t going to plan. Take your time researching comparable vehicles, visiting dealerships to view inventory and securing outside financing. If you can show the salesperson other vehicles you are considering, you can use those alternatives to strengthen your position.

The bottom line

Buying a new car is an exciting process, and there is no better feeling than driving off the lot knowing you got the best deal. But before you search for the perfect ride, ensure your finances are in order and your credit score is up to par. Otherwise you’ll be looking into bad credit auto loans, which come with higher interest rates. It’s equally important to assess your spending plan to determine how much car you can afford.

Once you have ironed out all the financial details, shop around for the best financing deal so you can negotiate with confidence. Going to the dealership prepared will help you find the most affordable option that works for your budget.