For most Americans, a new car is a major expense. As of mid-2024, the average price for a new vehicle was over $48,000, according to Clark.
After making a 10% or 20% down payment ($4,800–$9,600 on average), new car owners have to contend with a barrage of ongoing costs — monthly car payments, insurance premiums, and maintenance and repair costs, to name a few.
In a high-interest-rate environment, getting the best possible financing plan is key to saving money on a new vehicle. It pays to examine your options carefully, whether you take out a loan from your bank or secure financing from a dealer.
Needless to say, shopping for a new car is no simple task, and it’s important to go about it the right way. Here, we break the new-car-buying process into 8 general steps, each with detailed instructions and helpful tips.
Related: How to buy a used car: A 6-step guide with tips & best practices
General tips to keep in mind at every step of the car-buying process
- Move slowly and consider your options carefully: Consider the type of car you want, whether it’ll be a daily driver or the type you’ll use for weekend getaways.
- Shop around and compare options: Avoid going to only one dealership and making a decision quickly. Dealerships provide different types of discounts, incentives, upgrades, and options, and you can decide which one offers the best deal.
- Consider the long term: Depending on how long you plan to keep your new car, you may want to consider things like trade-in value, depreciation rate, and certain car models’ reputations for costly mechanical issues as they age.
- Examine the market: Before the pandemic, car sales were on a steady decline each year. In 2019, new passenger car sales — including sedans and compacts — were 4.7 million, down about 10% from a year earlier. Nowadays, annual sales have been much slower, typically at a pace of 3 million cars. It’s a buyer’s market at the moment, with excess inventory at dealerships across the country.
- Examine the inventory: Inquire about how long particular cars have been on a dealer’s lot. Dealers may be motivated to sell vehicles that have been taking up space for a long period of time, so you may be able to negotiate a better deal on those vehicles.
- Time your purchase right: The last months of the year — October through December — typically provide the best prices for car buyers. Dealerships want to get rid of the cars in their lots to make way for next year’s inventory, and they are more likely to sell at a discount and offer incentives to buyers.
- Use online resources: Consumer Reports, Kelley Blue Book, and Car & Driver are good resources when it comes to researching vehicle makes and models. Japanese cars like the Toyota Camry and the Honda Civic tend to rank high on their lists of recommendations based on fuel economy, reliability, lifespan, handling, and comfort.
How to buy a new car from a dealership: A step-by-step guide
Conducting research on the new car market and arming yourself with the right knowledge to deal with salespeople at dealerships can go a long way in securing the car you want at the right price. Whether you’re shopping for a sedan, an SUV, or a light pick-up truck, you can use the following steps to get the most out of the experience of purchasing a new car.
Step 1: Set a budget & decide how much you want to spend on a down payment
Decide how much money you want (and can afford) to put toward a down payment, whether it be 10%, 20%, or more. The rule of thumb here is that the higher your down payment, the less you’ll pay in interest over the term of your loan.
How much of your monthly disposable income remains after paying for necessities like rent, utilities, and food will help to determine the amount you can spend on your new car's monthly payments. Americans typically don’t spend more than 15% or 20% of their monthly income on car payments and related costs such as insurance.
On average, the purchase price of a new vehicle in the U.S. is around $48,000, and the average monthly payment is around $700 to $750.
Tips for this step
- Calculate how much money you have left over each month after paying all your bills. If you have to get into debt to make monthly car payments, then you may want to consider purchasing a used car instead.
- Factor in the possibility of rising insurance premiums. In some states, car insurance premiums are rising faster than the rate of inflation.
- Estimate additional costs related to your new car (gasoline, tolls, and routine maintenance), and make room for these expenses in your budget. Gasoline prices fluctuate all the time, and in some cases, the price of fuel can rise 50% in a matter of weeks. You’ll also need to pay for periodic oil changes to maintain the working condition of your engine.
- Set aside cash for incidental repairs if your insurance doesn’t cover them or if you have a high deductible.
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Step 2: Apply for several pre-approved auto loans
Start by getting pre-approved for an auto loan from your primary bank or credit union, then shop around for the best rates available. You may want to look at additional banks and other institutional lenders before turning to dealerships for financing.
Dealerships use lending institutions to make financing available because they themselves aren’t likely to provide the loans. Dealers also get a cut of the financing plan issued to you on behalf of a bank, which provides the primary loan.
Tips for this step
- Your credit score will make a difference in the financing plan your loan provider offers. A high score could set terms favorable to you in the form of an interest rate at current, prevalent rates, while a low score could lead to a higher rate.
- Inquire first with your bank about financing options before approaching any dealerships.
- In general the interest rate offered by your bank is likely to be lower than that offered by the dealership, which itself gets its financing from financial institutions. A bank might offer a rate of 5%, for example, while a dealer could offer a rate of 7%, which means that the dealer would take that 2-percentage-point difference.
- In some cases, a dealership may be able to offer either a lower interest rate, lower monthly payments, or both, so it's worth bringing your bank's quote to dealerships to see if any of them can beat it.
Step 3: Decide what you want out of your new car
Figure out what type of car suits your needs — whether it’ll be a simple daily driver or a capable off-roader for weekend getaways. Do you plan to use the car for your work commute and run errands on a regular basis? Do you plan to travel on weekend road trips to get out of the city and into the countryside?
Find out what works for you to get the most out of your new car. Create a short list of maybe three to five cars that meet your specifications. Eventually, you can narrow this down to a single model.
Tips for this step
- Assess whether you want a conventional car with an internal combustion engine, an electric vehicle, or a hybrid that combines both types of powertrain.
- Start with the basic model with the lowest MSRP (manufacturer's suggested retail price). Optional features will increase the price, whether it be a fancier paint scheme, alloy wheels, more horsepower, manual or power transmission, a touchscreen and a subwoofer for entertainment, a rear spoiler, or an upgrade to telematics that can monitor fuel consumption and alert for potential collisions.
- Check the interior and exterior. How many passengers can you fit inside the car? Typically, a coupe will seat just two, while a sedan will seat the driver and a passenger in the front and two or three in the rear. Can the car be outfitted with additional outlets for charging phones? Are leather seats available?
- Will you get the most of the options that the dealer suggests? A car with a four-wheel drive used only in the city may not be necessary, while a power window on the driver's side comes in handy for drive-thrus. Rustproofing the undercarriage can help to prevent rust from developing if you live in an area where there’s a lot of rain.
- Consider the paint options available. A dark color can make the car heat up quickly if you’re living in a hot area like the Southwest.
Related: Best new cars and SUVs under $30k according to Consumer Reports
Step 4: Test drive the models you’re interested in
A test drive gives you an idea of how a car handles on the road, its level of comfortability, and how features like automatic braking and interior climate control function.
Create a checklist, mark off items, and make notes on what you experience during the test drive. Test drive different cars and pick the one that suits you best.
Tips for this step
- Evaluate the powertrain. Start the engine and listen to how the engine or electric motor sounds.
- Experiment with the car’s steering and handling. Does the car's direction adjust easily when the steering wheel is turned? Does the car handle sharp turns well? Steering and handling should be comfortable and responsive.
- Play with the gas pedal. Acceleration should be quick but smooth. Check the brakes at different speeds to see how responsive they are. Driving onto a highway, you should be able to accelerate quickly to move from the ramp and merge into faster-moving traffic.
- Test the suspension. A car’s suspension system should be good enough to handle potholes and bumps without causing you to jump from your seat.
- Make sure the vehicle has good visibility. Are there blind spots on either side of the car? Large windows can help you look for other vehicles on the road as you switch lanes. Cars outfitted with sensors can help detect whether another vehicle is too near on either side.
- Don’t be too eager. A dealer who accompanies you on your test drive might sense that you’re eager to seal the deal on a new car and push for options that will drive up the cost of purchase. They may persuade you to consider buying the same model but with all the bells and whistles, such as telematic features, higher horsepower, and additional exterior paneling and trim.
- Use the car’s features. Are the controls easy to navigate from the driver’s position? How does the cruise control feel? Is there a rear-view camera? How helpful is it with parallel parking?
Step 5: Figure out how much it should cost
Before walking out the door with your new car, you will need to figure out what the “out-the-door” price is, and that refers to the total cost, which comprises the MSRP and additional fees, namely the sales tax, title fee, and registration fee.
Components of your new car’s “out-the-door” price
- Sales tax: Depending on where you live, you may have state and local taxes to pay on the price of the new car.
- Title and registration fee: You’ll need to pay fees for ownership and registering the car with the state.
- Document fee: This covers the cost of processing the paperwork. In some states, a maximum amount must be paid. For example, in New York, it would be $175.
- Destination charge: Sometimes, automakers charge a fee for delivering the car to the dealership, which is typically passed on to the buyer.
- Dealer add-ons: Beware of add-ons such as window tints, anti-theft devices, and door trims that you may not have agreed to.
- Manufacturer rebate: The automaker may provide a cash discount to encourage the purchase of a particular car, and this promotion could take thousands of dollars off the sticker price.
- Dealership incentives: Some dealers offer additional discounts and incentives to further reduce the price of the car
- Trade-in credit: This is the amount you could receive for trading in the vehicle you currently have in exchange for purchasing a new car with the dealer.
Tips for this step
- Use an online calculator. Automakers such as Toyota have a calculator on their website for a particular car that allows you to calculate how much you would pay for a vehicle based on your credit score, the interest rate, and the term of your loan. A longer payment plan over 84 months will result in a higher interest rate than that for a shorter, 36-month schedule, for instance.
- If you have a car you want to trade in — in exchange for a lower price on a new car — assess the trade-in value of your existing vehicle. Some automakers will have a pop-up option on their website to help you determine the trade-in value of your vehicle, and it doesn’t necessarily have to be from the same manufacturer.
More on automobiles:
- Hybrid cars with the best fuel economy according to Consumer Reports
- A full list of EVs and hybrids that qualify for federal tax credits
- The least expensive car brands to repair & maintain according to Consumer Reports
Step 6: Get quotes from several dealers
When you’ve narrowed it down to a few cars, compare prices from multiple dealerships and inquire about incentives and discounts that might further reduce the price. Trade-in rates for your existing car could vary by dealer, and that might affect your decision about where to buy.
Tips for this step
- Shop at different dealerships. A dealership in a city’s central business district is likely to have higher prices than one in the suburbs or countryside since overhead costs vary by location. The rule of thumb is that the farther the dealership is from the city, the lower the price of the car tends to be.
- Shop around for the best interest rate. A dealer in one area might offer a lower interest rate than that of one in a different area.
- Avoid taking options that you don’t want. Dealers have an incentive to make more money from you with a package of options and upgrades. Add-ons like spoilers, paint trims, and heated seats can drive up the cost of a new car.
Step 7: Consider warranty options
Typically, a car’s warranty is factored into the cost of the purchase of a new vehicle, and the warranty helps to cover costs of damage from regular use or defects. But after that factory warranty period ends — usually after one or two years or once it’s reached a certain mileage — you can purchase an extended warranty.
Tips for this step
- Coverage under warranty begins on the day the car is delivered to the buyer. A dealer should not charge you for a warranty that’s already built into the price of the purchase.
- Find out what’s covered under your warranty. Is it the whole car or just the powertrain? How many miles or years does the warranty cover?
- Basic warranty coverage starts the first day you use your new car and typically covers all components from normal use and maintenance. For example, Toyota sets its basic coverage at 36 months or 36,000 miles — whichever comes first. This warranty also covers repairs and adjustments needed to correct defects in materials or workmanship or any part supplied by the automaker.
- You can choose to pay for an extended warranty once your original warranty expires. Research the car model you intend to purchase and find out whether other customers tend to take out extended warranties. If most do, it could be wise for you to do the same.
Step 8: Review and sign the purchase agreement
After you’ve decided on the car you want to buy and have secured financing, there are a few more points to consider. It can be an expensive decision, so it pays to be thorough to avoid buyer’s remorse after completing the purchase.
Tips for this step
- Agree on the final price, which will be the out-the-door price.
- Review the terms of the loan agreement.
- Inspect your vehicle to ensure that it’s free of dents and scratches. Make sure the mileage isn't higher than it should be after just a few test drives.
- Review the car's title and ensure it is in your name. Check that the dealer will follow through with the registration and issuance of the license plates.
- Review the warranty to determine which parts of the car are covered, such as the engine, transmission, electronics, and air conditioning system.
Related: The longest-lasting car models (200k+ miles) according to Consumer Reports
New car aftercare: How to make the most of your purchase
During your warranty period, you may be entitled to free-of-charge services such as tune-ups, oil changes, tire rotations, battery checks, and diagnostic scans.
Periodic tune-ups and inspections according to the service schedule will ensure that the engine is running properly, the brake pads aren’t worn out, and the undercarriage is free of rust. Routine maintenance will help reduce repair costs in the long term and can also boost the trade-in value when it’s time to purchase a new vehicle.
Frequently asked questions about buying a new car
Below are answers to some of the most common questions consumers have about shopping for a new car.
What should you ask when buying a car at a dealership?
Being knowledgeable about what types of cars are available at a dealership will make it easier for the dealer to help you pick what car suits you. Inquire about the different options, such as a bigger engine with more horsepower or the controls on the dashboard.
Don’t be too eager while on a test drive for a car because the dealer might push for you to upgrade with options that are likely to drive up the price. Alternatively, they might convince you to consider buying a different model with a higher sticker price.
Set out with a realistic idea of what you can afford and avoid being convinced by a dealer to buy a vehicle that’s beyond your financial means.
How much money should I have before buying a new car?
Before deciding to buy a new car, you should make sure you have enough money saved for a downpayment and enough recurrent income to cover the monthly payments. You’ll also have to consider insurance payments and potential repairs and maintenance, such as changing the oil and rotating the tires.
Set aside what you can afford, and avoid taking an unrealistic, “pie-in-the-sky” approach that could render you unable to maintain payments and lead to repossession from your lender.
How can you get the lowest possible price on a new car?
The lowest possible price on any new car is usually its MSRP minus any available rebates. You can negotiate with the dealer on other fees to get the best out-the-door price.
Optional features will also raise the price of the car, and the dealer may try to push those extras on you, so be ready to say no to add-ons if budget is your primary concern.
What should first-time car buyers keep in mind?
Do as much research as possible on what cars are available and suit your needs. More importantly, figure out how much you can afford and will be able to pay throughout the car’s life. Will an EV help save you money over the long term compared to an engine-only car as fuel prices remain high and possibly rise?
Is it better to buy a new car or a used car?
As soon as a car leaves the lot of a dealership, it depreciates in value, usually by almost 10%. There are, however, advantages to owning a new car compared to purchasing a used one. As the first owner of a car, you don’t have to worry about any of the pre-existing issues that so often come with used vehicles.
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