10 Tips For Buying A New Car At A Dealership

Getting some handy tips for buying a new car can give you some peace of mind during the car-buying process. After all, a vehicle is a major purchase – and it’s important to know you’ve found the right car, the right financing and the right deal.

Let’s explore some tips that can boost your confidence in your car purchase and potentially save you a lot of money in the process.

At A Glance: Key Car Buying Tips

Here are the car buying tips we’ll cover in this article:

• Pick Your Type Of Vehicle
• Determine Your Price Range
• Decide Whether To Buy New Or Used
• Figure Out Whether To Buy Or Lease
• Consider Selling Or Trading In Your Old Car
• Plan Your Test Drive
• Uncover The True Cost Of The Car
• Decide Whether To Finance Or Pay Cash
• Determine When To Buy
• Negotiate And Close The Deal

1. Pick Your Type Of Vehicle

Some people go car shopping because they’re in need of basic transportation to commute and handle errands. Others might need a fully appointed work truck to handle a specialized career or pursue hobbies. Next are a few important categories of factors to consider when car shopping.

Where You Live, Drive And Park

A typical American car dealership has an array of new vehicles – subcompact cars, sedans, crossovers, sport-utility vehicles (SUVs) and pickup trucks, to name a few.

Carefully consider how far, where and why you’ll drive – and even your parking situation. For example, parking a full-sized pickup truck might be challenging if you live in a big city. Meanwhile, if you live in a rural town with bad weather and rough roads, a subcompact car might not be the best option.

Conventional, Hybrid Or Battery-Electric Vehicle

While gas-powered engines are still the norm, many manufacturers are offering more hybrid options. Also, sales figures for battery-electric vehicles (BEVs) are at an all-time high in the U.S., with experts projecting up to 1.4 million sold in 2023.

You’ll have to consider the total cost of ownership and how it fits your budget. Buying a gas car or truck is likely to be the cheapest purchase option in any vehicle class. But fuel and maintenance can make the total cost of ownership more expensive than a hybrid or BEV. For example, the total cost of ownership for a $39,999 Tesla Model 3 is similar to that of a $25,000 Toyota Camry with a gas-powered motor. This is mostly because of the savings you’ll enjoy in fuel and maintenance costs with the Tesla.

Incentives such as some of those available through the Inflation Reduction Act of 2022 can further reduce the cost of owning alternative-fuel vehicles.

The Features You Want Or Need

Consider what you need from your new car, including safety features, fuel economy, all-wheel drive, towing capacity and cargo capacity. Some car shoppers also want state-of-the-art infotainment and navigation systems.

2. Determine Your Price Range

According to Consumer Reports, the average price of a new car is more than $48,000. That’s about $10,000 higher than the average price in September 2020. Even though experts say costs are leveling off, that’s still a lot for most consumers.

Also, only one vehicle – the Mitsubishi Mirage – averaged a new sale price of less than $20,000 in July 2023.

The average cost of used cars is also still high, coming in at roughly $27,000.

Also, consider the total cost of ownership, which includes car insurance, maintenance and fuel, in addition to monthly car payments – that include interest – if you choose to finance.

How Much To Spend On A Car

How much you should spend on a car depends on your financial situation, especially the total amount of any other debts you carry. Some experts say it’s okay to spend up to 22% of your take-home pay on a car each month if your only other major debt is a mortgage. That percentage should include fuel, maintenance and car insurance, along with the car loan payments.

Interest Rates Add To The Cost Of Cars

Financing also impacts how much you’ll pay. In August 2023, new car loan interest rates averaged 12.87% to 23.65%, depending on the borrower’s credit score.

For used vehicles, interest rates ranged from 13.12% to 23.90%, depending on credit score. These figures were provided by U.S. News & World Report, per myAutoloan.

3. Decide Whether To Buy New Or Used

Interest rates and sticker prices might push many buyers into a used vehicle. If you buy used, though, you’ll need to take certain actions.

Check The Condition Of The Car

Services such as CARFAX allow car buyers to discover whether a vehicle has been in accidents or received the right maintenance.

Used car reports can’t track everything about a vehicle’s condition, though. For example, if the owner changed their oil at the recommended intervals, a report might show that in a positive light. But if the driver spent a lot of time idling, which increases engine wear, the recommended interval might not be often enough.

Determine What’s Left On The Warranty

Some automakers have generous warranties. Verify what’s left and what’s covered on the warranty of any used car.

If you’re buying electric, focus on the battery warranty. That’s one of the most expensive components in a BEV, and it’s still an emerging technology.

4. Figure Out Whether To Buy Or Lease

Some drivers love the convenience of a lease. With a lease, you can get a new car with a full warranty more often and have potentially less upfront cost. Leases often include generous incentives as well as loopholes around portions of the Inflation Reduction Act. These loopholes allow those who lease to take advantage of incentives for electric vehicles made outside of North America, which aren’t available to buyers. 

On the not so positive side, a lease might restrict the number of miles you’re allowed to drive, and it leaves you with no equity in the vehicle.

5. Consider Selling Or Trading In Your Old Car

If you already have a car or truck, you’ll need to decide whether to sell it or trade it in. Typically, car owners who sell a vehicle on their own get the best price. Selling to online car buyers or trading your car in is often more convenient, but the sale price or trade-in value likely won’t be as high. With less money from the sale, you’ll have less to use for a down payment on your new vehicle purchase.

If you’re planning to trade a car in, be aware that some savvy buyers wait until they negotiate the best price before mentioning a trade-in. This can prevent the salesperson from inflating the price of the car to compensate for a trade-in amount that seems generous.

6. Plan Your Test Drive

Once you have a list of vehicles that meet your needs and your budget, it’s time to test drive. Here are some points to keep in mind.

Take A Test Drive Before You’re Ready To Buy

Resist the pressure to buy the day you test drive. You should be able to see how the vehicle handles and how it fits you, without pressure to buy that day. But it might be best to inform the salesperson of your intent.

Consider The Dealership

Along with buying a vehicle, you’re forming a relationship with the car dealer. Consider the salesperson’s knowledge and how they treat you throughout the process. Ensure that you’re comfortable with their knowledge – and verify any claims about the vehicle’s features, capabilities and reputation.

Also, determine whether the dealer has been honest in presenting the vehicles they have in stock, along with their prices and options. 

7. Uncover The True Cost Of The Car

After test-driving vehicles and evaluating the dealerships, research the true cost of the cars so you know whether you’re getting a fair price. The manufacturer’s suggested retail price (MSRP) is often just a starting point – and in some cases, the dealer may mark the car well above the MSRP.

Sources such as the Kelley Blue Book and Edmunds.com offer helpful information about the true cost of vehicles. If you’d like to go deeper, a paid service such as Fighting Chance will provide information about recent purchase prices, overpriced add-ons and tactics that can force dealers to compete.

8. Decide Whether To Finance Or Pay Cash

Nearly 80% of new car buyers used an auto loan in 2023. If you fall into the category of those who take out a loan to purchase a car, researching your financing options will be a critical part of the car buying process. Consider starting with the bank or credit union where you have your checking and savings accounts.

Securing an auto loan outside of the dealership where you’re looking to buy can provide leverage when negotiating a purchase price by showing you’re a serious buyer, providing a hard limit on your budget and allowing the car dealer a fast transaction.

At a minimum, consider getting preapproved for a loan.

Financing Through A Dealership

While a buyer writing a check for the purchase amount might seem optimal for a dealership, bear in mind that car dealers make money by offering financing, which requires the buyer to pay monthly interest. Even if you walk into a dealership with cash, the salesperson may try to convince you to finance if their financing offers include a markup that boosts their bottom line.

Dealers may pitch financing with a promotional deal, rebate and low interest rate. In addition, they might handle paperwork for buyers. They’ll also submit your financing application to several lenders at once, which will likely take less time than the amount of time you would spend applying with financial institutions on your own.

Be especially aware that dealers typically try to get customers to focus on the monthly payment rather than the actual price of the car. If you’re shopping around, your lowest monthly payment option might be based on your longest loan term, which will drive up the overall cost because you’ll pay more in interest over time.

9. Determine When To Buy

Once you’re armed with information, decide when to visit a dealership or send an email to a dealer signaling your interest in a vehicle. Here’s what to keep in mind about the most ideal times to buy a car.

End Of Year Might Be The Best Window

Experts say that October and November present a good window of opportunity for car shoppers. Dealers are often motivated to clear out models from that year and end the year with the best possible sales numbers.

End Of The Month, Week And Day Might Matter, Too

It’s possible that shopping on certain days of the week or month, and perhaps even at certain times of day, can help you land a better deal on a car. For example, dealerships may be more generous at the end of the month if they’re trying to meet a monthly sales goal.

Shopping at the end of the day can also be a solid play if the salespeople at the dealership are ready to go home and want to close a deal as fast as possible.

10. Negotiate And Close The Deal

This is where a number of factors come into play. These factors include:

• The details of the financing that’s available
• Whether you’ll trade in your current car and how much you can get for it in a trade
• Whether you’re buying a car off the lot or ordering one according to your specifications

You’ll want to examine all of the paperwork and be ready to say “no” to extended warranties or optional accessories.

Feel free to question any part of the paperwork that you don’t understand or that doesn’t meet your expectations. And be ready to walk away from the purchase if you deem moving on to be in your best interest.

Is Buying Online The Best Way To Buy A Car?

Many options for buying online are available these days. Some emerging vehicle brands don’t even have dealerships, making online purchases their way of doing business.

Whether buying online is the best way to purchase a car is open to debate. It can save you from driving from dealership to dealership, and online purchases can also be less stressful for people who don’t like negotiating with a salesperson and their finance manager. 

On the other hand, buying online might make it harder to schedule test drives and get your questions answered at one time.

The Bottom Line: Do Your Homework When Buying A New Car

When making a major purchase such as a car, you’ll likely need to do a decent amount of research to find the best interest rate, the vehicle that most closely suits your needs and budget, and a dealership you can trust. You’ll also want to find the best price for the type of vehicle you settle on.

Knowing your credit score can be tremendously beneficial when researching car loan options. Download the Rocket Money℠ app today to get your credit score for free.