How to Buy a New Car in 7 Steps

Buying a car can be a daunting process. And as the auto market reels from supply chain disruptions, high prices and soaring interest rates, it can be even more difficult to find the car you’re looking for.

But even within these market conditions, there are some tried-and-true steps you can follow, such as getting a preapproved car loan before you even step foot on the lot, that can make buying a new car easier.

» MORE: Compare auto loans, rates and lenders

Start by deciding if you want to pay cash or take out a loan for your new car.

Paying cash makes your budgeting process pretty simple, but don’t spend all your savings. And remember that you will also have to pay sales tax, registration and insurance.

Taking out an auto loan is the most common option, but it's important to research financing and get a preapproved car loan before you start shopping for cars. Getting preapproved for a loan will let you know how much you can afford to borrow and what interest rate you’ll likely get. This will not only help you set a budget but, also give you offers for the dealer to beat when you’re negotiating later down the line.

With your preapproval information, you can use a car payment calculator to figure out how much you can afford to put down and what your monthly payments will be. If you can, aim to put down 20% of the purchase price.

Once you know how much you can afford, you can begin comparing options that might be right for you. When researching, consider how you plan to use your car. For example, if you have a family, you’ll want enough room for everyone, plus ample cargo space. Additionally, making a list of must-have features can help you narrow down your options. For example, if safety is a top priority, you can check the Insurance Institute for Highway Safety for crash test ratings.

Aim to choose models not only for their dependability but also for their low cost of ownership. J.D. Power and Consumer Reports (which requires a paid membership) may be helpful resources; they collect maintenance reports from owners and rate cars for reliability.

When researching, check the total cost of ownership for each model. Some cars are cheap to buy, but will cost a lot in the long run because of insurance, maintenance, repairs and depreciation. Use tools like Kelley Blue Book’s Five-Year Cost to Own or Consumer Reports’ Cost of Vehicle Ownership to estimate these expenses. Sometimes, it may be wiser to pay more for a car upfront than to risk high maintenance costs down the line.

After you’ve established your criteria, search for models that meet them. Many automotive sites and car-buying apps have a car finder tool to help you identify strong candidates, as well as in-depth rankings and research guides. Filter your search according to your budget and desired features. Identify three to five target models to research in more detail.

» MORE: Car insurance comparison tool

It’s important to test-drive all the cars you’re interested in so you have a good feel for the different models. Keep the following in mind when test-driving a vehicle:

• Set aside a morning or afternoon for the process, and, if possible, do it mid-week when dealerships aren't too busy.

• Call ahead and schedule an appointment. That way, the right model will be pulled out and ready to go.

• Select a test-drive route that has a bit of everything: hills, rough pavement, curves and even a stretch of highway.

Due to the new-car shortage, it may be hard to find what you want on the lot. You can find dealership inventories online or use an app or website that lets you quickly search multiple dealerships at once.

If nothing is available nearby that fits your needs, try broadening your search radius using an online car-shopping tool like Autolist or Autotrader to cover an entire region.

Pricing guides such as Kelley Blue Book and Edmunds allow you to cut to the chase and find out what other people in your area are paying for the car you want. To see prices on either company's website, input the car options you want. Note that factors like color, for example, can affect a car’s price.

Additionally, make sure to see what, if any, incentives and rebates are available for the car you want. Most manufacturer websites list current offers, which typically change each month.

» MORE: Buying a car: 3 ways to save

Requesting dealer quotes by email can take the stress out of negotiating. You can ask for a price quote by emailing the dealership, or by using a third-party tool such as TrueCar that lets you quickly request quotes from multiple dealerships.

Compare the seller’s asking price to the average market price you determined through the pricing guides. Chances are, the seller is asking more than the market average.

If you negotiate in person, here are a few tips to use on the car lot:

• Don’t be a monthly payment buyer. If you have a preapproved loan, you’re treated as a cash buyer. Negotiate the price of the car, not the size of the monthly payment.

• Negotiate slowly. It’s easy to get confused, so go slowly and even write down the numbers thrown at you. Make sure you know whether you’re talking about the “out-the-door” price, which includes all taxes and fees, or just the sale price of the car.

• Ask about fees before saying yes to a deal. Some dealers may include fees that are unnecessary. Ask for a breakdown of additional fees before you agree to any deal.

• Be ready to walk. If you aren’t making progress toward a deal, or you don’t like the way you’re being treated, just walk out. 

If you have a car to trade in, make sure you’re getting the best price for it. You can use an online pricing guide’s appraisal tool to determine what your car is worth. Make sure to fill everything out accurately, as certain features and options can add more value.

Here are some terms you might encounter:

• Trade-in value: How much you would receive when trading in the vehicle.

• Private-party value: How much you would receive if you were to sell the vehicle on your own.

• Dealer-retail value: How much the dealer will try to sell the vehicle for.

You can also sell your car online through car-shopping sites that will give you an instant offer for your vehicle — even if you don’t purchase a vehicle from them. Having that as a reference point will put you in a better negotiating position at the dealership. If the dealer won’t beat the offer, you can always fall back on the better one.

» MORE: How to trade in a car that is not paid off

If you're negotiating by email or phone, you can ask to have the car delivered to you rather than picking it up at the dealership. Note that not all dealerships offer this service, and it’s typical for buyers to sign papers in person.

Before signing the papers, keep the following in mind:

• Even if you’ve been preapproved for a loan, the dealership’s finance manager may offer to beat the terms of the loan. It doesn’t hurt to see if they can get you a better interest rate. Just make sure all the other terms of the loan are the same.

• Before the contract is drawn up, the finance manager may try to sell you additional products and services. For example, buying an extended car warranty at the right price can provide peace of mind. But first, check the terms of the warranty that's included with the price of your new car. Most new cars have a bumper-to-bumper warranty covering at least three years and 36,000 miles, along with a powertrain warranty that typically lasts up to 60,000 miles. The powertrain warranty covers all the parts that make the car drivable, such as the engine, transmission and suspension.

• Take your time reviewing the contract and don’t let yourself be pressured into signing just to get it over with. The contract will include the agreed-on sales price and additional figures like state sales tax, a documentation fee (which is charged by the dealer for filling out your contract) and registration fees.