NerdWallet’s Guide to Buying a Car

We break down everything you need to know about buying a new or used car.
Funto Omojola
By Funto Omojola 
Updated
Edited by Julie Myhre-Nunes

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10 steps to buy a car the NerdWallet way

The car-buying process can be draining and daunting, from navigating auto loans to determining affordability and ownership costs. And the process can get even more difficult in the current market, where low inventory and higher-than-usual prices can make it hard to find the exact car you’re looking for.

Here’s a NerdWallet car-buying guide to help simplify the process and assist you with making the smartest financial decisions throughout the journey.

1. Set your budget

Setting a budget is the first step to take when buying a car — before you even start looking for a vehicle or set foot in a dealership. If you’re paying cash, this step will be easier and faster for you. Even then, you'll still want to be aware and prepared for the other costs associated with buying a car, like registration fees, taxes and insurance.

Most Americans finance their vehicle purchases. In 2022, 80% of new vehicles were financed and 40% of used cars were financed, according to research from Experian Automotive, an auto data research company. Setting a budget means determining how much you can afford for a down payment and for monthly car payments.

Here are the basics for setting a budget:

Loan details

2024

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Include taxes & fees in loan?
Your loan estimate
Monthly payment

$368.47

Loan amount
$16,000.00

Total interest cost
$1,686.50

Total loan payments
$17,686.50

Payoff date
05 / 2028

2024

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Payment datePrincipalInterestMonthly paymentPrincipal balance
May 2024$301.80$66.67$368.47$15,698.20
Jun 2024$303.06$65.41$368.47$15,395.14
Jul 2024$304.32$64.15$368.47$15,090.82
Aug 2024$305.59$62.88$368.47$14,785.23
Sep 2024$306.86$61.61$368.47$14,478.36
Oct 2024$308.14$60.33$368.47$14,170.22
Nov 2024$309.43$59.04$368.47$13,860.79
Dec 2024$310.72$57.75$368.47$13,550.08
Jan 2025$312.01$56.46$368.47$13,238.07
Feb 2025$313.31$55.16$368.47$12,924.76
Mar 2025$314.62$53.85$368.47$12,610.14
Apr 2025$315.93$52.54$368.47$12,294.22
May 2025$317.24$51.23$368.47$11,976.97
Jun 2025$318.56$49.90$368.47$11,658.41
Jul 2025$319.89$48.58$368.47$11,338.52
Aug 2025$321.22$47.24$368.47$11,017.29
Sep 2025$322.56$45.91$368.47$10,694.73
Oct 2025$323.91$44.56$368.47$10,370.82
Nov 2025$325.26$43.21$368.47$10,045.56
Dec 2025$326.61$41.86$368.47$9,718.95
Jan 2026$327.97$40.50$368.47$9,390.98
Feb 2026$329.34$39.13$368.47$9,061.64
Mar 2026$330.71$37.76$368.47$8,730.93
Apr 2026$332.09$36.38$368.47$8,398.84
May 2026$333.47$35.00$368.47$8,065.36
Jun 2026$334.86$33.61$368.47$7,730.50
Jul 2026$336.26$32.21$368.47$7,394.24
Aug 2026$337.66$30.81$368.47$7,056.58
Sep 2026$339.07$29.40$368.47$6,717.52
Oct 2026$340.48$27.99$368.47$6,377.04
Nov 2026$341.90$26.57$368.47$6,035.14
Dec 2026$343.32$25.15$368.47$5,691.82
Jan 2027$344.75$23.72$368.47$5,347.07
Feb 2027$346.19$22.28$368.47$5,000.88
Mar 2027$347.63$20.84$368.47$4,653.24
Apr 2027$349.08$19.39$368.47$4,304.16
May 2027$350.53$17.93$368.47$3,953.63
Jun 2027$352.00$16.47$368.47$3,601.63
Jul 2027$353.46$15.01$368.47$3,248.17
Aug 2027$354.93$13.53$368.47$2,893.24
Sep 2027$356.41$12.06$368.47$2,536.82
Oct 2027$357.90$10.57$368.47$2,178.93
Nov 2027$359.39$9.08$368.47$1,819.54
Dec 2027$360.89$7.58$368.47$1,458.65
Jan 2028$362.39$6.08$368.47$1,096.26
Feb 2028$363.90$4.57$368.47$732.36
Mar 2028$365.42$3.05$368.47$366.94
Apr 2028$366.94$1.53$368.47$0.00

Calculated your loan?
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Compare a wide range of new and used cars in one place to find the right match for the loan amount and terms you calculated.

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2. Shop for a loan

After you’ve determined your budget, it's time to find the right loan for you. The loan amount and interest rate you’ll get will largely be based on your credit score and income. If you have a higher credit score, you’ll usually have a lower interest rate. On the flip side, those with poor credit scores typically qualify for loans with higher interest rates.

To completely understand what you qualify for, get a preapproved offer for a car loan. This is beneficial even if you plan to finance through a car dealership because it’ll give you negotiating power. For example, if the dealership tries to offer you a loan with 8% interest, you can show a preapproved offer for 5% interest for the dealership to match.

Compare the following lenders and get a preapproved offer.

3. Determine other ownership costs

Car costs go beyond just making loan payments. There are additional costs that increase how much you might have to shell out monthly, including registration fees, depreciation, interest, gas, insurance, maintenance and other fees.

Here are some resources to help you calculate the ongoing costs of owning a car:

4. Find the right car for you

Once you’ve analyzed the costs associated with buying a car, you can start to look for options based on the budget you’ve set. Depending on whether you’re looking for new, used or certified pre-owned options, you can shop with a trusted and reliable dealer in person or online through car-shopping marketplaces. You can also purchase used cars from private-party sellers on platforms like Craigslist and Facebook Marketplace.

Regardless of how you decide to shop, if you’re buying a used car, the first step to determine if a car is suitable is to look at its vehicle history report. These reports provide information about a car’s record of major accidents, previous owners and usage, mileage and more. They can even sometimes give you insight into a car’s past, like its maintenance record.

The following guides can help you during the car-buying process, based on what type of car you’re looking for.

  • How to buy a new car: These steps can help make the car-buying process for a new vehicle easier.

  • How to buy a used car: Whether you purchase from a dealer, a private-party seller or an online retailer, finding the exact used car you’re looking for can be rough in the current market. This checklist can make the process smoother.

  • Comparing car-buying apps: Apps like Autolist, Autotrader, CarFax and more can help you compare cars in your budget or even buy your car completely online

5. Contact the seller or visit a dealership

After you’ve selected some options you’re ready to pursue, you can contact the seller or visit the dealership to see the car(s). This might be a matter of physically driving to the dealership and talking with a salesperson or entering data to receive an exact price online.

Here’s what to do once you’re ready to contact a seller or dealer:

6. Inspect and test-drive the car, if applicable

If you’re buying a new car, it’s not necessary to have it inspected because there were no previous owners. But you should always test-drive a car to get a feel for how it moves on the road. However, if you’re buying a used car, there are additional steps you need to take to make sure you’re not paying more than a car is worth or buying a damaged vehicle.

Even after viewing a car’s vehicle history report, it's still important to view a car in person if you're able to and also have it inspected by a trusted and reliable mechanic. Pre-purchase inspections typically include test drives and can help to make sure there are no underlying problems with the car in question. Note that if you’re buying a car online, test driving may not be an option, but you should receive inspection documents at the very least.

Here’s what you need to know about a used car inspection:

7. Determine which warranties are right for you

Warranties and maintenance plans are not right for every buyer. But sometimes having the additional protection can make you feel safer and give you peace of mind. To determine if a warranty is right for you when buying, consider how long you expect to keep the car, how reliable the car is, and if it makes sense to waive a warranty at the time of buying and opt for it later on in the car’s life.

Note that you can buy other types of coverage — such as gap coverage and road hazard protection — from your auto insurer, which can often be cheaper.

Consider the following when deciding on a warranty plan:

8. Negotiate the best price

Deals are harder to find in the current market, but buyers can still try to negotiate down car prices to stay within their budget. Note that dealers might often charge more than the sticker price by adding fees and dealer options. Because of this, you'll want to compare the dealer’s asking price with the average market price.

When negotiating, be clear about whether you’re discussing the car’s “out-the-door” price, which includes taxes and fees, or only the sale price of the car. The following guide can help you while you negotiate.

Find your next new or used car with ease

Compare prices, models, and more from over 1,000,000 cars nationwide. Shop and compare before visiting the dealer, and get a trade-in offer for your current car in minutes.

Ford F-Series
Honda CR-V
Toyota Camry
Mercedes-Benz AMG GT

Vehicle imagery licensed by EVOX

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Still picking the right make/model? Explore on TrueCar
Used or new?
SHOP CARS
On our partner's site
You will be redirected to our partner's site.