09.15.2023 By Amy Miller, AFC®

Purchasing a Car

Buying an automobile is a major purchase and often the first large purchase many of us make. Finding the right car, navigating loans, and negotiating with a dealership or seller can be a little daunting.

Buying an automobile is a major purchase and often the first large purchase many of us make. Finding the right car, navigating loans, and negotiating with a dealership or seller can be a little daunting.

With that in mind, we’ve put together a few steps you can take to help ensure you are making the right purchase decision and getting the best deal possible.


Step 1 - Determine Your Purchasing Budget & How You Will Pay

You’ll need to start by first considering what you are willing to spend on a new automobile, what is realistically affordable for you, and how you will pay. Are you able to pay in cash or will you need to take out a loan for the purchase? To get a clear view of your finances to determine what you can afford, establish (or revisit!) your spending and savings plan.


Step 2 – Research Automobiles

Next, you’ll want to do your homework and search for vehicles within your target price range that offer any of the features you may want or need. Maybe it’s low gas mileage, a great safety rating, a sunroof, third-row, or heated seats and a backup camera. You’ll want to look for an automobile that will fit your lifestyle, needs, and purchase budget.


It’s important to not ONLY consider the purchase price of the vehicle. You’ll also want to determine the other costs associated including gas, insurance, maintenance, repairs, registration, etc. Certain automobiles can actually be pretty expensive to drive and maintain (like requiring premium gasoline or an oil change that costs over $150).


You can use Kelly Blue Book or NADA (National Auto Dealers Assn) to help with the search and determine the retail value of cars with your desired features and what specific automobiles fit your target price range.  You can also use these sites to determine the value of a trade-in if you have one, which is also VERY important to know before talking to a dealership, seller, or potential buyer.


Step 3 – Secure Financing (if needed)

If you need to borrow money to make the purchase, it’s best to secure pre-approval before shopping. This will help you know exactly how much you can spend, the cost associated with the loan, and the repayment terms.


Understanding the loan terms and conditions you are approved for is one of the most important factors when purchasing a vehicle that you will be financing. Unfortunately, most dealer upselling is done during the finance process, resulting in many of us entering into auto loan contracts that include unnecessary add-ons and unfavorable terms that we may not fully understand or have time to truly consider before committing.  


Pre-approval allow you time to review the terms, conditions, and payment expectations before making the purchase. It also allows you time to think it over and consider all factors. Often, we find ourselves in a dealership, agreeing to things we don’t understand because we are swept up in the idea of a new car. This leads many to be put into loans with high-interest rates, expensive extended warranties, and add-on services that aren’t needed or necessary. This situation can start a cycle of negative equity in a vehicle that can follow its owner for years.  


Before talking with a lender, be sure to check your credit (article link) at www.annualcreditreport.com. This will help you know where you stand and give you the ability to discuss terms with lenders without each one pulling your report.


Start with the bank or credit union you already do business with, then check others in the area and online. Compare loan fees, document fees, interest rates (APR/Annual Percentage Rate), and repayment terms to determine your best option.


Use the Consumer Finance Protection Bureau’s worksheet to compare financing offers by different lenders.


Step 4 – Choose a Dealership or Seller

When deciding on a dealership to do business with, other than just their inventory, you’ll want to consider their overall reputation and customer reviews, how long they have been in business, service hours, and any perks like free oil changes or car washes they may offer.


A great way to get a feel for a dealership is to stop in for a test drive. Pay attention to how you are greeted and if they seem genuinely interested in helping you find a car that fits your needs. Trust your instincts and beware of any red flags.


If you find a car that you would like to purchase, request a complete buyer’s order from the dealership before you agree to buy. This should provide a realistic picture of the cost of the car along with any fees and taxes you’ll have to pay. You can also request a quote online from a dealership to check their pricing and customer service before going in person.


If buying from a private seller, it’s important to do your homework and know the value of the car for sale, conduct a test drive, have the car inspected by your own mechanic, and do a vehicle history request. Since a dealership won’t be involved, it will be up to you to ensure that any loans or liens on the vehicle are satisfied, and the tax, title, and registration paperwork and fees are complete and filed properly.  


Ready to start working toward your future goals?  Take the America Saves Pledge today and choose large purchase as your goal. We’ll help keep you motivated and on track by sending texts and emails full of tips and resources.

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