The Car Buying Process in Seven Steps

  • September 1, 2015
  • By: Greenpath Financial Wellness

For most Americans, buying a car is a major purchase. You want to make sure you do your due diligence and get the best deal possible, but navigating the financing and negotiating of a car purchase can be complicated. Here are a few steps you should consider if you are shopping for a new or used car.

Step 1 – Research Car Option

Many people buy cars based on what the car looks like or what they are familiar with. Instead of buying the same type of car you’ve always driven, it may be wiser to list the attributes you are looking for, and then do some research. Really think about what you want versus what you need.

For example, what do you do you care most about?

  • safety
  • size
  • cargo space
  • reliability

Come up with a list of options that would fit your needs and wants.

Step 2 – Find Financing

Once you know what you are looking for, think about if you would like to buy new or used, or whether you want to buy or lease. What financing options are realistic for you based on your income and credit?

Don’t borrow more money than you are comfortably able to repay. Your credit score will directly impact the interest rate you will pay on your loan.

For example, an individual with a FICO score of 720 is likely to be offered a loan for about 5.75%. For the same loan amount,  and individual with a credit score of 660 will likely see the interest rate increase to about 9.2%, and this will cause the monthly payment to be $15-$20 higher.

Use this monthly loan payment calculator to determine your car loan payment.

Buying vs Leasing

Most experts agree that the cost of buying and leasing a car is about the same for the first few years.  The difference starts after the new car is paid off. 

  • Buying a car is typically a good option for someone who will continue to drive it several years after the loan is paid off, and/or will be driving more than 15,000 miles per year. 
  • Leasing a car is usually better suited for someone who wants to experience that “new car feeling” every 2-3 years and will be driving fewer miles; above-average mileage can result in additional usage fees that add up quickly.

Monthly payments and depreciation are also considerations when deciding between buying and leasing a car.

Buying a Used vs New Car

If you’ve decided to buy, you also need to consider whether you will be purchasing a new or used car:

  • Buying a new car gives you the ability to pick and choose exactly what you want. You will have the peace of mind of knowing that no one has driven the car before you and that the car is covered by a new car warranty. However, new cars are more expensive than used cars and quickly depreciate in value.
  • Buying a used car is less expensive and will depreciate slower than a new car. The downside is that used cars are an unknown quantity and will likely require more frequent maintenance and repairs.

Step 3 – Take Your Time

Now that you have a better idea of your price range, start shopping around for selection and dealer incentives for your particular car choices. Do not rush out and buy the first car you see on an impulse. It’s better to exercise some patience and be sure about your choice.

Be wary of any dealers that make you feel rushed into buying something. Shop online as well as in-person — this helps you compare prices for similar models. Tools like Kelley Blue Book can be helpful in determining the value of a car.

Step 4 – Negotiate

Once you have found a vehicle you are comfortable with, you may want to try and negotiate for a price that you feel is fair. You’re not obligated to accept any offer – be polite, but stand firm with what price you have predetermined from your budget. You can let the dealer know that you are shopping around with other dealers or sellers.

If you know your budget and price, you can shop around and let other sellers know what price you have been offered so they have an opportunity to beat the competitor’s price.

Another option is buying from a private seller, but understand that those transactions won’t come with any warranty or service support.

Step 5 – Take Precautions

Once you have the car chosen, take your time with all the paperwork and also make sure to test drive the car. If you are buying used, get the vehicle accident history from CARFAX and get any and all paperwork regarding the maintenance history. Also, it’s a good idea to get the vehicle inspected by a neutral third party mechanic — the cost of an inspection is well worth the comfort level knowing the vehicle is safe. Be mindful of feeling overly pressured. This is a big decision and you should proceed at your own pace.

Step 6 – Determine  Your Payment Amount

Getting a lower monthly payment isn’t always the best route. Sometimes a dealer will simply increase the number of months on your loan in order to lower your monthly payment, but that often means you’ll pay much more in interest over the life of the loan. Be careful about ending up in car loans that last 6, 7, or 8 years— that’s a long time to have a car payment (and it’s a lot of interest to pay). Also, be careful about additional extras like “extended warranties” the dealer may try to include at the end.

This car loan calculator can help you determine your monthly car loan payment or car purchase price.

Step 7 – Consider Your Other Costs

Your total transportation expense will include the vehicle payment, as well as everything else:  

  • Insurance
  • gasoline
  • oil changes
  • ongoing maintenance
  • license plate fees
  • and more

Make sure you have added all potential costs into your monthly budget. Once everything looks good, you’re ready to buy your car!

By doing your research, knowing exactly how much car you can afford and by taking your time, you can turn your car buying experience into a pleasant one!

Jeff Arevalo is a Financial Wellness Expert and has been with the Greenpath for over 13 years. He possesses a strong passion for helping others and takes great pride in providing strong financial education and effective money management tools to help make a difference in people’s lives. Jeff and his wife recently welcomed a baby boy to their family and are excited to navigate the world of parenthood for the first time.