How to Buy a Car in 10 Steps With Tips For 2018

Buying a car is a big deal for Americans - it's the second most expensive household expense they face, behind buying a home, as auto purchases rise.

Increasingly, Americans are spending more on new vehicles (the average auto loan payment for a new vehicle was $483 in 2016, according to the US. Energy Information Administration.)

The fact is, car-buyers don't have to pay too much to drive off with a new vehicle, even if that's the case most of the time. Why? Because most new auto consumers don't bother to take the extra steps needed to buy the car they love, at the price they want.

Let's turn that scenario around with some creative and effective tips on buying a new vehicle to help you get the best possible price.

The money you save can go right into your savings account or to other household expenses, thus giving you a nice financial cushion you likely wouldn't have had if you paid full price (or more) for a new set of wheels.

Buying a New Vehicle in 10 Steps

Let's make the car-buying process as easy as possible and break it down on a user-friendly, step-by-step basis:

1. Do your homework

The vast amount of information now available online and on mobile phone apps has proven game-changer for new car buyers. Now, right at your laptop or smart phone you can look up the price of various models are several dealerships in your area (or around the country). Leverage online sites and apps like Kelly Book, Cars.com, and TrueCars.com to dig down and get the real price - and the real value of a vehicle before you go forward.

2. Get pre-approved

If you plan to finance your own car purchase, get ahead of the equation and arrange for preapproval from your bank, credit union, online auto purchase site, or auto club on a car loan - instead of going through the dealer. You'll get a much better interest rate from those institutions.

3. Keep trade-ins to yourself

If you're planning on trading in your own car, don't let the salesperson know this at the outset. It's very common for a salesperson to try and lure you with a slightly better than the wholesale price on your trade-in - only to make the money up through charging you a higher interest rate or adding premium-priced features to the new car. It's far better to hold off mentioning your trade-in until you've reached a satisfactory price for the new vehicle. Then you can arrange for a fair price on the trade-in (understanding that the dealer will never offer you more than wholesale value). Again, find out ahead of time the value of your trade-in - adjusting for its age, condition, mileage, etc. - by checking the Kelly Blue Book or Edmunds.com.

4. Know your loan

Make sure to know all the terms of your loan, and don't pay too much in monthly payments. An auto dealership finance manager can manipulate all sorts of loan terms, including down payment, APR and term, to get the monthly payment just about anywhere. These days, it is not uncommon to see loan terms of 84 months, and while that might provide a low monthly payment, it may also sway someone to buy much more car than they need. For example, if you had a budget of $400 per month, you could purchase a $20,000 car financed over 54 months, or a $30,000 car financed over 84 months (with a 3% interest and no money down). That's an extra three-and-a-half years tacked onto your loan, with the costs really adding up.

5. Pass the test

Make sure to test drive the car and get a good feel for it. Does the vehicle offer an easy entrance? Are you comfortable driving the vehicle? Are the sight lines clear? After test driving and once you decide on the make, model, and style of vehicle you want, get quotes by phone or email from dealers. This saves time, and they lose the home team advantage of reading your body language and sizing you up in person. Also, you can do this from the comfort of your home, instead of in a dealership.

6. Get at least three quotes

That will help you get a good grip on the right price for the vehicle. By all means, let other dealers know that other dealers involved. That will put the pressure on, in your favor, and let the dealer know they only get one chance at your business. Ideally, bring the dealership manager in into the "closing" conversation. The sales manager, fleet manager, or general sales are often the decision makers who can decide price on the spot, and aren't on commission.

7. Wait on making an offer

If you have the time, wait until the end of the month to close the deal on a new vehicle. Remember, sales people and dealership managers have quotas to hit each month, so the end of the month is a good time to negotiate, as they may get a bonus for hitting their quota.

8. Get all the rebate value you can

Ask the manufacturer or the auto dealer for any rebates you might get, on top of a general rebate for everyone. Most manufacturers have rebates for various situations that you may qualify for (i.e. military, senior citizens, first-time buyer/college grad, conquest (i.e. if you own a certain competing car already), loyalty (if you own the same brand of car already, etc.) These aren't from the dealer, and will lower the price of the vehicle.

9. Focus on invoice price

Don't close on a vehicle sale until you have looked up the invoice price, as well as the sticker price. Always start your negotiating up from the factory invoice price - and not down from the sticker price, which is always set higher than the dealer expects anyone to pay. Make your offer high enough to include a minimal profit for the dealer - something like $200 to $500 over the invoice price. A few hundred dollars over invoice is perfectly fair, and if this dealer won't meet your best offer, you should hold your ground and look elsewhere.

10. No extras

Don't bite on any add-ons or after-purchase sales tactics after you agree on the price of the vehicle (think physical add-ons or treatments or extended warranties.) Way too many items in this category tend to be overpriced, unnecessary, or both. After all, you can always get these items later, and likely save cash in the process by not having to go through the dealership.

Should You Buy a New or Used Vehicle?

Buying a vehicle that meets your unique needs is your own experience, and nobody else's.

Still, it helps to know going into a vehicle purchase the benefits of buying a new vehicle or a used one.

When evaluating that issue, focus on the following points:

  • Big savings. Buying a used vehicle - even one that's only one or two years old, can save you thousands of dollars. Industry data shows that new cars lose 10% of their value when you drive it off the dealer lot, and 10% of its value after the first year you own it.
  • New car feel and experience. Okay, technically it's not a new car, but if you buy a vehicle linked to a certified-pre-owned manufacturer program, where vehicles must clear a thorough inspection, you're getting a vehicle that feels like a new car, truck or SUV.
  • Save on insurance. Typically, used cars come with lower insurance rates, as they're not as valuable as a new vehicle.
  • A better warranty. If you buy a new vehicle, it should come in pristine condition. Even so, you're likely to get a better warranty deal with a new vehicle over a used vehicle, with some warranties lasting as long as five to 10 years. That's a lot of protection for new car owners.
  • Customization advantages. With a new vehicle, you have the option to customize the car, truck or SUV, i.e., pick the color, the sound system, and the tires, for example - an experience you don't have with a used vehicle.
  • Safety features. New vehicles typically come with the latest and greatest safety and technology components, compared to used cars, as the auto industry keeps finding new ways to keep drivers safer, like blind-spot detection systems and dual-stage airbags.

Last-Minute Tips Before Buying a Car

Use these tips to squeeze out every advantage you can get on a new car purchase.

  • Run your credit report. Get a free credit report (you get one per year at AnnualCreditReports.com) from each of the major credit reporting companies. The credit report will establish old debts and unpaid fines that could keep you from getting an auto loan, and gives you a chance to fix the problems. Do this at least 90 days before buying a car.
  • Know your "realistic" car purchase price. Even though you may qualify for a vehicle worth $35,000, that doesn't mean you should buy it. If you downsize to a new vehicle worth $25,000, you can save hundreds of dollars per month that can go to other household expenses - even gas, oil and maintenance on your new car, truck or SUV.
  • Do your homework. Don't walk into a dealership unless you know what you're looking for in advance. Do the research first to find a car or truck that meets your needs, style and budget, then compare prices others have recently paid using online sites like TrueCar.com or KellyBlueBook.com
  • Watch the calendar. Autumn is the most favorable time to buy a new car, as next year's new models are coming out. If you buy "last year" model (that would be 2018 right now) you can save an average of 20% on the price of the vehicle.
  • Hit the forums. Find out what people are paying for cars using the price paid forums at Edmunds.com or Kelly Blue Book. That tells you what real car buyers are paying for the car you want at a dealership.
  • Don't focus on the invoice price. The dealer's profit is not what they make above invoice, so don't give in when the salesperson talks about the need to make a profit. Dealers earn plenty of extra cash on incentives and add-ons, and on trade-in values, as well.
  • Focus on the high-trafficked auto dealerships. Usually, bigger and busier dealers have the most wiggle room on auto price negotiations
  • Sell to a private owner. If you're selling your old vehicle to help finance a new vehicle, don't sell it to the dealers. Instead, sell it to a private buyer. Doing so can add up to 25% more on the vehicle purchase price.

Above All, Practice Patience

Don't rush into a new auto purchase.

Auto dealers actually count on consumers being susceptible to fast talk, flashy features, and their own emotional reactions.

Consequently, it's up to you to resist any heavy-selling efforts by arming yourself with information, showing up calm and prepared, and simply holding your ground until you've reached an agreement that works for you - and you alone.

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