How to Buy a New Car: Your Step-by-Step Guide to Buying the Best Ride

You’ve decided to buy a new car! You can imagine yourself driving it, with the wind whipping your hair and the radio blasting as you drive down the highway on a sunny day. 

But then you think about the buying process. Where do you even start? What’s the best way to buy a new (or used) car? From taxes to pushy salespeople, buying a new car is a lot of work. Luckily, the car buying process and its risks and pitfalls can be minimized if you know how to navigate the process. This guide walks you through the various phases of buying a car so you end up with the right one — and you have the best possible car buying experience in the process.

Everything You Need to Know About Buying a Car

There’s a lot to be said about the car buying process, so the information in this guide is comprehensive. 

You can also download this guide to read later or to share with a friend or family member who’s in the market for a new car.

What You Need in a Car or If You Need One at All

The best way to buy a new car is to start with an important question: is it worth getting a new car at all? Before you begin the car buying process, evaluate your motivation for the purchase and whether it is necessary right now.

Perhaps you think you need a new car because you just had family in town and didn’t have room for them in your current vehicle. It might seem like buying a new vehicle is necessary. But first, consider whether you often have visitors, and whether this is a problem you often confront. Would it be less expensive instead to consider alternative modes of transportation — for instance, renting a car the next time they visit? 

Or maybe your neighbor just bought the latest Tesla, which looks great in their driveway. Are you tempted to buy a new car because you want to keep up with the latest trends?

Maybe you’re simply bored with your current ride and are looking for a change of pace. A new car seems appealing and exciting. But remember: if getting a new car requires taking on debt, it likely isn’t worth it.

So, how do you know when to get a new car? And if the timing is right, how do you decide which type of car to buy? Reviewing your reasoning will help you understand how to choose a car that fits your needs, while also preventing you from making a purchase you’ll regret.

Ask yourself these questions to narrow in on what you want in a car and to make sure you’re not buying a car for the wrong reasons.

Why Do I Want to Get a New Car? 

Think about the limitations of your current ride. If it’s lacking safety features, reliability, four-wheel drive or other factors that are important to you or your lifestyle, it might be time for an upgrade.

Who and What Usually Rides in My Car With Me? 

If you have a family, you’ll want to make sure you have room for them and storage for their items. Likewise, you may want extra room for trips with friends. If you’re a surfer, biker, or camper, you might need extra space for all of your gear. Or if you have a pet such as a dog who often travels with you, you’ll want to make room for their needs. Thinking about your passengers will provide insight into what type of vehicle you need.

How Often and How Far Do I Drive? 

If you work from home and drive once a week to get groceries, it’s probably not necessary to spend tens of thousands of dollars on the latest model. However, if you drive several hours a day for work, or love to travel on the open road, spending a little more to buy a reliable model with good mileage will pay off.

Budgeting for a Car Purchase

The next step in buying a new car is to figure out what you can afford. 

A good rule of thumb when buying a car is to look for a price range that is no more than 25% of your pre-tax income. But this guideline doesn’t account for your personal financial situation — you need to know how much car you can afford.

Start With Your Budget 

So, the best way to start the car buying process is to consider your savings and your overall budget for all your expenses. Make sure to start with your personal budget before you begin car shopping so you know how much money you can allocate toward a car payment each month, if you’re planning to take out a loan for your new car.

Prepare for Expenses

Remember: a new car can come with new or greater expenses — even if you’re paying with cash. A newer car often costs more to insure. It’s often more expensive to repair. In some states, your registration fee will be more expensive for a new car. And if you don’t currently have a car, plan for costs associated with gas, parking and regular maintenance.

Research Your Options

The best way to understand the impact of these costs is to thoroughly research your options. For example, you may want an SUV that is less than 5 years old with no more than 50,000 miles. Identify which makes and models you’re interested in, and then work with your insurance agent to understand how this might impact insurance costs. You can also conduct research online to estimate the cost of repairs to help you understand how much to budget for car expenses on a monthly basis.

Finally, you’ll want to plan for the costs associated with buying a car, such as licensing fees, taxes and other miscellaneous fees. These additional costs will amount to roughly 10% of the value of the car.

Once you’ve worked through this exercise and have a handle on what you can afford, you may need to reconsider what you truly need in a car. This isn’t the fun part of buying a new car, but it’s the right move for protecting your finances.

Make sure to get in touch with an FBFS insurance agent to understand how you can best insure your new car.

Should I buy a new or used car?

You’ve got choices: you could buy a new car, or you might decide on a used one. How do you decide? Whether you spring for a new car or a new-to-you car is based primarily on your budget. Where are you on your financial journey? Someone with debt and little in savings is probably better off buying used, while someone with significant savings and room in their budget can probably afford to buy new if that’s what they want.

What’s the difference? Of course, there are factors like wear and tear or mileage, but the major difference between a new and a used car is that a new car rapidly depreciates. Data from CARFAX suggests that a new car can lose 10% of its value the moment it’s purchased. Over five years, that car can lose up to 60% of its value.

That’s why purchasing a new car that costs $20,000 is much riskier if you have less savings and higher debt. This $20,000 car would lose $2,000 in value upon purchase, and then another $10,000 in value over the next five years. This is a hard cost to accept if you’re in a vulnerable financial position.

On the other hand, a used car comes with risks of its own. Used cars can be more prone to hidden costs and sudden repairs since they come with mileage and a previous owner’s maintenance and upkeep habits. So, buying a used car, while less expensive up front, may bring its own costs, and you should keep those in mind.  

Another option is to buy a certified pre-owned car. While a certified pre-owned vehicle is usually more expensive than buying a standard used vehicle, it comes with a warranty, multi-point inspection and often includes additional benefits like free maintenance for the first year. This option can be a happy medium that helps you avoid some of the initial depreciation of buying a new car while getting a higher quality car.

Select a Method for Buying a Car: Cash, Loan or Lease?

The most important step to buying a car is deciding how you plan to pay for it. You have many financing options when it comes to paying for your new car. The question is, which option is best for you? Here’s our advice for selecting a method of payment.

Paying Cash for a Car

Ideally, you’ll pay for a car with cash that you have in savings. When you pay in cash, you don’t have to factor in interest costs. You’ll also enter the dealership in a stronger negotiating position, which might mean you get a better deal. And there are plenty of other benefits, too. 

However, don’t be tempted to dip into your emergency fund to make this purchase unless it is truly an emergency. Spending your entire emergency fund on a car if you don’t need to means you won’t be prepared for the next emergency.

If you don’t have enough cash for a car — don’t feel bad! It’s not unusual to have insufficient savings for a car purchase. The next best route is to save for a car quickly.

To save for a car, examine your monthly budget to determine what you can cut or how you can reduce your expenses. If you still can’t save enough money to buy a car, try finding ways to add to your income, like by selling old items you don’t need, asking for a raise or finding extra work.

If you’re close to affording a cash purchase, but not quite there, keep in mind that car prices fluctuate, and take advantage of the best times to buy a car. This may give you the extra edge you need to get the deal done.

Financing Your Car Purchase

If paying cash for a car isn’t feasible, your next best option is to get pre-approved for financing by an independent lender. 

Do not wait until you are at a dealership to get financing. Getting pre-approved ahead of time can give you a leg up when it comes time to negotiate with the dealer. 

It also takes financing off the table during negotiations, where dealers may give you the deal you think you want but make up for the difference by adjusting aspects of the financing.

Leasing a Car vs. Buying

Should I lease or buy a new car? Depending on your situation, leasing a car may not be the best financial option for you. The average car lease in 2023 was $516 per month, and the average length of a lease is between two and three years. This means a consumer spends between $12,384 and $18,576 over the course of an average car lease. If this average lease consumer had elected to get a car loan, they would own the car and retain all of its value after making the final payment. They would also be free of debt and mandatory monthly payments.

When you lease a car, it goes back to the dealership at the end of the lease. The consumer then has the option to buy the leased vehicle, buy a different car or start a new lease. They may also have to pay extra on their leased car if it has unusual wear and tear or was driven too many miles. Finally, dealerships are not required by the Federal Trade Commission to disclose the interest rate on leased cars, so this option may have cost the consumer more in interest than if they had just bought the car with a loan.

Leasing vs. buying varies based on individual situations. For some, leasing a car may not make the best financial sense. However, if you have a lot of financial freedom and enjoy having a new car every few years, leasing a car may be a good option for you.

How to Negotiate the Price of a Car

You’ve done a lot of work to figure out what to buy, what to spend and how you’ll pay for your car. Now, it’s time to start car hunting. Most people who are buying a new car will end up in a dealership lot. If you’re buying from a private seller online, you may get a better deal, but you’ll want to be extra cautious. Avoid anything that looks even vaguely suspicious.

Whether you buy and sell from a private seller or a dealership, keep these tried-and-true negotiation tips for buying a new car in your back pocket:

• Try to get a fair price. Don’t fight to go as low as the seller will go. If you approach the transaction with the goal of shaving off every cent, you’re unlikely to be successful. Then buying the car becomes a miserable experience for everyone.
• Make “I don’t need this car” your mantra. There are always other cars and other sellers. You need to be willing to walk away if you’re not getting a fair price.
• Get pre-approved. We’ll say it again: Don’t get financing through a dealership. Get pre-approval from an independent lender.
• Negotiate slowly. Don’t be afraid to ask questions and get clarity when you need it. Car negotiation can make buyers tense, but it’s important to remember that you’re still a customer. If the seller isn’t willing to work at your pace, it might be a sign to walk away.
• Ask for an explanation of all fees and taxes. Don’t get stuck paying unnecessary fees.
• Don’t mention your trade-in early. If you’re planning to trade your old car in for your new car, don’t discuss your trade-in until after you’ve negotiated the price of the car. This simplifies the negotiation, which benefits you more than the dealer.
• Focus on the overall cost. Finding a monthly payment you can afford helps you effectively manage your budget. But think about the overall price of the car, as well. Make sure you’re not paying more than a car is worth, even if you can afford the monthly payments.
• Consider the timing of your purchase. Buying your car at the right time can save you money.
• Become a car buying expert. Conduct research to understand the market demand for the cars you’re considering and what a dealership might have paid for them. You should also research dealerships online and get recommendations from friends and family.
• Consider rental car companies. Rental car companies often ask a fair price for the cars they sell because they are more concerned with selling the car to create space for new rental inventory than they are with getting the best deal.
• Ask for add-ons. If the dealer won’t go lower on the price, ask them to throw in an extra at no additional cost (such as extended warranty, new tires, and more).
• Be nice. You don’t want to negotiate with someone who is being difficult and neither do sellers.

By following these negotiation tips for buying a new car, you’ll increase your odds of getting the car you want without overpaying.

Additional Car Purchasing Resources

Do more research before getting started with these helpful resources:

• 6 Car-Buying Mistakes You Need to Avoid
• When Is the Best Time to Buy a New Car to Get the Best Deal? 
• The Pros and Cons of Buying a Certified Pre-Owned Car
• 6 Types of People Who Should Buy a Used Car
• Should You Purchase an Extended Warranty for Your Car?
• Buying a Used Hybrid
• How to Buy and Sell Your Car on Craigslist

Insure Your Investment

Your car deserves protection — and so do you. Before you buy a new car, get in contact with a Farm Bureau agent so you can start discussing your insurance needs.