How to Buy a Car

Summer 2022 update: The ongoing semiconductor chip shortage and consequent vehicle shortage have caused prices for both new and used cars to hit record highs.

"Shrunken inventory continues to wreak havoc on both the new and used vehicle markets," said Jessica Caldwell, Edmunds' executive director of insights "Shoppers who can actually get their hands on a vehicle are committing to never-before-seen average payments and loan terms."

As a result, car shoppers today face a limited selection and price hikes from either dealer-added (often non-negotiable) accessories or "market adjustments." Discounts of any sort are scarcer than the cars themselves, leaving buyers with no negotiating power. If you don't like the price of a car, the dealership is betting the next person will. This leads to a greater sense of urgency to make a quick decision on a deal since the car may not be there if you go home to think about it.

These are far from normal times in terms of both the selection of cars available and the lack of discounts you may encounter. If you need a new vehicle today, we suggest starting your shopping process sooner rather than later, as analysts predict that the chipset shortage will likely affect pricing and inventory through this year and into 2023.

If you're shopping for a new or used car in today's difficult marketplace, please see "Car Buying Tips for 2022" for our experts' targeted, data-driven advice. Note that the article below was originally written before the chip shortage, back when vehicle prices were relatively stable and predictable. If the shortages continue, there may not be a so-called "best time to buy" for the foreseeable future. The best time in the current market is when you find a dealer that has the vehicle you want and is willing to sell it to you at MSRP or better, without any additional options that you may not need.

That said, many of the major elements of this story still ring true. You'll still need to research the car you want, get preapproved for a loan, and know how to handle the transaction.

Buying a new car is a big step, but it doesn't have to be a daunting one. Here's how to research, locate, price and negotiate to buy your new car. Smartphones make these steps easier than ever. It is now entirely possible for a buyer to shop for a vehicle while in line at the supermarket or waiting to pick up the kids.

This list explores the steps a buyer would take to purchase a new car. If you're looking to save more money and purchase a used car, the steps will differ slightly, which we cover in the article "How to Buy a Used Car in 10 Steps."

These eight steps could save you thousands of dollars on your next car. They'll also make the process at the dealer quicker and stress-free. Let's begin.

1. Research vehicles and features.
2. Get preapproved for a loan.
3. Plan your trade-in.
4. Locate and test-drive the car.
5. Check sale price and warranties.
6. Review the deal and dealer financing.
7. Close the deal.
8. Take delivery.

1. Research vehicles and features.

Not sure what vehicle you want yet? The Edmunds app and website have just about all the information you need, including expert and owner reviews, vehicle invoice prices and new car deals.

If you need some guidance on where to begin, our editors have created rankings for nearly all vehicle categories, which will help you quickly identify the top vehicles in their respective classes.

Automaker sites are useful for seeing more photos and learning more about features and options on vehicles. Use these tools and you should have little problem selecting the right car or SUV. Once you have a short list, it's time to figure out how you'll pay for the car.

2. Get preapproved for a loan.

A preapproved auto loan starts you out on the right foot. You get an idea of how much you can afford, and you'll have an interest rate that you can then compare to the dealership's financing, which might actually offer the lowest annual percentage rate. Look for a loan application on the mobile web pages of your bank, credit union, or other lenders such as Capital One or Nationwide. It's a good idea to do your own research on which lender will work best for you.

As you plan your financing, note that the most common loan terms are for about 72 months. Cars have become more expensive, and people tend to take out a longer loan to keep the monthly payments down. That said, Edmunds recommends a loan term that's no longer than 60 months. And while a 20% down payment is ideal, it's also difficult for most people to handle. So Edmunds recommends combining a down payment of around 10% with gap insurance or new-car replacement coverage. That lets you keep more money in your pocket without the risk of being underwater on your car loan.

To begin the loan approval process for your car purchase, collect your employer and salary information and balances of other debt you may have. Make sure you will be ready to shop within about two weeks of seeking preapproval. This strategy will reduce the number of hard inquiries to your credit history.

3. Plan your trade-in.

You can skip this step if you don't have a trade-in. If you do, keep reading. It's important to get your current car's trade-in value before you go to the dealership. This information will help set your expectations for what the car is worth and gives you a reference point for any offers you'll receive. These days, you might be pleasantly surprised to see what your vehicle is worth. The best way to find the value of your trade-in is to use the Edmunds appraisal tool. Use your smartphone so you can sit in the car and double-check whether you have options that affect the car's value — features such as heated seats or a sunroof. Be honest about the condition of your car. Most cars fall into the "clean" or "fair" category. Very few cars are "outstanding" no matter how much their owners babied them.

When you're done appraising your vehicle, scroll down and look for a dropdown menu that will let you choose between three figures. The trade-in value is what the dealer may offer you — that's a figure to keep in mind when you're at the dealership. The private-party value is what you might expect to get if you sell the car yourself. The dealer retail value is a little different: It is what you might expect to pay for the car if you were to buy a similar used car at a dealership.

There's a faster alternative to trading in a car or selling it yourself: Get an instant offer from Edmunds. The offer is good for seven days, at which point you can ask your local dealership to beat that price or you can sell your car to one of our participating dealerships.

4. Locate and test-drive the car.

By now, you've settled on a few car candidates. You should see them in person before making a decision. Hundreds of car dealerships throughout the country list their car inventories on Edmunds. And in many cases, you can sort by color, trim level and features. It's a better way to shop than configuring a car on the automaker's website and hoping you will find one with that set of options in the real world. All the listings you'll find on Edmunds pages are real cars with a variety of options. Most will have an Edmunds suggested price that should be comparable to what others are paying.

If you follow the steps below with Edmunds, a salesperson from the dealership will contact you to schedule a test drive. If you found the vehicle on another site, call the dealership's internet sales department to request more information. In either case, keep these do's and don'ts in mind:

• Do verify that the car you want is still in stock. It might have been sold recently, and online inventories can take a while to catch up.
• Do ask the salesperson if there are any dealer-installed options. Many new vehicles are sold with add-ons such as nitrogen in the tires, all-weather floor mats or theft protection packages. Also, ask if there are any "markups" or "market adjustments" on the car. Both the markups and dealer-installed options can easily add thousands to the selling price.
• Don't just show up at the dealer on a busy weekend or late at night. Waits may be long, and you may not get the salesperson's full attention.
• Do schedule an appointment for a test drive. Early in the week and mornings are good times. Having an appointment means the car will be waiting for you when you arrive. You can also ask for the vehicle to be brought to your home for the test drive.
• Don't just drive around the block. Take the time to see how you and your family fit in the car and how it handles on a variety of roads.
• Do ask yourself the following questions: Are the controls easy to use? Is there enough cargo space? Will a child seat fit? (Bring it with you and test it.)
• Don't feel obligated to buy the car the same day. Feel free to take a night to think it over.

5. Check sale price and warranties.

Once you have a target car, it's time to focus on getting a price. We recommend using one of these two ways to get the purchase price of your new car:

• Call, text or email the internet sales department of three dealerships that have the car you want. Ask each for the total selling price, including any additional accessories that may have already been installed on the car. The best price will be obvious. You also can take that quote and ask the other dealerships to beat it. If you plan on leasing, this is the way to go.
• You can save time and trouble by using Edmunds' new inventory tool, to get a locked-in price that's designed to be comparable to the average price that others are paying in your area. We even label which prices are better than others. Make sure you ask the salesperson to email or text you a breakdown of the "out-the-door price," with all the taxes and fees factored in. That lets you see the total amount you'll be spending.

You also should ask for a preview of products the dealership plans to offer you after you buy a car — such as paint protection, an extended warranty and possibly a prepaid maintenance plan. Usually you won't hear about these extras until much later in the shopping process, but we suggest you gather some information now to relieve pressure later.

Here's how you do it: Call the dealership finance manager and ask about these products and services. They may be of value to you, but just know that the price is often something you can negotiate. And you don't have to buy them when you buy the car unless you intend to fold their price into the purchase contract.

6. Review the deal and dealer financing.

Now that you have a price quote for the car, your big question is probably whether it's competitive. We have an Edmunds price checker tool on each piece of inventory that allows you to size up the dealership's price for a specific car you're about to purchase. This will give you some perspective and peace of mind on the price you're paying. In the past, we called it "Edmunds TMV" or "Average Price Paid." It's the amount that others are paying in your area for a similarly equipped car.

Keep in mind that a fair price is exactly that. Some people have paid more and others paid less. Some shoppers are only happy if they negotiate their way to a rock-bottom price. But for most shoppers, that usually isn't worth the hassle and frustration. And if your price quote is above the average, it's not necessarily a reason to walk away from a deal. Here's why:

A car's price isn't the only factor that determines a good car deal. You also should look at the interest rate, the loan term, and the value of your trade-in if that's part of your deal. There are even some intangibles, such as how the salesperson and the dealership treat you and the time you save in the shopping process. Those are all factors in a good deal. In fact, at this point in the process, you may be able to improve parts of it.

In Step 2, you got preapproved for financing. Now that you're close to purchase, there's a chance that you can get a better interest rate at the dealership.

To see if that's possible, let the dealership run a credit report and assess your interest rate. Or if you know your credit score, tell the finance manager what it is and the rate for which you'd qualify. You can give your information to the finance manager over the phone. Some dealerships have credit applications on their websites, and you can fill one out. If the interest rate is lower than the one in your preapproved loan, go for it. If not, you already have a good loan locked in.

7. Close the deal.

If the price, financing and fees look right, it's time to say yes to the deal. From here, you can proceed in one of two ways: Buy at the dealership or have the car and paperwork delivered to your home.

Most people tend to wrap up the sale at the dealership. Once you've agreed on a price, the salesperson will take you to the finance and insurance office. That's where you'll sign the contract and purchase any of the additional products we discussed earlier, such as an extended warranty.

The alternative is to make the sale contingent on having your new car delivered to your home or office. Doing so is a great time-saver and allows you to close the deal in a relaxed environment. This has become far more common now as dealerships have adapted to doing business during the COVID-19 pandemic. If you do request home delivery, even if the sale is contingent on it, you'll get more cooperation if you'll agree to receive the car at home during a slow time at the dealership (think Mondays).

Wherever you finalize the deal, review the contract carefully and make sure the numbers match the out-the-door breakdown. Be sure there are no additional charges or fees. A good finance manager will explain each form and what it means. Don't hurry. Buying a car is a serious commitment. And remember: There is no cooling-off period. Once you sign the contract, the car is yours.

8. Take delivery

Whether you take delivery of your car at the dealership or at your home, it should be clean and the gas tank should be full. Give the car a final walk-around, checking for any dents or scratches that might have occurred during transport.

Finally, let the salesperson give you a tour of your new car. The rundown should include showing you how to pair your smartphone via Bluetooth and demonstrating other important features and safety devices. All of this information is in the owner's manual. But let's face it, very few people ever read the manual, which can be hundreds of pages long.

If you don't have time for a complete demonstration when you sign the contract, set up an appointment a week or so later. With the amount of technology that comes in most new cars, that walk-through is important and very useful. You'll learn tricks and shortcuts you might not find on your own.

And now there is only one more thing to do: Enjoy your new car.

Related Articles:

How to Buy a Used Car
10 Steps to Leasing a Car
Start With an Online Offer When Selling or Trading In Your Car
How Much Should a Car Down Payment Be?
Buying a New Car vs. Buying a Used Car
Ask for the Out-the-Door Cost When Buying a Car
How Long Should a Car Loan Be?