Are you preparing to buy your first car – or to navigate the car buying process on your own for the first time? If the answer is yes, then you might be feeling uncertain about what you need and where to start.
Our Addition Financial members often ask us for help with the car buying process, particularly if they’ve never done it before. We’re happy to help. Here’s your step-by-step guide outlining the process and what you need to buy a car.
The Steps to Buying a Car
Before you begin the car buying process, it’s helpful to know what to expect. We’ve broken down the steps in the process from start to finish, so you can go in armed with the information you need.
Step #1: Choose Your Priorities
There are lots of cars on the market, including new and used cars. Your very first step should be to decide what your priorities are.
Priorities can vary greatly from person to person. You may want a new car with lots of bells and whistles, or you may want something that’s safe for your family. There’s nothing wrong with either option, but they will lead you in different directions. That’s why it’s important to narrow it down.
Step #2: Research Your Options
With your priorities in place, it’s time to find some cars that suit your needs. The best way to do that is through online research, which can help you learn about different models and features. Here are some resources to try:
- Consumer Reports has reviews of new cars and you can find archived reviews of older cars
- Edmunds is another site with extensive car reviews
- Car and Driver has car reviews as well
- Kelley Blue Book is ideal for finding the value of used cars
You may also want to look for other reviews. A good way to start is by Googling the features you’ve prioritized. For example, searching “Best cars for city driving” will help you find some makes and models that might suit your needs.
Step #3: Set Your Budget
It’s important to set a budget before you apply for a car loan or start taking test drives. If you’re paying cash, then you may already know how much you can afford to spend.
If you plan to apply for a car loan, then you will probably need to crunch some numbers to determine how much you can afford. Keep in mind that the number you can afford includes more than the price of the car or the amount of your monthly payment.
In addition to your monthly payments, you should consider:
- Car insurance premiums
- Registration fees
- Regular maintenance costs
- Gas mileage
- Emergency repairs
Our free calculator can help you figure out what size loan you can afford. Your research should fill in the other amounts. That way, you can get a handle on the true cost of the vehicles you’re considering.
Step #4: Get Pre-approved for a Loan
After you have determined what you can afford, we highly recommend applying for auto loan pre-approval before you buy a car.
There are some significant benefits to getting pre-approved, including:
- You’ll be certain of your budget and know what your walk away price is
- You can negotiate from a position of strength because you know you have financing in place
- You won’t need to worry about paying a high interest rate for dealership financing
We also recommend going to a credit union for your loan. Credit unions tend to have lower interest rates than banks – and, of course, there are other benefits of credit union membership. Credit unions are also more likely to work with you even if your credit isn’t perfect.
Step #5: Find Cars that Meet Your Needs
With all the preliminary steps completed, it’s time to find some cars that interest you. Online searching can help you find multiple options.
We suggest checking prices across multiple websites to make sure you’re getting a good deal. You can search for dealerships in your area or use a site like Cars.com to find options. You may need to bookmark several sites to compare features and prices.
Your best bet is to have several viable options before you move to the next step. Don’t fall in love with a car at this stage and get attached to it. There are a lot of factors that could affect your buying decision.
Step #6: Test Drive and Evaluate Cars
You should never buy a car without test driving it first. The test drive is your hands-on opportunity to evaluate a car and see how it feels. A picture of a car, or even a video, can only tell you about the car’s appearance and superficial qualities.
As a result of the COVID-19 pandemic, many dealerships and even private sellers are offering touchless test drives. These work by having someone drive the car to your home or a designated meeting stop, disinfect it and give you the opportunity to drive it alone.
Step #7: Negotiate a Price
Your test drives should help you decide which car you want to buy, and that means it’s time to negotiate. While we don’t negotiate for everyday purchases, both dealers and private sellers will expect you to negotiate a better price.
While you negotiate, give away as little information as possible at first. If you make a first offer, make it a low one. You should expect some back and forth. Keep your walk away price in mind and make it clear you will find another car if you can’t get an advantageous deal.
Finally, don’t let an aggressive salesperson bully you into paying for something you don’t want or need. If you have questions, ask to see the invoice from the manufacturer. Any reputable dealer should be willing to share it with you.
Step #8: Close on the Deal
The final step is to close on the deal. Most sellers will set up a contactless closing for you. Make sure if you meet with anyone, you wear a mask and protect yourself at all times.
During the closing, read all the paperwork before you sign. Get clarification of any questions and don’t sign until you’re comfortable.
What You Need to Buy a Car
The only part of the car buying process we haven’t talked about yet is the paperwork. You’ll need information to show your creditworthiness, as well as documentation to demonstrate you can legally drive a car.
Here’s how it breaks down. For the financing portion of buying a car, you will need:
- Your credit score and report. (Your lender or the dealer will run a report, but you should know what’s on it and be prepared to discuss it.)
- Proof of employment. (Your employer’s name, address, and contact information.)
- Proof of residence.
- Proof of income.
- If you’re employed, you can bring 6 months of pay stubs.
- If you’re self-employed, bring a copy of your most recent tax return.
- If you’re retired, bring a copy of your retirement account statement and Social Security statement.
- Copies of any outstanding loans and debts.
Once you are approved for your loan, you can go to the dealership. To test drive and buy a car, you will need:
- Your driver’s license.
- Proof of insurance.
- Your loan pre-approval.
- Your down payment.
Edmunds recommends at least a 10% down payment to reduce the amount you need to borrow and give you some equity in your new vehicle. You should make sure that the dealership will accept the form of payment you plan on using. The most common forms of payment are check, credit card and wire transfer.
If you plan to offset all or some of the price of your new car by trading in your old vehicle, you will also need:
- The Kelley Blue Book value of your car
- The title of your car
- Your registration
- Your existing auto loan (if applicable)
- Your odometer statement and/or smog certificate, if required by law
You should thoroughly clean your car before bringing it to the dealership. We suggest cleaning both the interior and exterior of your car. It’s in your best interest to have your car looking its best when you bring it to the dealer.
If you forget some of the required documentation, it may delay the purchase of your new car or the sale of your old one. In addition to providing the necessary documentation to buy a new car, having your documents in order will make a good impression and may help you get a better deal at the dealership.
The car buying process might seem complex – and if it’s your first time, then it’s understandable that you’ll be a bit nervous. Following the process as we’ve laid it out here should help to minimize your stress and help you get a great deal on a car you love.
Are you in the market for a car loan? Click here to find out how Addition Financial can help!
Posted on Jul 28, 2020
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