1. Determine if You Really Need to Buy a Car

The first step to buying a car is to determine if you actually need to. A car is a major investment, and you’ll likely spend years making monthly payments even if you make the best decision possible. Today’s consumer culture and slick advertising make new cars look desirable, but it might be more economical to squeeze a few more years out of the vehicle you already have.

It’s possible you don’t even need to purchase a car at all. If you already have a decent, reliable vehicle, you may be able to drastically improve your financial situation simply by refinancing your current auto loan. After looking over your situation, you may decide that your current car simply can’t get the job done any longer. If you’re at that point, keep reading.

2. Figure Out What You Can Really Afford

Before you test drive a single car, you should first determine exactly how much you can afford to spend. It’s all too easy to fall in love with a vehicle you can’t afford, and then put yourself deep in debt to buy it. Set a firm maximum budget for your new car, and don’t go over it.

Start by figuring out how much you can afford for a down payment. A larger down payment will reduce the amount you need to finance, lowering your long-term monthly payments.

Which brings us to our next step. Check your personal budget and see how much money you can afford to spend on monthly payments. If you’ve never made a budget before, that’s something you should do before considering any major purchases.

Once you’ve determined what you can put down and how much you can afford each month, the total vehicle cost you can afford will depend on how much you’re able to finance. A dealer may try to tempt you with a “low” monthly payment, but it likely means extending the lifetime of your loan or raising your interest rates, costing you much more in the long term. The best way to avoid this trap is to get pre-approved with a financial institution you trust before you go to a dealership, which will give you a better idea of the total loan amount you could qualify for based on your credit and income.

3. Get Pre-Approved for Financing

Because people don’t have several thousand dollars just sitting around to drop on a new car, you’ll probably want to apply for an auto loan. You can get a loan through the dealership when you buy your car, but this could end up costing you thousands in the long run.

Dealership loans can be convenient, but you’re restricted to the rates that they want to offer you. Instead, before you even go to the dealership, get pre-approved for a loan directly from your bank or credit union. Having a pre-approved loan offer in-hand before you go to the dealership lets you know the terms in advance, including the annual percentage rate (APR), term length, and the maximum amount you will be able to finance. Perhaps most importantly, it puts you in a much stronger negotiating position.

Even better, a bank or credit union will almost always offer a better auto loan rate than the dealership. At First Service, for example, we equip you with a blank pre-approval check that you can complete at the dealership and use to purchase your vehicle just like a cash buyer. Our pre-approval checks are good for up to 60 days, so you have plenty of time to play hardball when you find the vehicle you want. What salesperson won’t respond to that?

4. Do Your Homework

Now that you know how much you can spend, your next step is to figure out the best car you can get for the money. It’s important to make sure you’re choosing a vehicle that meets your needs. Don’t rely on flashy advertising or tempting financing offers to decide which car best suits your needs. When you spend thousands of dollars on something, you really want to do your research.

When figuring out what kind of vehicle to get, think about what you will use it for most. If you need a way to take the kids to soccer practice, then a two-door sports car probably isn’t your best bet. The style of that big shiny SUV may seem appealing, but if all you need is something to drive yourself to work in the city, it’s probably more than you need to spend.

Once you’ve narrowed down the field a bit, you’ll want to really learn more about the models that seem to meet your needs. Before going to dealerships, research specific vehicle makes and models online. Consumer Reports, for example is a non-profit organization that offers unbiased testing and reviews of many consumer products, including vehicles. On their website, you can find information about safety, reliability, and performance on dozens of new and past model vehicles. It’s a valuable resource for anyone buying a new or used car.

When you do begin to visit dealerships, you’ll want to have a good idea what the vehicles you’re interested in are worth, so it is important to compare the prices ahead of time. Many online resources can help you, including the "blue books” that dealers use to determine prices. Check for rebates and other incentives that could help lower the cost of the vehicle. If you’re trading in your old car, don’t forget to look up the trade-in value, so you receive a fair deal.

5. Shop Around

Once you’ve determined your budget, figured out what vehicle you want, and gotten pre-approved for financing, it’s finally time to start looking for the best deals. Visit multiple dealers and look online for the best offers. Remember, pre-approval can last for several weeks or even months, so there’s no need to be rushed by high-pressure sales tactics.

Go to dealerships and test drive multiple vehicles. Take your time and get a feel for each. A car you thought you might like on paper may have flaws you didn’t anticipate once you’re behind the wheel. Take everything into consideration — controls, visibility, comfort. Will you be using a child seat in the car? If so, take it along with you to the dealership and see how it fits. If anyone else will be using the car like a spouse or child, make sure to bring them with you as well to get their perspective.

If you’re buying a used car, you’ll have a few more things to check. Ask the dealer for a vehicle history report. This will show you if it’s been involved in any major accidents and list its previous use, past owners, and maintenance. A vehicle history report can let you know if the car has had flood damage or if the odometer has been tampered with. Have a mechanic check the car out. It might cost some money upfront, but it could save you big headaches down the road.

6. Make an Offer

You’ve narrowed it down, taken a few test drives, and you think you’ve finally found the car for you. Now it’s time to haggle. You’ve done your homework, so you should have a good idea what the car is worth. Remember, the sticker price is just a suggestion. Always ask the dealer to lower the price — they have room to negotiate. Your goal should be to get to the “minimum off-the-lot” price. If a dealer won’t even tell you what that is, you may want to call a nearby rival and start negotiating with that dealer.

Don’t feel obligated to buy the car that day. If the dealer doesn’t offer a price you like, just walk away. There are plenty of dealerships out there, and someone will be prepared to provide a better price. Once the cost is down to a comfortable level, many strong negotiators are also able to convince dealers to sweeten the pot with additional incentives. Ask about things like free oil changes, tire care, and standard maintenance.

7. Sign and Drive

Once you’ve negotiated the price you want, you’re ready for the paperwork. Before signing, read everything carefully to ensure you understand the terms. If you don’t understand something, ask about it.

Watch out for add-ons. The dealer will offer additional products and services like window tinting, protection packages, and extended warranties that will increase the price of the vehicle. That’s not to say that things like GAP coverage or additional protection packages aren’t great investments, but it’s probably something you need to take care of when you’re originally going through the pre-approval process. With dealers, sometimes these types of upsells manage to sneak into contracts - even if they haven’t been discussed or agreed to. If you don’t want these products, politely but firmly decline.

Time to Apply What You’ve Learned

Now that you’ve equipped with the tools you need to make an informed decision, it’s time to work on getting a great deal. Our goal is for you to enjoy many miles in a shiny new car that meets your needs without disrupting your budget.

Most important, remember that saving money on your next vehicle is only one step in creating a healthy financial future for yourself and your family. What you learn today will certainly help you enjoy a brighter tomorrow.