How to Buy a Car

Besides a home, a vehicle is likely the largest purchase you will make. If you plan and research before buying, you can save hundreds or even thousands of dollars — and stay within your budget so you can meet your other financial goals.

Know what you can afford

1. How much car can I afford?

Your budget should determine how much you spend on a vehicle each month. If you don’t have one, now’s a great time to create a budget! Once you know what monthly payment you can afford, use our car loan calculator for a new car or a used vehicle to get a sense for the total vehicle cost you can afford. Keep reading to learn the true cost of a vehicle.

2. Know the true cost to own a car

Your monthly car payment is just part of the cost of vehicle ownership. Your transportation expenses also include:

• registration, taxes, and other government fees
• auto insurance
• gas or charging costs
• tolls
• parking fees
• regular maintenance
• repairs
• car washes

Some of these costs – especially gas or charging, auto insurance, and maintenance – will be much lower or higher based on the vehicle you choose. A compact car will cost less to fuel and maintain, for example, than a luxury SUV.

3. Check your credit score
An accurate credit report and higher credit score can help you get a better rate if you’re financing a car.

Check the accuracy of your credit report at annualcreditreport.com or call 877.322.8228.

As a Patelco member, you have access to a Certified Financial Specialist, who can offer advice on raising your credit score. Credit counseling is free and one of the many ways Patelco is looking out for you.

Selecting the vehicle that’s right for you

4. Choose the right vehicle

Will you be using your vehicle to cross snow-covered mountain passes with hairpin turns? Or for something more challenging, like chauffeuring your children? Create a comparison chart to track the attributes that matter most to you.

Many online resources provide car reviews and information, including Consumer Reports and Edmunds. These are great places to find out how each vehicle stacks up based on the attributes you want. You can also learn about each car’s MPG and other things that will affect the true cost of the vehicle.

5. Consider new or used and whether you should lease or buy a car

Buying a new vs. used car

Do you prefer buying a reliable new car, even if it means a sharp loss in value when you drive it off the lot?

A new car:

• is more reliable on the road
• is protected with a full warranty
• may come with special discounts and a loan with a lower APR (Annual Percentage Rate)
• is equipped with the latest safety features and other technology
• comes with the option to choose the paint color and features, so you get exactly what you want
• comes with a higher sales tax and higher insurance rates

Or would you rather buy a used car that has some wear but has already depreciated from its original price?

A used car:

• has a lower sticker price
• may be in good condition; many brands offer “certified pre-owned” vehicles to mitigate the reliability risks of buying a used vehicle. Often, these vehicles will be in better condition, although also a bit more expensive
• may come with a limited warranty if you’re buying a certified pre-owned vehicle
• may not have the latest features
• may spend more time in the shop and have higher maintenance costs than a new car

Leasing vs. buying a car

It’s also important to decide whether you want to buy or lease the car.

When you buy a vehicle:

• you build equity and will eventually own the car
• you can customize it to your liking. If you want to get a custom paint job or add a spoiler, you can do so
• your monthly payment will be higher than if you had leased the same car (if you finance the car)

When you lease a car:

• you never drive an older car. When your current lease ends, you can simply return it and lease a newer model
• your monthly payment will be lower than if you buy
• your lease will include mileage limits. If you exceed them, you’ll pay extra
• you can’t make any permanent modifications to the vehicle
• you won’t build equity

6. Get the best price on the vehicle

Research prices. Know what your preferred model (or models) are selling for. Companies like Kelley Blue Book, TrueCar, and Edmunds specialize in tracking the average price of vehicles, plus the rebates and incentives available.

Get competing offers. Visiting several dealerships will boost your negotiating power.

Negotiate each piece of the deal separately. Beware of salespeople who roll the different components of the transaction – purchase price, financing, trade-in, extras – into one deal, or who make an offer in one area of the deal that sounds too good to be true. Zero percent financing sounds fantastic, but know that the dealer will be looking to make that money up elsewhere, like raising the total price of the vehicle. Ask questions about fees. Some dealers may be willing to waive certain dealer fees such as freight or advertising fees.

Get a fair price for your trade-in. If you plan to sell your current car, use a tool like Car and Driver’s What’s My Car Worth? to get an accurate appraisal.

Test drive each vehicle you’re considering. Drive it on various types of roads to assess how well it handles. Make sure the controls are easy to operate and that there’s enough storage space.

If you are not happy with the deal, walk away. You know what you can afford and ultimately you control the transaction. Let the salesperson know that you know where the door is and that you won’t hesitate to use it if they can’t meet your number.

When should you shop?

Consider shopping for a car at the end of the month. Salespeople have sales quotas to meet, usually by the end of the month, so they may be more willing to make a deal then.

The final details

7. Know your legal responsibilities

Know which type of auto insurance you need. Visit your state’s Department of Insurance or Insurance Commissioner’s office to find out which types of auto coverage are legally required. You can also visit your DMV’s website to find out which auto insurance is needed to register your vehicle.

8. Get financing

Arrange your car loan before you go to the dealership to buy. You may get better terms than you would at a dealership. Getting financing ahead-of-time also puts you in a better negotiating position.