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LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

How To Buy a Car in 8 Easy Steps

Updated on:
Content was accurate at the time of publication.

Maybe your old jalopy is on its last legs. Or perhaps you’re pining for that new-car smell. Whatever the reason, you know you need a new set of wheels.

What you might not know, however, is how to buy a car. And that’s just one piece of the puzzle. You’ll also want to learn how to nab the best auto loan rates and deals. The steps below could help you find the car of your dreams at a price you can afford.

The first thing you need to do is make sure you can afford a new (or used) car. Your budgeting strategy may depend on whether you’re paying cash or financing.

  Cash buyers

If you’re buying a car with cash, be sure that you aren’t wiping out your emergency fund in the process.

Generally, you should have between three and six months’ worth of living expenses in your emergency fund. And if you’re buying an older model, you may want to beef up your savings to pay for future car repairs. Also, set money aside for expenses such as registration or state inspections.

  Financing with an auto loan

Here’s what you can do to figure out if a car loan fits within your budget:

Check your credit score

Your ability to get an affordable auto loan hinges on your credit score. Per Experian data from Q4 2023, borrowers with excellent credit (781+) saw an average annual percentage rate (APR) of 5.46% on new car loans. In comparison, APRs for those with fair-to-poor credit (501-600) was 12.28%. So before pursuing a loan, check your score for free with LendingTree Spring.

You may also want to check your credit report for errors before applying for financing. The Federal Trade Commission (FTC) found that 1 in 5 people has an error on their credit report. If you’re one of the unlucky ones with a credit report error, a successful dispute could help boost your score.

Bottom line: If you have at least good credit (670+), you’ll likely have an easier time finding an affordable car loan. If you’re not quite there, you may want to improve your credit score or save up to buy an older model with cash.

Consider the 20/40/10 rule

Decide if you can afford a new car with the 20/40/10 rule. This rule says you should:

  • Pay a down payment of at least 20%
  • Choose a loan term of four years or less
  • Ensure your monthly transportation costs don’t exceed 10% of your monthly income

A down payment of 20% or more can help secure a lower APR. A four-year loan term can help you pay less overall interest. And the monthly cost cap can help you afford your car over the long haul.


Tip: Don’t forget about insurance.

It’s a common myth that buying a new car will lower your insurance costs because of enhanced safety features. The reality is, if your new vehicle is worth more than the one you own, your premium is probably going up. That is, if you carry full coverage.

To make sure you can afford your premium as well as your new car, shop around for insurance quotes before making any decisions.

Use our car affordability calculator

Our car affordability calculator can help you determine how much car you can afford. It considers factors like your current auto loan balance, your trade-in value and more.

But first, you need to have an idea of what your interest rate may be. If you’ve already gotten loan offers, use the most appealing rate. If you aren’t sure, Experian shows that the average rate for new cars was 7.18% in Q4 2023.

Now that you have a grasp on your budget, it’s time to go car shopping.

To start, decide if you’re buying brand new, a certified pre-owned car or a used one. A brand-new vehicle can be an exciting milestone, but keep car depreciation in mind. Most models lose about 20% of their value during the first year of ownership.

That’s not to say that going brand new is always a bad idea, especially if you qualify for a 0% APR car deal. Still, don’t let the allure of a shiny new toy lead you into an unwise financial decision.

For a used vehicle, you can buy from a dealership or from a private party. Opting for a dealership can be safer than buying a car from a stranger. But generally, you’ll get the car for cheaper if you go for a private-party sale. However, you may need to forgo financing — not all lenders offer private-party car loans.

Outside of new or used, consider other priorities such as performance, style, safety and cost of ownership. Once you know what you’re looking for, you can tailor your shopping from there.

For instance, if safety is top of mind, check out the Insurance Institute of Highway Safety (IIHS). It maintains an extensive database of crash test ratings on its website. You can also research car safety ratings through the National Highway Traffic Safety Administration (NHTSA).

Letting your dealer set up your car loan may be easier, but the convenience could cost you. Although your dealer is eager to make a sale, they have no obligation to shop for the loan with the lowest rate.

Take matters into your own hands and get a preapproved car loan before stepping foot on the lot. Better yet, get preapproved with several lenders so you can compare rates. As long as you do your rate shopping within a 14-day window, only one hard-credit pull will count against you.

Also, look into captive (or manufacturer) financing if you’re buying a brand-new or certified pre-owned vehicle. You can usually apply for preapproval on the car maker’s website. Depending on current promotions, you might find a discounted rate or cash-back incentive on your desired model.

Online auto loans may also be worth exploring, especially if you’re looking for a bad-credit car loan. Click the button below and head to our auto loan marketplace. There, you can compare up to five offers in just minutes. Using our marketplace is secure, free and has no impact on your credit score.

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Once you have offers, pay attention to interest rates (or APRs) and loan terms. The lower the interest rate or APR, the less expensive the loan. To pay less interest overall, you may want to choose a short loan term (36 months is a popular option).


Tip: Look for car-buying services.

Many banks and credit unions offer car-buying services for their members (often in partnership with TrueCar). Using this service can streamline your shopping experience, and you might gain access to discounted financing rates.

These days, shopping for a car is more than kicking tires at the closest dealership. A better approach may be to start online.

Many car makers have an online tool that allows you to “build” your desired car, trim level and all. Note that this is typically only an option if you’re buying brand new. Using this tool can help you decide which options are musts and which are nice-to-haves.

After building your car, take those specs to a vehicle-comparison site like TrueCar. TrueCar can show you local dealerships that have your desired car in stock. While you’re there, compare asking prices.

If you prefer to buy from a private seller, used-car websites can be an invaluable resource. AutoTrader, for instance, verifies the seller’s identity to provide extra peace of mind.

You can’t rely on your dealer’s (or seller’s) word for it — you’ve got to put that car through its paces. When taking a test drive, try to accomplish the following:

  • Pump the brakes: Take the car to an empty parking lot, get it up to a moderate, safe speed and hit the brakes. Note their responsiveness.
  • Take it to the highway: Pick a time when traffic is light, hop on the expressway and get the car up to the speed limit. Notice how it handles and whether it drifts to a certain side.
  • Turn down the radio: Yes, you should test out the sound system, but while you’re on the road, turn off the tunes. This will help you hear any disconcerting knocks.
  • Take a friend: Bring along a mechanically inclined friend and have them peek under the hood.


Tip: Be careful on test drives.

Even if you’re tempted to “see what this thing can do,” follow all traffic laws and be vigilant. You’re in an unfamiliar car that may have undisclosed mechanical problems. Safety always comes first.

Let’s say the test drive was successful. You know exactly what car you want, but you need a good deal to make it happen. Here’s what you can do:

  Compare value to asking price

New cars from a dealership

Getting a good deal on a new car might be easier if you speak your dealer’s language. You can check the data points below for your specific vehicle by using sites like Kelley Blue Book (KBB).

  • Manufacturer’s Suggested Retail Price, or MSRP This is the amount the manufacturer suggests its dealers should charge. Dealers don’t have to abide by MSRP — it’s only a suggestion.
  • Invoice Price This is what the dealer paid the manufacturer for the vehicle (or close to it). A vehicle’s invoice price is lower than its MSRP. Any amount you pay above sticker price is profit for the dealer.
  • Market Value This is how much the vehicle is worth, based on current market conditions. A hard-to-find or highly desired car might have a market value much higher than its MSRP.

It’s possible to pay below MSRP if the car market is slow or your dealer is motivated. If you get a car for around the invoice price, that’s a great deal. Occasionally, the dealer may even beat the invoice price. This usually only happens if you’re eligible for a rebate or incentive.

Used cars from a private seller

Buying a used car from a private seller is a little simpler.

Instead of fair market price, you’ll refer to the car’s private party value. This represents what a reasonable price would be, considering the market and vehicle’s condition. You can usually find this information on KBB.

If the seller is asking for more than private party value, talk them down or walk away.

  Maximize your trade-in

Before you do anything, estimate your car’s value. You can do this with KBB’s online appraisal tool. Knowing what your car is worth can help you avoid getting fleeced in the deal.

There are a few ways to trade in a car. Often, you’ll get the most money if you sell your car to a private party. This can be a hassle and may take some time.

You could also trade it in at the dealership and use that money toward your new car. Before you do, you may want to also get a quote from Carvana.

After providing a few details, Carvana can tell you how much it’ll pay for your car in just moments. If you like what you see, you can move forward with the sale. Or, you could take Carvana’s quote and use it as leverage at the dealership.

  Ask for the out-the-door price

One of the most important questions to ask when buying a car is “What’s the out-the-door price?”. Yeah, you may be able to afford sticker price (MSRP), but what about MSRP plus dealer fees?

Generally, dealer fees can account for 8% to 10% of the vehicle’s total purchase price. That means you could be on the hook for an extra $3,000 if you’re buying a $30,000 vehicle. Some fees are mandatory (such as sales tax and titling costs). However, those related to appearance (window tinting and pinstriping, for example) might be negotiable.

Typically, finance managers don’t disclose fees until it’s time to sign. Fees can vary from dealership to dealership, and some might not charge them at all. It may be a good idea to call a few dealerships and ask them for their fee schedule before choosing your lot.

  Consider negotiating

No-haggle car buying can have perks. For one, there’s less pressure. You can also be certain that you’re getting the vehicle for as low as that dealer (or seller) is willing to go. But if you’re up for it, negotiating a car price may be worth it.

During negotiations, you might learn that you qualify for a car rebate. Or you may get the dealer to lower its sale price to compensate for a mandatory dealer fee. In any case, it never hurts to try.

Most new and certified pre-owned vehicles come with complimentary warranties. Your finance manager will also likely offer you a package of optional extended warranties and service packages.

If you’re interested in extended warranties, call a few dealerships and ask for quotes. Unless you ask, you often won’t know how much an extended warranty costs until you’re close to sealing the deal.


Tip: Find extra coverage elsewhere.

Some insurance carriers offer coverage similar to a dealership warranty, sometimes at a lower price. Take Geico, for example. Its mechanical breakdown insurance can cover major components for the first seven years or 100,000 miles on eligible vehicles.

You could also get quotes from third-party car warranty companies such as Endurance or CarShield. Third-party car warranties can be cheaper than dealership warranties (but may come with aftermarket parts).

You’re almost ready to hit the road in your new ride. Now all you have to do is buy it.

If you’re financing

The process of applying for an auto loan depends on the type of loan you’re getting. If you’re moving forward with a preapproved loan, you can contact the lender (or in most cases, visit its website) and apply.

For captive financing, you may be able to apply online, but some manufacturers require you to go through your dealer. If you don’t qualify for captive financing, your dealer may also offer to set you up with a partner lender.

Regardless of the route you take, the act of applying is usually the same. You’ll answer questions about yourself, your employment and where you live. You should also be prepared to provide bank statements or W-2s, as well as a government-issued ID.

If you’re not financing

Buying a car “in cash” doesn’t always mean you’re actually purchasing it with cash. Instead, you’re providing the funds yourself rather than through a loan.

If you plan on paying in literal cash, make sure that your dealer can accept such a large amount. Also, research your bank’s daily ATM withdrawal limit, if applicable. Your dealer may accept debit and credit cards, but they may attach an extra processing fee.

Private-party sellers will likely have no issues with cash. But bringing thousands of dollars to a stranger can be dangerous. Consider meeting at a police station to complete the transaction. Better yet, ask the seller if they will accept a cashier’s check.

When buying a car, your first step should be to review your budget. Remember the 20/40/10 rule if you’re financing. If you’re paying cash, don’t wipe out your emergency fund unless buying a car is indeed an emergency.

One of the most effective ways to avoid dealer markup is to do your research. Ask your dealer for the invoice price. Then, compare it to MSRP and market value. And don’t forget to ask for the out-the-door price.

If your dealer is charging more than MSRP, don’t be afraid to negotiate or walk away. Generally, the closer you can get to the invoice price, the better the deal.

Whether you buy a new car or a used car depends on your priorities. Brand-new cars can come with extensive warranties but also steep price tags. A used vehicle may be cheaper, but you could be headed for costly repairs if the prior owner didn’t stay on top of proper maintenance.

But even more important than your priorities is your budget. Only buy a car you can afford over the long term. If you’re still on the fence, a certified pre-owned could be a good middle ground.