How to Buy a Car (The Ultimate Quick Guide)

Written By Automagic Consulting

Buying a car can be a very involved process with several steps along the way and many hours invested. You need to decide on the right make and model of a car, locate a good deal, schedule a test drive to ensure the vehicle feels right, and negotiate the purchase price, trade-in value, and other add-ons. We have written in more detail about picking and locating the right car and tips for negotiating a great deal but also wanted to provide a more streamlined guide of the entire process to be used as a quick reference point.

This guide will provide all of the basics of the car buying process and some information about each. If more detail would be helpful, definitely check out some of our other blog posts. One of the main things we encourage throughout the entire process is to do as much research as possible and keep track of all of this useful information. This will help you make the most informed decisions of what is right for you and provide leverage when you arrive at a dealership to help negotiate the best deal. If you’d like more help along the way (or simply don’t have the time to undertake the research process), take a look at how we can help take the hassle out of the car buying process!

The First Step

Before we get to the fun part of picking the perfect make and model (and imagining yourself driving up the coast in a convertible or conquering snow and ice in your new SUV), you should take the time to determine your budget and think about how you want to get your car (buying new vs. used, leasing, and paying cash vs. financing, to name a few).

  • Budgeting

    • A common rule of thumb is to spend less than 10% of your monthly take-home pay (after taxes, etc.) on a car payment and less than 20% of your monthly take-home pay on all car-related expenses (for example, insurance, maintenance, and repairs). We also recommend that, even if you plan to finance the vehicle, you can afford to purchase it in cash (we love cars but financial stability can be pretty great too).

      • There are several online resources (such as NerdWallet) that can calculate this for you if you provide information about loan term, interest rate, sales tax, and insurance and maintenance costs.

      • Tip: ensure the information is as accurate as possible - take a look a actual auto loan rates from lenders (the best course, is to get pre-approved for an auto loan), decide how long you want the loan to be (48-60 months is common), get a real quote from your insurance provider, and research the average annual maintenance and repair costs (especially after you decide on your preferred vehicle).

    • While this is easier and more useful for most folks to calculate based on monthly payments, we always recommend using this information to find the actual purchase price you would be willing to pay for a vehicle. This is useful since dealers will list the price of the car, not the monthly payment, and can manipulate loan terms (by adding a higher down payment or increasing the loan term) to make the monthly payment lower while keeping the purchase price the same.

  • Leasing vs. Buying

    • This decision will largely come down to personal preference based on how much you value having a new car, how you intend to use the car, and how much you are willing to pay for convenience.

    • Leasing a car is more convenient than buying - you get a new car every two or three years and don’t need to worry about paying for repairs (the car will be under warranty) or selling/trading the car in when you are done with it.

      • However, you will typically be paying more for this convenience and newness, since a car depreciates most steeply in the first few years. You will also have a limit to how many miles you can drive the car each year and may be charged for any damage to the vehicle.

    • If you intend to own your car for longer than three years or want to have freedom in how many miles you drive each year, buying may be a better option.

  • Buying New vs. Used

    • This choice once again depends on personal preference. You will typically get more for your money purchasing a used car (again, since cars depreciate the most in the first few years) but may incur higher maintenance and repair costs since the car’s warranty will expire sooner after your purchase.

    • We typically recommend buying a slightly used (and well-maintained) used car and purchasing an extended warranty if you are worried about costly repairs.

Picking Your Car (the Fun Part)

After you have determined your budget and determined whether you will lease or buy a new or used vehicle, you can use this information to pick the precise make and model that fits your needs and budget.

  • Selecting the Type of Car

    • Most folks will already have this in mind (we don’t see many people trying to decide whether an SUV or convertible sports car is really what they want).

    • However, there can be some nuance here - for example, you may wonder if an SUV or minivan makes a better family car or if your fun weekend car should be a coupe or convertible.

    • This will all depend on personal preference and may be done in conjunction with your decision regarding the right make and model.

  • Picking the Right Make and Model

    • Once again, we recommend doing your research here to determine how various makes and models in your chosen segment stack up against the competition. We understand that some folks have deep-seated brand loyalty but always suggest doing research as you are buying a product (the model of the car) not the brand itself.

      • For example, you may love the BMW brand but find that while their SUVs have recently set the benchmark for luxury and performance, some of their sport sedans no longer dominate competitors from Genesis, Mercedes, or Audi.

    • Part of this research should include the additional car-related costs mentioned in the Budgeting section. There can be a pretty wide range of costs for insurance, repairs and maintenance, and depreciation among competing cars in the same category.

    • Finally, if possible, we recommend that prospective car buyers test drive a few of the cars in the same category to see which one just feels right. You may find that while Car and Driver ranked a car highly, you prefer luxury over handling and so enjoy a different car more. You may also find “deal breakers” that you simply would hate living with every day (like a clunky infotainment system).

  • Options

    • Options and option packages can quickly add a large sum of money to the MSRP of a car and can often be confusing. These also change quite a bit from manufacturer to manufacturer (BMW has seemingly endless options and packages while Genesis has a much more manageable list).

    • Do you research to understand what comes with each option and which options you can’t live without or which would be nice to have but aren’t required.

Locating and Vetting Your Car

  • The Search

    • The internet has made locating the perfect car easier than ever before. Websites like Autotrader or Cars.com allow you to search thousands of listings and filter for a variety of criteria like make/model, mileage, year, color, and even some options.

      • One caveat here is that many dealerships incorrectly list the options present on their used cars, so you can’t fully trust the filtering on these websites. Ideally, the dealership will list the original window sticker (which shows all options), but you can also use VIN decoders to help determine which options are included on the car you are viewing or learn some of the telltale signs of options when reviewing photos of the car (for example, certain buttons that indicate automatic, radar-guided cruise control).

    • The exercise of locating the right car can also help you determine the typical listing price for the car you want on a national and local level. If, for example, supply is very limited in your area, causing prices to be higher, you can consider buying a car from another state and shipping it to you (although this requires more effort and due diligence, this may be worth it to you to save a few thousand dollars).

  • Due Diligence

    • Once you’ve located the car, whether it is near to you or out of state, we always recommend taking a test drive and looking the car over in detail to locate any imperfections (which can be leverage in a negotiation or, if severe enough, can cause you to look elsewhere).

    • We also recommend reviewing the Carfax report to see if there have been any recorded accidents and to determine if the car has been serviced regularly. Even better is to ask the seller for maintenance records, since regular maintenance can go a long way to help avoid costly repairs in the future.

      • We’ll go into detail in a later post, but any Carfax report should be taken with a grain of sale. These can be useful to see known and reported accidents and have a general sense of whether the car was maintained regularly, but are not dispositive. We have seen many incidents where a car had a clean Carfax but was later determined to have been in a serious accident that was not reported to Carfax.

    • When purchasing a used car, we also highly recommend scheduling a pre-purchase inspection (PPI) to help determine if there are mechanical faults. We can’t count the number of times we have seen a car that appears to be in perfect condition, with flawless paint and interior - only to learn from a PPI that it has numerous mechanical issues.

      • A PPI, however, may not be quite as necessary when purchasing a certified pre-owned (CPO) vehicle or when purchasing a car from a reputable franchise dealership that performed a thorough intake inspection.

Negotiating a Great Deal

Negotiating is seen by many as the worst part of the car buying process. It can be stressful to enter a contentious environment and be sitting across from a professional and take quite a bit of time. The following are some general tips to give yourself a leg up when it comes time to negotiate your deal.

  • Do Your Research

    • If you’ve spent time researching a locating your potential car, you’ll likely have gotten a head start on this process. When searching for the make and model you want, you will likely have noticed the typical listing price of similar vehicles. If you have found a similar car nearby for less money (but may just be the wrong color), you can often use this to your advantage when negotiating with the salesperson.

    • You’ll also have a leg up if you have researched auto loan interest rates and received pre-approval from a lender. It may still be beneficial to use the dealership’s preferred lender to take advantage of incentives, but you’ll now have a great baseline in case they quote you a much higher rate.

  • Timing

    • Time is your friend when negotiating a car. If you have more time before you need to buy a car, you will have longer to research the market and find a good deal or note any pricing trends. You also may find a car that has been sitting on a dealer lot for weeks - allowing you to negotiate a better deal so the dealership can offload the car.

  • The Negotiation

    • There are countless books and resources that detail negotiating technique. Without getting into too much detail, we think remembering the following points can go a long way toward getting you a better deal:

      • Try to negotiate the deal before arriving at the dealership. Some salespeople will try to avoid this, but if you show that you are serious and intend to buy the car as soon as you arrive at a fair price, you may be able to negotiate the purchase price via email or over the phone, saving you time and making the experience less stressful.

      • Remain calm and cordial but still firm. People are more likely to help people they like, so it never hurts to get the salesperson to like you (this will also make the experience more pleasant for you) but stick to the budget you determined earlier and hold firm.

      • Be prepared for common dealership tactics. Salespeople at dealerships have been trained to negotiate, they will often suggest that there is a lot of interest in the car or that another interested buyer plans to come in tomorrow to buy the vehicle - pressuring you to buy it now so that others can’t swoop in (even if there is no one else remotely interested in the car). They may also try to manipulate loan terms to lower the monthly payment.

      • Negotiate each piece separately. Be vague initially on whether you plan to trade in your current car, when you need to buy a car, or if you plan to purchase an extended warranty. This gives you more bites at the apple when negotiating, since you can ask for a purchase price reduction, additional trade-in value, or cheaper extended warranty as separate items.

  • Extras

    • Extras include “backend” items that are negotiated or added on after the purchase price is decided (typically when you have agreed to a deal and are working with the finance department). Typical extras are extended warranties, paint protection, wheel and tire packages, and gap insurance.

    • To give yourself the most leverage, you should know that these items will likely come up after the hard negotiating over purchase price is complete and be familiar with what they cover. It is also worthwhile to have researched which of these may be useful to you (for instance, a wheel protection package if you live in an area with bad roads).

      • Tip: dealerships make money on each of these items (otherwise they wouldn’t offer them). However, some of these can still be worthwhile to you - an extended warranty, for example, if you value peace of mind.

Conclusion

This of course provides an extremely broad overview of the car buying process. We could write pages on each of the foregoing topics, but hope that this provides a useful quick-reference guide when you are preparing to purchase a car. Make sure to do your research and contact several dealerships, if necessary, to make sure you find the best car at the best price.

Automagic Consulting
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How to Negotiate a Great Deal