Step-by-Step Checklist for Buying a New Car

Decide How Much Car You Can Afford

• Evaluate your budget to see how much money you can reasonably spend on a car.
  • A good rule of thumb is to keep your car payment under 10% of your monthly take-home pay.
  • In addition to the monthly payment, be sure to consider the true costs of car ownership, including insurance, fuel and maintenance.
• Estimate how big of a down payment you can make.
  • Aim to put 20% down if possible. Cars lose value every year; a larger down payment can help ensure you won't end up owing more than the car is worth.
  • If you don't have enough money for a down payment, figure out how to save up for it.
• If you have a car, decide whether you want to sell it and put the money toward your down payment.
  • You can trade the car in to the dealership or sell it privately.
  • Trading it in is easier, but you can often get more money by selling a car privately.
• Use online payment calculators at automotive websites such as Edmunds, Autotrader and Cars.com to estimate how different prices, loan terms and down payment amounts will affect your monthly car payments.

Get Your Credit Ready to Buy a Car

A good credit score can help you qualify for the best auto loan terms and lowest interest rates. Experian's latest auto market report found auto loan borrowers in the lowest credit score range paid an average 14.85% interest on a new car loan; those in the highest range paid an average interest rate of 4.19%.

• Check your credit report and contact the credit bureau if you find any inaccuracies.
• Check your credit score to see how your credit measures up.
• If necessary, take time to improve your credit score before shopping for a car.
  • Bring any past-due accounts current.
  • Pay all your bills on time.
  • Pay down balances on credit card accounts to improve your credit utilization ratio.
  • Sign up for Experian Boost^®ø to get credit for paying your utility, cellphone and streaming bills on time.

Shop for the Vehicle Make and Model You Want

• Use dealer and other automotive websites to research prices of the cars you're interested in.
• If the car you want costs more than you can afford, consider a used model of the same vehicle.
  • Cars under five years old have many of the same features as new ones, but cost significantly less.
  • You can buy certified pre-owned models from auto dealerships or used cars from private parties.

Get Preapproved for an Auto Loan

You can get a car loan through the dealership, but that's not your only option for financing a new car. Getting preapproved for a loan through a third-party lender can mean a lower interest rate and could give you more negotiating power with the dealer.

• Shop around for auto loans from banks, credit unions and online lenders. You'll be asked to provide basic information such as your Social Security number, employment details, financial information and how much you want to borrow. Estimate a general amount based on the cost of the car you want.
• When comparing loans, consider:
  • Annual percentage rate (APR): The APR includes the loan interest rate and fees, reflecting the total cost of borrowing.
  • Loan term: Short-term loans often have lower interest rates and cost less in interest overall. Longer-term loans may have lower monthly payments but will cost more in interest over time.
• Use the Consumer Finance Protection Bureau's Shopping Sheet to compare auto loans.
• When you apply for multiple car loans, do it within a 14-day period to minimize any impact on your credit score from hard inquiries into your credit report.

Ask About Dealer Financing

Even if you're preapproved for an auto loan from a third party, you should investigate financing options from the dealer. Dealers may offer incentives, rebates or promotional financing.

• Bring proof of your loan preapproval to the dealership and ask if the dealer can beat the interest rate.
• Dealers often focus on the monthly payment, which makes it hard to compare loan offers. Ask them to explain the loan in terms of its total cost.
• The dealer may urge you to get a loan with a longer repayment term to lower your payments. Focus on the total cost of the loan or you could end up paying more than you wanted.

Negotiate the Price

• Research auto dealerships in your area to see how much the car you want is selling for.
  • Use the lowest price you find to negotiate with your chosen dealer, or
  • Take the average price, reduce it by 10% to 20%, and offer that price.
• Dealers will try to sell you extras, such as an extended warranty, gap insurance, rust-proofing or window etching. Don't give in to pressure to buy anything you don't actually want.
  • All these extras can be purchased later on, either from the dealer or third parties, usually for less.
  • If you buy extras from the dealer, they get rolled into your financing and incur interest, increasing both the price of the extras and the total cost of the car.
• If you're nervous about negotiating in person, shop for a car online so you can iron out the details remotely.
• Consider waiting until the end of the month, quarter or year, when salespeople are more willing to negotiate so they can meet sales quotas or move old cars off the lot.
• Be prepared to walk away if you aren't satisfied with the deal. There's always another car and another dealership.

Close the Deal

• Review the loan and the dealer's purchasing paperwork carefully to make sure it matches what you agreed to.
  • Ask questions about anything you don't understand.
  • Don't sign any documents until they are completely filled out and accurate.
• If you're financing your car with a preapproved third-party loan, contact the lender and give them the relevant information about the car you're buying.
• Be ready to show proof of auto insurance in order to drive your new car off the lot.
  • If you don't have car insurance, start shopping for it at the same time you shop for a car.
• Put your loan payment due date on your calendar so you don't miss a payment.
  • Consider setting up automatic payments.
  • If you make your payments on time, your auto loan can help improve your credit score.