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Last updated: April 6, 2024

Guide to Buying a New Car

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Find The Right Insurance

Let our Perfect Policy Connectors do the work for you!

Auto Insurancephone-icon(855) 913-3658Request a free quote
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Here’s everything you need to know about buying a car (and whether a new car is right for you).

Buying a vehicle can be overwhelming. You want to ensure your vehicle can transport your family safely, but you want a car that fits your budget, as well.

If you’re in the market for a new car, we can help. In this new-car buying guide, you’ll learn how to buy a new car, and how to decide whether or not a new or used car is right for you.

How to Buy a New Car

1. Research Vehicle Features.

Research is the most important first step of any new car purchase — or any large purchase, for that matter. There are hundreds of car models on the market, but not all of them will suit your needs.
Research Vehicle Features

Rather than starting your research with specific vehicles, start with features. Consider which of the following features are most important to your family:

  • All-wheel or four-wheel drive
  • Backup camera
  • Blind-spot monitoring
  • Bluetooth connection
  • Heated seats
  • Lane-departure warning
  • Leather seats
  • Navigation system
  • Parking sensors
  • Power seats
  • Remote start
  • Sunroof
  • Correct number of seats

Knowing ahead of time exactly what features you need will make the rest of the process easier. Not only can you narrow down your list of potential vehicles, but you can withstand the pressure of a salesperson who might push a particular car on you, even if it doesn’t meet your needs.

2. Set Your New Car Budget.

Assuming you don’t have an unlimited amount of money to spend on a vehicle, set your budget before you start shopping. Considering that the cost of vehicles has increased more than 16 percent for used vehicles and nearly 13 percent for new ones from May 2021 to May 2022, knowing your budget ahead of time is even more important.1

Whether you choose new or used, you’re likely to spend several tens of thousands of dollars on a car. According to Kelley Blue Book, the average cost of a new car in 2022 is about $46,000, while the average used car price exceeds $28,000.

If you’re paying cash for your vehicle, the budget is a bit easier to figure out. Simply determine how much money you have available to spend on the car. However, if you’re financing your vehicle through an auto loan, knowing your budget might be a bit trickier.

If you’re taking out a loan for a vehicle, consider how much your monthly payment will be. Our online car payment calculator can help you determine the monthly cost of a car based on its total price tag and interest rate.

Using one of these tools — which many banks offer, including Bank of America — will make it easier to determine how much you can afford.2 Doing your own research is a great way to find peace of mind and then determine the proper car loan terms with the help of a private party.


Financial experts recommend spending no more than 10 to 15 percent of your monthly take-home pay on your car payment.3

Once you’ve determined your new car budget, stick to it. It’s easy to fall in love with a more expensive vehicle or to feel pressure from salespeople to spend a lot of money. Stand firm in your budget and only look at cars that fall within it.

3. Select Models You’re Interested In.

Tools like Kelley Blue Book’s Car Finder make it easy to narrow down your list of cars based on your budget and the features you need. You can choose from a long list of features, vehicle types, and fuel economies. Then, based on your maximum budget, you can see a list of vehicles that fit the bill.4 Once you’ve narrowed down your list of cars, shopping for them will be easier.

4. Get Preapproved.

If you’re financing your vehicle purchase, get preapproved for a loan before you go to the dealership. Not only will this ensure you choose a car you can actually afford, but it can help you to get the best interest rate.

Start at the bank or credit union you use normally. Since you already have a relationship there, the process may go more smoothly. Many online lenders offer competitive interest rates on vehicle loans, so compare those as well. Some of the most popular online lenders are LightStream, Carvana, and myAutoloan.

Compare whether to finance with a low interest rate from the dealership or take a cash rebate and finance with a lender with our Dealer vs Bank Financing Calculator.

5. Test-Drive Vehicles.

You shouldn’t buy a vehicle without test-driving it first. Use your list of potential vehicles to guide where you’ll shop. Plenty of dealerships list their inventories online so you can find out ahead of time if a particular location has the vehicle you want. You can even let a dealership know ahead of time which vehicles you’re interested in so they’ll be ready for you.

During your test drives, be critical. Drive the vehicle on local roads as well as highways, if possible, so you can hit various speeds. Consider how the vehicle handles, how easy the controls are to use, and how comfortable you feel driving it.

Depending on your family size, you may also need to pay special attention to the size and comfort of other seating. If you have teenage children, make sure the back seats offer plenty of legroom. And if you have multiple kids in car seats, you’ll want to make sure they’ll all fit comfortably.


If you have a young child in a car seat, bring that seat with you on your test drive. Make sure it fits comfortably in the vehicle and that you’re happy with the placement.

6. Review Dealer Financing Options.

Ideally, you’ve already gotten preapproved through your regular bank or another lender. However, you may have more financing options available to you once you arrive at the dealership. Many dealers offer in-house financing. Depending on your credit score, you may even have access to better interest rates.

One potential perk of dealer financing is the potential for 0 percent interest.5 Dealers use this offer to entice buyers to choose new cars versus used ones. And while buying a more expensive car just to get a better interest rate may not be worth it, it’s certainly a nice perk for a vehicle you were planning to buy anyway.

7. Negotiate With the Dealer.

Once you’ve chosen the perfect vehicle, negotiate before signing a contract. The first thing to consider is the trade-in value of your current car, assuming you have one and can trade it. While selling a car to a dealer often gives you a lower profit than reselling your car on your own, you might be able to negotiate a higher value for a trade-in, especially if you’re buying a new car.

Compare prices across local dealers. If one dealer has the same car for a lower price, you might be able to get another dealer to match that price. Keep in mind that you may be able to negotiate the purchase price, but costs like taxes and fees might be set in stone.

Finally, be willing to walk away if the dealer can’t meet your budget, especially if there’s another dealer who will.

8. Resist Tactics by Car Salespeople.

One of the most frustrating parts of buying a new car is dealing with the tactics that car salespeople often employ. Falling for these tactics can cost you more money, so it’s important to know what to expect and how to resist these ploys. Here are a few common sales strategies you might run into, and how to deal with them.

  • Bait-and-switch advertising: With this tactic, salespeople show you an offer that’s different from the one that brought you into the dealership. For example, they might show you a more expensive version of the same car. If this happens, stand firm and ask to see the deal they offered in their advertising.
  • Creating scarcity: Salespeople create scarcity by telling you a deal is ending soon or that the car may not be available tomorrow. While it’s tempting to fall for this sales pitch, remember you’re likely to find the same car or deal elsewhere.
  • Recommending expensive add-ons: Salespeople usually work on commission, meaning it’s in their best interest to get you to spend more money. Often, that means recommending expensive add-ons you don’t really need like upgraded floor mats, window tinting, and pricey entertainment systems. If upselling happens, simply tell them you aren’t interested and stick to the features you’ve determined you want previously.
  • Focusing on the monthly payment: When you’re financing a car, dealers are likely to focus on the monthly payment as a way of distracting you from the overall price of the vehicle. But increasing your monthly payment can add thousands of dollars in the long run. Set your budget and stick to it.

9. Close the Deal.

You’ve chosen a car and agreed on a purchase price with the dealer. Now, it’s time to sign the paperwork. Often, you can sign the paperwork at the dealership and leave the same day with the vehicle, assuming you have your state’s minimum insurance coverage (more on that below). In other cases, you may need to come back, or even have the car and paperwork delivered to your home, which is becoming more common with services like Carvana.6

While you’re signing the paperwork, pay attention to the extended warranty information. It’s helpful to know what the dealer or manufacturer covers, as well as how long the warranty applies.

10. Insure Your New Vehicle.

The final step of buying a new car is purchasing the necessary insurance coverage. While you can buy a car without insurance, you’ll need it once you drive the car off the lot in every state except Virginia and New Hampshire. In most states, you’ll need to have at least liability insurance to operate your vehicle legally. But if you’re financing the vehicle, your lender will usually require that you have comprehensive and collision coverage, as well.

Even if you buy your car in cash or your lender doesn’t require comprehensive and collision coverage, they’re a good idea to purchase anyway with a new car. These coverages limit your financial losses in case of an at-fault accident or another incident that causes physical damage to your vehicle. Unfortunately, even the most careful driver can end up with vehicle damage, so it’s better to be safe than sorry.


The fine for driving without insurance can range from $50 to $1,500, depending on where you live. There could also be other penalties, including suspension of your license or registration. If you’re buying a new car, your best bet is to insure it before you leave the dealership.

If you are planning to buy a new car, it may be worth letting your insurance agent know ahead of time so you can add it to your policy immediately. Some insurance companies have a grace period after you buy a car, during which they’ll cover it automatically in case of an accident, but don’t assume that’s the case with your insurer. Ask your agent about your grace period policy.

If you don’t already have insurance or you want to switch insurance providers, shop around before you head to the dealer. That way you can have your insurance coverage ready and still get the best rate available.

Buying a New vs. Used Car: Which Is Right for You?

Pros and Cons of Buying a New Car

Buying a New vs Used Car

Benefits to Buying a New Car


  • Fewer mechanical issues: A new car tends to have more longevity and fewer mechanical issues than a used car because it hasn’t been subject to the same wear and tear.

  • New features: With new cars, you’ll have access to features like rearview cameras, front cross-traffic warnings, and virtual assistant connectivity like AirPlay.7 While used cars may have some of these features, new cars are more likely to have the latest technology.

  • 0 percent financing: Many dealers offer 0 percent financing, which doesn’t usually apply to used cars.

  • New car discounts: Some insurance companies offer discounts for new cars. Those insurers include Allstate, Farmers, GEICO, Nationwide, Travelers, and USAA.

Downsides to Buying a New Car


  • Higher cost: New cars are generally more expensive than used cars. The average new car price in February 2022 topped $46,000. Not only are new cars more expensive to buy, but they’re also more expensive to insure since they’ll cost the insurance company more to repair and replace.

  • Depreciation: On top of being more expensive, new vehicles lose their value quickly. They depreciate in value as soon as you drive them off the lot and lose about 40 percent of their value in the first year, on average.8

Pros and Cons of Buying a Used Car

Buying a used car can be a great and more affordable alternative to buying new. Here are a few advantages to consider.

Advantages to Consider Buying a Used Car


  • Less value loss: Given how quickly new cars depreciate, you can buy a used car that’s just a couple of years old without sacrificing quality. And because cars depreciate the most in those first years, your used car won’t lose value as quickly as a new car would.

  • Cheaper insurance: Used cars are also cheaper to insure. Generally speaking, it won’t be as expensive for the insurance company to repair or replace your used car, meaning there’s less risk and thus, lower premiums

Disadvantages to Buying a Used Car


  • More mechanical issues: Because used cars are older, they may come with more mechanical issues. And depending on who owned them previously, you may not have information about prior maintenance or problems.

  • Inflated prices: The used car supply has been low from 2020 to 2022, causing the average used car price to rise considerably from pre-pandemic prices. As a result, the price you pay for a used car might be more inflated than the one you’d pay for a new car. However, they’re still cheaper — $28,000 for used cars versus $46,000 for new cars, according to Kelley Blue Book data. While new car prices have also been hit by inflation, there’s not as much of a cost benefit to buying used cars as there was in previous years. A few years ago, the cost difference between a new and used car was much greater, making the decision to buy used easier for people. But used cars have inflated in price more than new cars, meaning there’s now a smaller price gap.


Buying a new car can be an exciting process, but it can also be an overwhelming and expensive one. It’s easy to run into roadblocks such as financing troubles or difficult salespeople. Knowing the process ahead of time can prepare you for your big purchase and keep you in control every step of the way. Keep reading for answers to more frequently asked questions about cars.


Which month is the best time to buy a new car?

Overall, December is the best month to buy a new car due to holiday sales. You can also find good deals on three-day weekends and Black Friday. In general, the best times of the year to buy new cars are the end of the month and the end of the year, since salespeople have quotas to meet and may be more motivated to make sales, according to Edmunds.

How much should you have saved before buying a car?

Before buying a new car, save at least enough to pay for the down payment, assuming you’re financing the purchase. For a new car, we recommend putting at least 20 percent down to account for the car’s quick depreciation. If you’re not financing, you’ll have to save 100 percent of the purchase price, plus enough to pay for any taxes and fees.

Will car prices go down in 2022?

Unfortunately, car prices haven’t come down in 2022 so far, and it’s unlikely that they will in the second half of the year. Some experts believe the volatility in the car market may take another year or two to stabilize. In a recent interview with Car and Driver, an expert recommended waiting until late 2023 or early 2024 to buy a car. Similarly, a recent study from Ally Financial estimated that used car prices will fall by 15 percent by the end of 2023.


  1. Consumer Price Index News Release. U.S. Bureau Of Labor Statistics. (2022, June).

  2. Estimate your monthly car loan payment. Bank of America. (2022).

  3. Car affordability calculator. (2022).

  4. Car Finder. Kelley Blue Book. (2022).

  5. What to Know About 0% Dealer Financing. Navy Federal Credit Union. (2020, May).


  7. Newest Vehicle Technologies Going Unused—Many Owners Don’t Intend to Ever Use Them, J.D. Power Finds. J.D. Power. (2021, October).

  8. Find out how quickly new cars lose money. AA. (2012, March).