Steps for buying a new car: Part I

Man and a woman in a car giving a high-five

Purchasing a new car can be a life-changing moment. This investment takes a lot of planning and research, and a bank can be of assistance when navigating through the process. Mapping out a payment plan can help ensure a successful car buying process.

Before going to a dealership, consider these steps to ensure the car buying journey goes as well as possible.

1. Calculate a budget
Different auto brands have various payment options, which makes evaluating the affordability of a car a difficult task. However, affordability is based off of what the customer is willing to spend. Before you begin to research vehicles, determine the amount of money you are willing to spend on a car and how long you'd like to pay for it. This will set the tone for the entire car-buying process.

There are other factors that play a role in car buying as well. Some customers need to take out loans to buy a car, so account for a monthly interest rate. For customers trading in their current vehicle to buy a different one, the value of the trade-in car will impact the amount of money they are able to spend on a new purchase.

2. Understand the pricing
The listed price for a car in a commercial or online ad may not always be identical to the amount on the tag once inside the dealership. So once a buyer decides on the brand, make and model of a car, along with the color, special features, etc., it is time to determine how much it will cost.

Know the invoice price of a vehicle, suggests Kelley Blue Book. The invoice price is what the dealership paid for the car, before they spent money on advertising, displays or financing. Essentially, an invoice price is the lowest the dealer can go without the vehicle costing the company money. This information is useful when negotiating the cost, so the buyer is not tricked when a dealer says the cost will never go lower.

The dealer wants customers to pay as much as or as close to the amount listed on the sticker price, also known as the manufacturer's suggested retail price. However just because it is listed doesn't mean that's what customers will end up paying.

3. Shop around
Even if one car or brand appears to be head and shoulders above the competition, it is wise to shop around to see what else is out there. Visiting multiple showrooms and auto websites gives consumers the best information on a fair price. Contacting car-buying services and broker-buying services to make comparisons is also a wise idea, the Federal Trade Commission suggests [1].

Even if you have every intention of buying the car you had listed as your first choice all along, this can be a valuable exercise. Seeing what else is out there and learning about competitor's costs will be valuable when the research portion of the car buying process is over and the in-dealership negotiations begin.

[1]. Buying a New Car

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