Buying a Car

A car is a major purchase, and it's important to think beyond the sticker price before you start test-driving. Consider other costs in addition to your car payment, such as gas, insurance, registration, repairs, and maintenance.

Here are ways to make the process easier and the outcome more rewarding.

1. Make a budget that includes not just the price of the car, but also the costs to insure and maintain it.
2. Research your purchase online before heading to the dealership.
3. At the dealership, test-drive the car and negotiate the price.

Pricing a vehicle.

There are different ways to look at the price of a vehicle: Some people feel the overall cost is important, while others are more concerned with monthly payments. Explore your options with the Moneywise® Car Loan Calculator.  

New or used? Do some homework: Kelley Blue Book and Consumer Reports are two resources to help you decide whether a new or used car is the right choice for you.

Cash or financing?

Once you know how much you can afford, it's time to decide how to pay for the car—with cash or financing. While paying cash is usually the most cost-effective method, consider these options if you plan to finance your purchase:

• Pre-approved bank or credit union financing—The Consumer Financial Protection Bureau recommends this type of financing, where you'll often get better terms, and you'll know exactly how much you can spend when negotiating with an auto dealer or a private seller. Start by checking your credit report for errors and inaccuracies. Then contact your local bank or credit union—preferably one where you have an existing relationship—and be sure to comparison shop with other lenders. If your credit score is below 680 or your debt-to-income ratio is high, you may need to look at alternative lenders or dealership financing.
   
• Dealership financing—While this option may be available, it's not recommended. That's because it often limits your ability to negotiate the car's price, and the loan is often structured so that very little of the principal is paid until the interest is almost completely paid off. As a result, if you want to sell or trade the car a few years down the road, you might find that you still owe more than the car is worth. That said, dealer financing is often available even if you have a credit score below 680. But if you go this route, be sure to read the fine print, and understand all the terms and conditions before signing on the dotted line.

Next steps.

Get auto insurance. Most states require you to have a minimum amount of liability insurance for accidental bodily injury and property damage. And if your car is financed with a loan, full coverage is often required.