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Smart Buyer's Guide to Buying or Leasing A Car

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How to Buy a Pre-Owned Car

How to Buy a New Car

Buying a new car involves several steps:

Visit the dealership.
Test-drive the car.
Determine a fair price.
Negotiate the best deal.
Close the deal.
Inspect the car.
Pay for the car.
Take possession of the car.

1. Visit the Dealership

Even if you’re planning to buy your car online, you should still visit a dealership to get a firsthand look at the car and to investigate your local dealer’s pricing and selection. When you arrive at the dealer, a salesperson will approach you immediately. On your first visit it’s usually a good idea to tell salespeople that you’re “just looking,” to keep them from being overly aggressive. Ask the salesperson to clarify the following issues regarding the car that interests you:

Different models: Most cars come in a variety of models, usually designated with initials such as SE (standard equipment), LX (luxury), or LS (luxury sedan). Ask how the various models (if any) of your car differ.
Standard and optional features: Most dealers offer brochures that list the options and standard features of the various models of each car they sell. If you’re at all unsure about your car’s options and standard features, ask the salesperson to clarify.
Warranty: Ask the salesperson about the term of the warranty, which is usually expressed in years and miles. For instance, a 3-year/36,000-mile warranty will cover the car for three years or 36,000 miles, whichever comes first. Warranties can be backed by the dealer or the manufacturer—the latter is preferable, since dealers sometimes go out of business. You should also find out exactly what repairs and/or maintenance costs the warranty covers.

It’s often a good idea to visit more than one dealership. The deals offered by different dealers can vary, even if the dealers are selling the same product.

2. Test-Drive the Car

Since you’re getting a brand new car, the test drive you conduct should focus on how the car performs and feels to you, rather than on flaws or mechanical problems. Make sure you’re comfortable sitting in the car and that the car provides you with proper visibility as you drive. Your salesperson will accompany you for the test drive, so take the opportunity to ask him or her any questions you have about the car’s features or performance as you’re driving.

3. Determine a Fair Price

To make it difficult for customers to determine fair prices for new cars, dealers use five different prices for new cars:

Manufacturer’s suggested retail price (MSRP): This is the price the manufacturer sets for the car. The MSRP is often used as a starting point for negotiations but is not a fair price for the car; it’s usually much higher than the dealer’s actual cost.
Factory invoice price (FIP): Commonly referred to as the dealer’s price or the dealer’s cost, the FIP is actually higher than the dealer’s actual cost but is closer to a fair price than the MSRP.
Base price: This is the price of the car, including standard features and warranty only (not including options, fees, or taxes).
Monroney sticker price: Required by federal law, this includes the base price, the MSRP of factory-installed options, shipping costs that the dealer pays, and mileage info.
Dealer’s sticker price: Also called the asking price, sticker price is usually 5–25% above the FIP and includes the dealer’s suggested prices (not MSRP) for dealer-installed options and other fees the dealer charges.

The dealer’s actual cost for the vehicle is never disclosed. Your goal in negotiating a final purchase price for a new car should be to pay an amount higher than the dealer’s actual cost and lower than the FIP. That way, the dealer makes a profit, and you get the fairest possible price for the car.

4. Negotiate the Best Deal

Follow these tips to negotiate a fair deal for your car:

Start with the FIP: Negotiate down from the FIP, not from the dealer’s sticker price. Most negotiations on new-car prices start from the sticker price.
Don’t disclose your budget: Never give the dealer the maximum monthly payment amount you think you can afford. If you disclose a number, the dealer will orchestrate the deal to try to meet it.
Appear informed: Let the dealer know you’ve done your research and visited other dealers. This way you’ll seem confident and maintain the upper hand.
Beware of hidden charges: Make sure the price you agree to pay includes the options you choose, taxes, licensing, and registration fees only. Tell the salesperson that you will back out of the deal if he or she adds hidden fees to this price.
Resist pressure and intimidation: Dealers often suggest that other buyers are waiting to buy your car or that today is the only day to get a great deal on your car. Ignore these tactics and stick to your price.

If the salesperson refuses to negotiate with you, or won’t meet a price that you believe is fair, walk away from the deal. If you walk and the salesperson can offer you a better price, he or she will—even if it takes a few days.

5. Close the Deal

After you and the salesperson agree on a price, put the deal in writing by signing a sales contract. The contract should itemize the entire deal and include a firm final price that includes all charges. It should also include the VIN of the car you’re buying. Note that the contract is typically not legally binding, so you can still abandon the deal if necessary.

6. Inspect and Test-Drive The Car

If you’re buying a car that the dealer must special order, you won’t inspect your car until it actually arrives, which usually takes a few weeks. If you’re buying a car that the dealer has in stock, you can inspect your actual car right away. Either way, be sure to inspect the car before you pay for it:

Inspect the car inside and out: Take at least 10–15 minutes to look closely at the interior and exterior of the car. If you spot missing options or any defects whatsoever, tell your salesperson.
Test-drive the car again: Take the car on one more test drive before you sign the sales contract. If your test drive turns up major issues, tell the salesperson and feel free to walk away from the deal.
Check the VIN: Make sure the car’s VIN matches the VIN in the sales contract. Ask the dealer to show you the VIN if you can’t find it.

7. Pay for the Car

After you’ve inspected and test-driven your car, the dealer will probably ask you to sign another agreement saying that you’ve had the chance to back out but still want to buy the car. Usually this is your last chance to walk before paying. Sometimes this language appears in the sales contract. Always read all paperwork carefully before signing.

Now’s the time to pay the dealer in full—usually with cash, credit card, or cashier’s check. But you don’t necessarily need to use your own money entirely. Most new car buyers use a combination of their own funds and financing, or loan money (see How to Buy a Pre-Owned Car). Financing is offered by private lenders, such as banks, and by dealers. It’s usually best to work with a private lender if you plan to pay with financing.

Last-Minute Offers

Before you pay, the dealer usually pitches you various last-minute offers for upgrades and services, such as undercoating protection. Don’t take these offers.

8. Take Possession of the Car

After you pay, the dealer gives you two sets of keys, and you’re free to take possession of the car and drive off. If you pay in full without financing, you receive the title for your vehicle in the mail within a few weeks. Otherwise, the title goes to your lender.

Lemon Laws and Other New Car–Related Legislation

All 50 states have lemon laws (see Where to Buy a New or Pre-Owned Car) that specify what makes a car a lemon and what rights you have if you buy a lemon. Search online for “[your state] lemon laws” to investigate which lemon laws apply in your state.

Most states also have specific legislation regarding various aspects of buying new cars, including warranties, financing arrangements, and so on. To keep up-to-date on these laws, consult your local consumer protection office or the office of the state attorney general.

Acknowledgments & Disclaimer