Choosing a Car

Buying a car can be complicated. By doing some homework before you start, you can narrow your search.

What can you afford?

Your budget is the best place to start when considering a car purchase.

First, decide how much you have available as a lump sum. This will be your down payment, if you're planning to finance the car. If you don't plan to finance, the lump sum is what you can spend on the car.

Next, if you're taking out a loan to buy the car, you'll need to budget for the monthly payment.

Finally, every car has some ongoing expenses that you'll need to include in your budget:

  • Insurance - Costs vary depending on your gender, age and driving record, your location, the make and model of the car and the type of coverage you want. If you're financing, your lender will require you to maintain specific coverage.
  • License fees - Costs depend on the make and model of the car, as well as your geographic location.
  • Taxes - Include sales tax when you buy the car, as well as annual personal property tax based on your location and the make and model of the car.
  • Gas - Be aware that some cars require high-octane gas, which costs more.
  • Maintenance (including tires and oil) - Maintenance schedules vary by car; some require more maintenance, which can cost more over the long run.
  • Repairs - including batteries, tires or engine repairs
  • Parking

Use our loan calculators to help you determine what you can afford.

What do you need?

The next step in choosing the right car is determining what you need. Some questions to ask include:

  • How much driving will I do, and what type of driving - city or highway?
  • How many people does the car need to accommodate? Do any of them have special needs?
  • How much cargo space do I need?
  • What safety features are important to me?
  • What comfort features are important to me?
  • What weather conditions will I be driving in?
  • Where will I park?
  • Is gas mileage important to me?

Does gas mileage matter? Consider the difference in expense for a driver who drives an average of 200 miles per week over a year's time, at a cost of $2.00 per gallon:

  • If your car gets 15 miles per gallon, you'll spend $26.66 a week on gas - $1,387 per year.
  • If your car gets 30 miles per gallon, you'll spend $13.33 a week on gas - $693.33 per year

New or used?

By now, you have a sense of what you can afford and what you'd like to have. This is a good time to decide whether you want a new car, or a used car.

  Advantages Disadvantages

New Car

  • More choice of model, color and features
  • Potentially more reliable
  • Warranty coverage
  • Lower interest rates when financing
  • Higher purchase price
  • Higher cost for taxes and insurance
  • Loses value more quickly

Used Car

  • Lower purchase price
  • Lower cost for taxes and insurance
  • Loses value more slowly
  • Shorter or no warranty
  • Reliability difficult to gauge
  • Smaller selection of color and features
  • Higher interest rates when financing

Use our loan calculators to help you make your decision.

Lease or Buy?

If you've decided on a new car, you'll also need to decide whether it makes more sense for you to lease the car, or to buy it. With a lease, you're paying to use the car. When you buy, you're paying to own the car.

  Advantages Disadvantages


  • Monthly payments may be lower
  • Initial costs may be lower
  • Terms may be shorter - you may be able to get a newer model more frequently
  • May be tax-deductible under certain conditions if the vehicle is used for business purposes
  • You don't own the car, so you don't build equity
  • The lease may be hard to terminate if you need to
  • The lease will contain restrictions on mileage and use; exceeding the limitations can be expensive
  • You can pay a penalty at the end of the lease if you don't adhere to the maintenance schedule


  • You own the car
  • You can sell at any time
  • You can customize the car to your liking
  • You won't have mileage restrictions
  • Monthly payments may be higher

Use our loan calculators to compare leasing versus buying.

Doing Your Homework

Whether you're buying a new car or a used car, it pays to research your potential choice before you commit. These web sites provide information for the make and model you want to research. They may also provide tips on price negotiation, buying vs. leasing and other useful information.

Shopping for a Car

Once you've done your research and have a good idea of what you want, it's time to go shopping.

Whether you're buying a new car or a used car, the Internet can help you locate cars matching your specifications. This can save numerous trips to dealers. Plus, you'll have a better idea of what you'll have to pay for the car you want.

For a new car, you'll probably buy from a dealership. See below for helpful negotiating tips.

If you're buying a used car, you can go to a dealership, or buy from an individual seller. Both have advantages.

Individual Seller Advantages Dealership Advantages
  • You may be able to buy the car for less.
  • You can have the car inspected by your mechanic.
  • Negotiations are less pressured.
  • The dealer may offer a limited warranty.
  • A dealer offers a greater variety of used cars.
  • You can check out the dealer's reputation.

Negotiating the Price

Most people know that the price you pay for a car is negotiable. These tips will help you negotiate confidently.

  • Don't buy a car in a hurry. You're likely to spend more. And never let the dealer pressure you into acting more quickly than you're comfortable.
  • Do your research and get as much information as you can before discussing price. Using the Internet, you can get close estimates of what you'll have to pay for the model you want, with the features you want, in your geographic region.
  • Look on to find out the car's invoice price - that's the price the dealer pays for the car. Dealers base their profit goals on the invoice price (for example, $1,000 over invoice). If you negotiate up from the invoice price, you'll likely arrive at a better price than if you negotiate down from the sticker price.
  • Be flexible about the features you'd like to have. The more specific your needs, the fewer choices available to you, and the less room you have to negotiate.
  • Beware of dealer add-ons. Make sure you understand exactly what is meant by each add-on item so you can determine its value. If that $200 "appearance package" really means a wax job, you're paying too much. Some add-ons, like rust protection and undercoating, are applied at the factory. You shouldn't pay more to have them re-applied at the dealership. Ask to see a list of add-ons and their costs before you begin to negotiate on a car. If the add-on is something you'd like to have done, such as fabric protection or an alarm system, it pays to get a price quote from an auto detailer or a mechanic. The price will probably be much less than the dealer will charge for the same service.
  • Ask questions until you're certain you understand all of the costs.
  • Ask to see a copy of the worksheet that lists all of the costs, and compare the worksheet to the contract to make sure the numbers match up and nothing has been added. The contract should spell out sale price, down payment, trade-in value of your previous car (if applicable), destination charge, sales tax, total cost and loans.
  • When discussing price, focus on the total cost of the car. Try to avoid naming your ideal monthly payment - you'll likely end up with that payment, when you may have been able to negotiate a lower payment.


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