How to Buy a New Car in 5 Steps

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So, you want to buy a new car? You might be happy to know that the start of 2024 has seen prices go down for new cars. According to Kelley Blue Book (KBB), “the average new car sold for $47,401 in January.” This is a 3.5% drop since the same time last year.

But that doesn’t mean you should rush and get a new car. There are many questions to think about first, like: how long will your dream car last, can you afford it, and are you getting a fair rate?

This article will share some of money expert Clark Howard’s car buying advice. And you’ll find five key steps to get your new car, including:

How To Buy a New Car in 5 Steps

Before we get into the steps of buying a car, there are two things that Clark wants you to know. The first is that getting into heavy debt for a new car is a choice, which you don’t have to make. If you’re in need of a car but don’t want to pay new car prices, check out our guide on how to buy a used car. You might have to do a bit more work up front, but you’ll likely save much more down the line.

The second thing to know is: You should plan to keep a new car for a minimum of ten years. One big reason is depreciation. New cars depreciate — or lose value — very quickly. Consider this: The second you drive a new car off the lot, it loses around 9-11% of its value on average. So, when you buy a new car, you’re the one who has to eat the cost of depreciation.

It’s also important to keep the cost of car ownership in mind. According to data from AAA, the average annual cost of new car ownership is $12,182. This factors in the annual costs for things like insurance, gas, maintenance/repairs, depreciation, and the (still) higher rates for new cars.

But, buying a new car isn’t all bad. And if you’re set to do so, Team Clark can show you the best way to get it done. Our process is based on decades of working with people who’ve gone through the good and bad of buying a new car. And each step is designed to make the process as painless as possible. So, here’s how to buy a new car in five steps:

1. Get Pre-Qualified for a Loan

The first step towards buying a new car is figuring out how you plan to pay for it. Around 21% of car buyers pay cash for their new ride. If you plan to go that route, you can skip this step.

Otherwise, start by getting pre-qualified for a loan. This lets you see how much car you can afford before you start shopping around. And this will prevent you from falling in love with a car you can’t qualify for or one you might be financially better off by leaving on the lot.

Pre-qualifying for a loan first also gives you an idea of what your monthly payments will look like so you can see how a new car affects your budget. But be careful! There might be a big difference between how much loan you qualify for and how much loan you should actually take.


While the average length for a car loan is currently around 72 months, Clark doesn’t recommend taking a loan you can’t pay off in 42 months or less. He says:

“Lenders don’t really offer 42-month loans anymore, but it’s really a point I’m trying to make. So, the 42 months: Take what the cost of the car is and then divide the payment out by 42 months. If that amount is cost prohibitive, it means you really can’t afford that car.”

We’ve got a short guide to Clark’s maximum auto loan length rule that explains why long auto loans are bad news. But put simply, Clark says: “Taking out a longer loan to get a more affordable payment is a big, fat warning that you’re hurting yourself, harming your finances, and limiting your options in life.”

With these tips in mind, let’s look at how to get a loan on your new car. You have lots of options of where to go to get a car loan — like banks, online lenders and dealerships — but Clark is a big fan of credit unions. Keep reading for an overview of each option, or click here to skip to step two in the car buying process.


Although every bank doesn’t offer car loans, most do. This means — if you go with a bank for financing — you have lots of options. You can consider and compare rates to find a loan with the best interest rate for you. And you don’t need to be a member of a bank in order to go through them for financing.

But banks don’t usually have the best interest rates for everybody when it comes to loans. Typically, the lowest rates are reserved for people with the best credit. And, depending on your credit score, you might not be able to qualify with a bank at all.

Credit Unions

Clark really likes credit unions when it comes to car loans. These not-for-profit institutions are owned by their members, so you can generally expect them to look out for their members better than other lenders might.

One way credit unions look out for members is by offering interest rates that are typically lower than banks and other lenders. And credit unions are more flexible when it comes to working with members who may not have the best credit. Just keep in mind that you need to be a member of a credit union if you want to get a car loan from one.


There’s always the option to secure your financing from the dealership when buying a new car. But, it’s not recommended. First, let’s look at different ways that dealerships offer financing, then I’ll explain why Clark strongly recommends you secure financing on your own before going to the dealership.

There are typically three different types of car loans that dealerships can offer. These include:

  • “Buy Here, Pay Here”: in-house financing from the car dealership you buy your car from; the place you buy your car from is also the place you pay for your car
  • Captive Finance Companies: in-house financing from the maker of your car; many car brands have financing companies that serve sellers of their new or certified pre-owned cars (ex: GM Financial is a captive finance company for GM vehicles, Toyota Financial Services is for Toyota)
  • Dealer-Arranged: financing arranged by the dealership that results in a loan from a bank or other lender (that is not the dealership)

It can be convenient to walk into the dealership and have them take care of arranging your financing. But generally, the cost of that convenience is higher interest rates and overall costs for your new car. When you let the dealership handle your financing, you lose the opportunity to shop around and compare interest rates to get yourself the best deal. To make matters worse, many dealers hike up loans or roll additional fees into your financing to profit off of your loan.

Even if you think you’re interested in dealership financing, it doesn’t hurt to get pre-qualified from a bank, credit, union or online lender first. This empowers you as a buyer by arming you with something to compare against any offers from the dealership.

Online Lenders

In addition to the options above, you can finance a new car through an online lender. There are lots of companies to consider. Some sites can give you quotes from many different lenders after you complete one form. This definitely makes comparing rates easier.

CarGurus is a good example of a site that’ll get you multiple quotes at once. In addition to buying and selling cars on CarGurus, you can get pre-qualifications from up to three different lenders when you fill out their form.

But be on the lookout for various fees that might be attached to a loan from an online lender. And if you don’t have stellar credit, be cautious. You might be approved by various lenders, but you’ll likely have very high interest rates on those loans.

Other Considerations

No matter who you finance your new car with, it’s always a great idea to compare at least a few different financing offers. You want to look out for the lowest annual percentage rate (APR) when choosing a loan.

When you’re getting quotes, also pay attention to whether any pre-qualification will count as a soft inquiry or a hard inquiry on your credit. Typically, a pre-qualification counts as a soft inquiry. Once you decide on a loan, however, the lender might make a hard inquiry.

To minimize the impact on your credit, plan to get all your quotes within a short time frame as you compare rates. Multiple inquiries on your credit can be lumped together as just one hit if you move quickly enough. Equifax says, “The period of time may vary depending on the credit scoring model used, but it’s typically from 14 to 45 days.”

2. Choose the Car You Want To Buy

Once you know how you’ll pay, the next step is to research cars you’re interested in and can afford. Research the reliability, price and cost to insure for every vehicle you’re considering. These three things are important for many reasons. Here’s a big one: Just because a car is affordable to buy doesn’t mean it’s affordable to keep! With this in mind, we’ve got some resources to help with your research and advice from Clark on possibly expanding your car list.

Vehicle Reliability

Here at Team Clark, we’re big fans of Consumer Reports when it comes to reading up on vehicle reliability. Every year in April, they release their magazine’s annual auto issue, which includes the best cars of the year. Consumer Reports also has a guide to car reliability and owner satisfaction.


While you need a subscription to access most of the content on Consumer Reports, their annual auto reliability rankings are available for free. And J.D. Power is another source you can use to research car reliability. Specifically, check out their annual Vehicle Dependability Study (VDS), which reports how vehicles from several brands perform “in terms of quality, component replacement and appeal” after three years.

“That’s the closest there is to what Consumer Reports does with their predictive reliability,” Clark says.

Vehicle Price

This step is all about finding out the general price range for any car you’re interested in. There are many great resources online to help you see just how much different cars cost. And most of these resources let you search for cars in many different ways. So, it doesn’t matter if you know exactly what you’re looking for, or you’re open and shopping around for cars based on a price point.

You can easily search for new car prices on KBB. The new car pricing on J.D. Power is another great resource when researching car prices. Once you start getting quotes from sellers, you should find that the cars you’re looking at are priced around what you uncover during this step.

Vehicle Cost To Insure

Even if you have a perfect driving record, the car you choose might cost more to insure than you want to pay. That’s because some cars simply are more expensive to cover. Insurance companies analyze lots of data on cars and use trends to help set rates. For example, insurers will review how costly repairs are on average for a certain vehicle’s make and model. If a car is on the cheaper side to repair, your insurance will be lower than if you buy a car that’s more costly on average to fix.

If you already have insurance, call your insurer for the most accurate quote on a new vehicle. Otherwise, most large insurance companies have calculators available on their sites to give you estimates. You can use our guide on the best and worst auto insurance companies to get started.

Don’t skip this step! It will give you an idea of what you’ll pay to protect your new wheels. And you can start to factor in the cost of insurance as you budget for how much it’ll cost you each month to drive your new car.

AAA also has a Driving Costs Calculator you can use to get an estimate for how much a car will cost to own. Just plug in details about the car and your driving. Then, the calculator gives you an estimate for annual costs that take gas, insurance, maintenance, and other factors into consideration.

Consider Clark Howard’s “Car Funnel” Advice

Maybe you have a dream ride in mind, but it seems a bit out of reach. Or maybe you know some features you’re looking for in a ride, but there’s no single car you’re attached to yet. Clark’s car funnel advice can help you out and might save you lots of money in the buying process. Clark says:

“The idea of the car funnel is that you may have a particular car you’re really interested in, but there may also be a second or third that you also would really like owning and driving.”


Consider this example of how a car funnel works:

“Somebody might like a Toyota Camry, a Honda Accord, and they might also like a Tesla Model 3,” Clark explains. “It’s really good to see what you have the most negotiating room on, what you can get the best deal on.” He continues:

“I have a friend who has a lot of kids and had driven a minivan for 12 years. It was finally just time. He was buying a new minivan and wanted a Toyota Sienna. I encouraged him to also look at its archrival, the Honda Odyssey. And he said, ‘well I’ve always driven Toyota,’ but I said ‘well, just go drive the Odyssey and see what you think.’

And the Odyssey ended up $7,000 cheaper than the Sienna. So, he bought the Odyssey.”

When you’re open to multiple options, you might be surprised by the ones that are lower on your list. It’s a good idea to learn about cars that are comparable to your top choice in size, price and features. Then, you can test drive the different cars — we’ve got a great tip for test driving cars below — and really see if there’s more than one that you ultimately love.

See if Your Dream Car Has a “Twin”

When possible, check out any corporate car twins for the vehicle you’re eyeing. Clark has talked in the past about how different car manufacturers sell vehicles that are similar to other brands.

“If you zero in on a particular model, see if there’s what’s known as a corporate twin,” he says. “You might be able to buy the car cheaper from one versus another. Think about something like a Denali, versus a Suburban, versus a Yukon.”

“Somebody may have their heart set on one make and model, and that’s it. And that’s fine. But if there’s more than one that appeals to you, put them head-to-head against each other, and see which one actually is the best deal you can get.”

3. Get Price Quotes for the Car

You’ve narrowed your search to two or three cars and know the approximate cost of ownership for each. Now, it’s time to shop online for price quotes.

Unlike in the previous step, the price quotes you get in this step are from actual sellers. And you’re no longer getting a general price range for a car model. Instead, you’re looking at the cost of a specific vehicle — and all its individual features — that could end up as your new ride!

You can get quotes from several sellers at once through sites like:

These sites connect you directly with sellers based on a zip code and radius (ex: 10 miles, 25 miles) you specify. Clark recommends looking a little further out than you might originally be planning. He says:

“If you shop [with] dealers, there’s now big price differences in various markets around the country. So, if there’s a particular make and model and version that you really like, getting quotes as far as the pain is worth it to you — somewhere else in the country — is worth doing.”

Sometimes, the price differences are so hefty that you can save lots of money even if you have to buy a cheap, one-way ticket to pick up the car and drive back home. But you can also look into shipping the car, which can still be cheaper if you find a sweet enough deal. Just make sure you have a firm deal in place before you commit to this.


Other Options to Consider

If you want to avoid talking with salespeople directly or you’re uncomfortable negotiating in real time, you might be able to completely negotiate your deal via email with a dealership’s internet sales department.

Or, if you don’t want to buy a car online, you can still use online price quotes to help you shop. Just call around to local dealers and see if they’ll match a price you’ve found online.

Finally, if you’re a Costco member, then another great option to consider is Costco’s Auto Program. Costco says they can, “save you the time of driving from dealer to dealer” by shopping the competition for you, negotiating, and prearranging pricing. You can also check out the Sam’s Club Auto Buying Program to compare deals.

4. Test Drive the Car

There’s one last major step to take before you close the deal on that new car. Before making such a large purchase, it’s important that you get a feel for your future car to see if you really want to own it.

And we’re not talking about a two-minute drive down the street with a sales rep as your passenger. Aside from the pressures of driving around with the dealer, you just can’t learn that much about a car in a quick drive. Clark says:

“The best way to test drive a car is to rent it for a day or two. That’s the ultimate test drive.”

“Rent a car that has some miles on it,” recommends Clark. “It’s the model you’re interested in, and you get to really put it through its paces.” When it comes to rentals, Clark is a fan of Turo. But you can also go to a rental enterprise in your neighborhood. It might seem unnecessary but don’t skip this step — especially if you go through most of the car-shopping process online. You might find out that your dream car is a dud.

“I learned this forever ago when there was a car I was interested in,” our consumer champ recalls. “It just happened that I was on a trip, [and] it was what they gave me for a rental car. And then I hated the car. Two days in the car taught me everything.”

“You can’t learn that much on a 10- or 15-minute test drive. So — to me — the test drive that makes sense is: If you spend 100 or 200 bucks renting [the car] for a couple of days, you could avoid a lot of trouble. Or you may get in and you say, ‘man, I can’t wait to have this. It’s the greatest.’”

5. Close the Deal

You’re almost ready to drive off in your new car. All that’s left to do is sign the paperwork from your dealership. But before you sign: It’s crucial that you make sure your purchase agreement says the same things you previously agreed to when you arranged your deal online or by phone.

If what you read on your paperwork isn’t what you discussed, don’t go through with the deal. The best way to protect yourself in a dealership is to be willing to walk away.

“Be aware that we all focus on the cost of the car we’re buying, and we don’t tend to focus enough on the cost of a loan,” warns Clark.


So, what should you look out for?


To start, review your financing. Check if the dealership can beat the lowest financing rate you secured on your own. If so, and if all the other loan terms are the same, then you can go with the dealer’s offer.

But be on the lookout for any services or warranties the dealership may try to sell you. You will likely meet someone from the dealership’s Finance and Insurance department, often known as an “F&I man” in the industry.

“That’s the Bermuda Triangle for your wallet at a car dealership,” says Clark. “You have to be prepared [because] there’s going to be big pressure with the finance and insurance department to sell you all kinds of extras that can really drive up the cost of the car you’re getting.”

Junk Fees

Always look out for and avoid any last-minute junk fees. These fees are added on by the dealership for unnecessary accessories or services they provide. Common junk fees include fees for VIN etching and various treatments or protections (ex: paint protection, fabric protection, environmental protection). Consider this: Dealerships can charge hundreds of dollars for fabric treatment, which involves spraying your seats with liquid from a $15 can of auto upholstery protector.

When you come across a questionable fee, ask the dealer to explain it. Decline any optional fees for things you don’t want, and ask the dealer to waive or reduce the rest. This doesn’t always work, but it never hurts to try.

Extended Warranties

Consider skipping the extended warranty. We know that not everyone is comfortable doing this, but here are Clark’s thoughts on extended warranties:

  • If you can afford the potential cost of car repairs, you should never buy an extended warranty.
  • If you can’t afford them, you may want to consider buying the vehicle manufacturer’s warranty.
  • Never buy an extended auto warranty from a third party. If trouble happens, the manufacturer is probably going to be there to stand behind its warranty. A third-party company may not.

3 Things To Know Before Buying a New Car

Whether it’s your first time ever buying a new car, or your first time in ten years, the marketplace can be overwhelming. And since the pandemic, things have been a bit more challenging to keep up with when shopping around. Here are three important things to know about vehicle prices before you buy a new car:

  1. Before you buy a new car, you’ll probably see the vehicle’s MSRP, which stands for the manufacturer’s suggested retail price. But dealerships can sell cars for more or less than the MSRP because, well, it’s just a suggestion.
  2. Vehicle models that are in high demand are more likely to sell at prices higher than the MSRP. On the flip side, you’re more likely to pay less than the MSRP on a model that’s slow to move off the lot. But many other factors can influence how much you pay above or below a car’s MSRP.
  3. The pandemic brought about lots of changes to trends in this area. According to data from Edmunds, the average discount off MSRP in May 2019 was $2,573. But in May 2022, people paid $700 above the MSRP on average. Things are getting better, but don’t expect pre-pandemic savings on new cars just yet. As of May 2023, the average discount off MSRP was $616.

“[The] car market’s been a mess from the start of COVID forward,” Clark says. “[It] started getting better the second half of ’23,…and the average purchase price of a new vehicle is going down.” He says:

“If you’ve been waiting, this is going to be the best year to buy a new car in the last five years! It’s been a rough go, but the situation is improving significantly.”

Final Thoughts

Walking into a dealership unprepared is an easy way to overspend on an already pricey purchase. When you’re ready to buy a new car, the steps outlined above put the back power in your hands as a consumer. Not only can you save money on your purchase price, but you can save down the line — or at least know what to expect to pay — on things like insurance and repairs by doing a bit of research first.


And remember: If you buy a new car, Clark recommends you plan to keep it for at least ten years. Otherwise, you might want to check out our guide on how to buy a used car. You can find a great ride that’s new-to-you and keep more of your money in your pockets.