A car is a major asset, and purchasing a new one is a serious matter. If you're in a country like the United States, odds are that you drive nearly everywhere. Unless you have easy access to affordable public transportation, it's difficult to get around without a personal vehicle. Most people need a car for their job, to make it to school, or just to handle life's basic necessities like getting to the grocery store.

Suffice it to say, many people can't avoid taking on a monthly car payment (and the associated costs). If that sounds familiar, keep reading. Here are five tips to help you save money on your next car, on everything from the sticker price to your car insurance payments.

Do Your Research

Before you walk into any car dealerships or make any sort of car purchase, do your due diligence and research. Figure out the market value of the vehicles you're interested in. Resources like Kelley Blue Book are great for this, and you'll walk in armed with the knowledge of what the vehicle is actually worth. Maybe you'll get lucky and see that it lines up with the sticker price on the lot, but odds are it'll leave you room for negotiation.

Don't limit your research to market value, though. Investigate what's actually on the lot, whether you're looking for a new car or a used car. There are many sites, like CarMax or AutoTrader, that let you compare prices and show you what's available in whatever area you're searching in.

Knowing what's out there and how it stacks up against the market value, and similar vehicles, makes the car-buying process a lot easier. You're not stuck simply accepting what the person working in car sales tells you. You'll have your own bank of knowledge going in, and that puts a bit more power in your corner.

Make Your Budget

As with any major purchase or ongoing expense (if you take out a car loan), you need to set a realistic budget. This includes how much you can comfortably handle for monthly payments as well as what you'll conceivably have for all the other costs.

In other words, you need to decide ahead of time how much car you can afford and stick to that. Once you're in the dealership, things may get overwhelming. You'll start hearing about interest rates, the down payment, and all the numbers associated with the final cost of the car. Stick to your guns and the budget you built ahead of time. Otherwise, you'll stretch yourself too thin and may fall behind on payments, ultimately losing your vehicle or hurting your credit.

The current recommendation is that you should spend no more than 20% of your income on your total car costs, which include your monthly payment, insurance, gas, and other expenses. Any car loan should ideally not exceed 10% of your take-home pay. That isn't always possible, especially during a time when prices for new and used vehicles are extremely high, but stick to it as closely as you can.

Potential car buyers should walk onto the lot knowing what they can afford for their monthly payments. If, during your negotiations, that number starts to creep up - take your business elsewhere. Sometimes, the willingness to walk away is enough to get you a better deal.

Trade In Your Old Car

If you don't need your old car or an extra vehicle, consider trading it in as part of your downpayment. Used cars are currently in high demand, so you may fetch more for your previous car than you realize. This is particularly useful if you've struggled to save money for a high downpayment on your own.

A higher downpayment means lower monthly payments and, sometimes, you'll even get a lower interest rate. If trading in your old car gets you the best deal on a new one - take the plunge! This approach isn't for everyone, as there are certain situations where you need to hang onto the older vehicle, but consider the trade if you're seriously looking for ways to save money.

Learn Financing Options

When buying a car, you have a few options. Paying cash is a fantastic choice if you can afford it. You'll save thousands on interest by paying for the full cost upfront. However, paying for a whole car (especially a new vehicle or a higher-priced used car) isn't realistic for most people. In that case, you're looking at dealership financing or direct lending, which means the loan comes directly from a bank or similar financial entity.

  • Dealership Financing - In dealership financing, you agree to pay the dealership the cost of the car (the amount financed) and an additional finance charge. Using dealership financing typically means you'll have different options to choose from, depending on your credit, as they have relationships with different banks and financial entities. Just remember that the dealership is also taking an additional cut of anything you pay. If you choose dealership financing, ask about add-ons (like an extended warranty) and their cost so you're not stuck paying hidden fees.
  • Direct Lending - Direct lending means you're taking a loan directly from a bank, credit union, or similar institution. Before shopping, you can get a pre-approval with direct lending, so you'll already know your APR, the length of the loan, and how much you're eligible to borrow. That gives you something concrete for negotiations and you can more easily get a solid price for a vehicle.

Shop for Car Insurance

Car insurance is a necessity, especially if you enter into a loan to pay for your vehicle. Your lender may require that you maintain comprehensive car insurance until the loan is paid off, as they'll want to protect their investment. That means you'll be paying more for insurance than the basic liability plans.

There are many car insurance comparison sites out there, and you can typically get free quotes from insurers in a matter of minutes online. Rates can vary by thousands of dollars each year, so spending a couple of minutes comparing prices and rates can save you a substantial amount of money. There are more options than many people realize, and shopping with smaller or newer companies can save you a great deal of money.


Buying a car is a big purchase and you need all the help you can get. Follow the steps above and you'll go onto the lot well-equipped to get the best deal possible. Know what you're ready to spend and don't get swept up in jargon.

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