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Guide to Buying a Car

If you’re buying your first vehicle, the process may seem overwhelming. Maybe you know what you want, but you’re not sure it will fit in your budget. And how do you know you’re getting the best deal? This guide is designed to help you successfully maneuver down the road to your new vehicle.

Ready to apply for an auto loan? Submit your application here.


When buying a car, you have a lot of decisions to make. You also need to carefully weigh your needs and wants with how much you can afford. While you may think you need a convertible, your actual needs (and budget) may suggest otherwise.

Ask yourself the questions below to get a better idea what kind of vehicle you need. Even if you already have a make or model in mind, go through the questions and answer honestly. You want to make sure the vehicle you end up with is the one that best fits your needs.

  • What will be the primary use of the vehicle?
  • How many passengers will you need to transport regularly?
  • Do you want manual or automatic transmission?
  • What safety features are most important to you?
  • What style vehicle do you want? Coupe? Sedan? SUV? Truck?
  • How many miles do you plan to drive yearly?
  • How long do you want to keep the vehicle?
  • Do you want an environmentally friendly vehicle? Are you willing to pay more?
  • Do you need all wheel drive?
  • Do you need cargo space?
  • What features are most important?
  • Do you want to lease or buy?

Before you start looking at vehicles, you need to know how much vehicle you can afford.

Total Cost of Ownership

What you can afford each month isn’t just the monthly payment – you need to consider the entire cost of ownership.

The cost of ownership includes:

  • Monthly payment
  • Insurance
  • Registration fee, license, taxes
  • Gas/fuel
  • Oil changes
  • Tires
  • Maintenance and repairs
  • Parking and tolls

The total cost of ownership will be different depending on the type of vehicle you get. A new car may not have as many repairs but the monthly payment may be higher. Kelly Blue Book has a Five-Year Total Cost of Ownership calculator to help you compare costs between vehicles.

Monthly Budget

To determine how much you can afford, you need to take a look at your monthly budget. Use the Guide to Building a Budget to get started.

How much of a payment can you afford? This isn’t necessarily how much of a loan can you get approved for – it’s how much can you afford each month with your budget. Just because you’re approved for a $50,000 auto loan doesn’t mean you can afford the monthly payment.

Beyond the monthly payment, how much can you afford to pay for insurance, gas, maintenance, etc. each month? Your monthly insurance premium is going to depend on a variety of factors including your zip code, credit history, type of car, year of car, miles driven, and more. Gas costs will depend on how much you drive and what kind of vehicle you get. Maintenance and other costs will depend on whether your car is new or used, your driving style, weather, and more.

Do you have money saved for a down payment? A down payment or even a trade-in can reduce the amount you need to borrow and potentially your monthly payment.

How quickly do you want to pay off the loan? A longer loan term may mean a lower monthly payment, but that also means more interest paid.


Figuring out your budget and financing go hand in hand. If you’ve decided to purchase your vehicle and don’t have cash for the entire purchase price, you’re going to need a loan. Getting pre-approved before you begin shopping will help you narrow down your options and give you more power when negotiating.

Applying for a Loan

When you apply for an auto loan, the lender is going to use the information you provide in addition to the information from your credit report to evaluate how much you can afford and the likelihood of you paying back your loan. Factors lenders take into consideration:

  • Monthly income and expenses
  • Length at current address
  • Length at current employer
  • Car information/value
  • Down payment and amount financing
  • Credit score and credit report

Lenders use all of this information to determine if you’re approved and the terms of the loan.

Terms of the Loan

When you receive your loan approval, you’ll receive the terms of the loan. These include the payment amount, length of the loan, and interest rate.

In general: if you want a lower payment, it will likely take you longer to pay off the loan and you’ll pay more in total interest. If you have a higher payment, you will likely pay off your loan faster and pay less in total interest.

Additional Items

In addition to financing, you may want to consider adding additional protection to your vehicle.

  • Mechanical Breakdown Protection (MBP) may also be called an extended warranty, this protects your vehicle beyond the manufacturer’s factory warranty.
  • Guaranteed Asset Protection (GAP) pays the unpaid balance of your loan if your vehicle is stolen or damaged beyond repair

Both MBP and GAP can be added to your monthly payment.


Once you know how much car you can afford, it’s time to begin your research. With the internet, there’s no shortage of search engines to help you find the car for you. Keep your list of needs and wants in mind as you begin researching vehicles.

If you’re also searching private sellers, always be careful. Take someone with you to test drive, don’t give any private and confidential information to the seller, and schedule to meet in a public location.

Once you’ve found a couple vehicles, call up the dealership/seller to schedule a time to come by to look at the vehicle and take a test drive.

Test Drive

The test drive is an important step in the car buying process. A vehicle may have all the features you need, but it may not drive how you would like. Ideally, your test drive should be as close as possible to how and where you plan to drive on a regular basis. For example, if you have a lot of traffic on your commute, try driving with frequent stops and slow speeds.

If you’re buying a used vehicle, the Used Vehicle Checklist will give you an idea of what to look for before and during the test drive.


Once you’ve narrowed down your choices, it’s time to see if the dealer/seller is willing to negotiate price. Some dealerships have moved away from this practice and have a “this is lowest price we will offer” policy. Others expect you to negotiate price and their sticker prices are reflective of that.

Whenever you are negotiating, make sure you have done your research.

  • Know the car’s worth. Look up prices of the specific make and model so you know when a price is good or too high.
  • Know the value of add-ons. This will give you an idea of what each feature will add to the total cost. A sunroof may sound nice, but is it worth an extra $1,000?
  • Know what else is out there. You’re not limited to one dealership. When you do your research, look for options on dealership, make/model, features, etc. This means being flexible on the type of vehicle or the different features. If you fall in love with a particular vehicle, your negotiation skills may suffer as you won’t want to lose the vehicle.
  • Know your limits. How much are you willing to pay? Even if you have a pre-approval, you may not feel comfortable spending the maximum. Set your max and stick with it.
  • Know you can walk away. If you make an offer and the dealer counters with something you’re not comfortable with and won’t budge, don’t be afraid to walk away. Again, you have options.
After the purchase

After you’ve signed the paper, don’t forget to get these other items in order:


If you purchased from a dealer, they should get you set up with your temporary registration, but you’re responsible if you purchased from a private seller. You can look at the Texas DMV website to find out what’s required for Texas.


You may be required to get your insurance set up before you get your registration, so it’s important to update your insurance for your new vehicle as soon as possible. Make sure you know your VIN, make, model, etc. so you’re ready to go when you get to this step.



Questions to Ask When Buying a Used Car

You’ve made the decision to buy a used car. Whether you’re buying from a dealership or a private seller, you want to make sure the car you’re buying isn’t going to fall apart the minute you drive away. Here are some important questions to ask before you buy:

How long of a test drive is possible?

If you’re buying from a dealer, ask them if you can take the vehicle for a test drive overnight. They may ask for proof of insurance, keeping it under a certain mileage, and a signature guaranteeing you’ll come back. If it’s a private seller, it may be more complicated to get an overnight test drive, but you should still see how long they’re willing to give you with the vehicle.

How many miles are on the vehicle?

If you’ve done your research ahead of time, you may already know this answer. But this number should give you an idea of how many miles were driven per year on average. Depending on this average, you may want to ask the dealer or private seller what kind of miles they are.

Do you have the service records?

Make sure the vehicle has been well cared for by asking for service records and proof of any maintenance or new parts. If they are hesitant to give you any information, it’s probably best to walk away from the purchase.

How many previous owners?

By knowing how many owners a vehicle has had, you can better understand the history and possible issues. For example, if the car has had many owners over a short period of time that might be an indication that something is wrong with it.

Has it been in any accidents?

Ideally, you’d be able to find this information out with the Vehicle Identification Number (VIN) and a search of records. However, not all accidents are reported. If the vehicle has been in an accident, ask for the extent of the damage, if there were any repairs, and proof of the repairs and parts that were needed/purchased.

Do you have a clear title?

A clear title means the seller owns the vehicle free and clear without any lien or possible question of ownership. Be careful with out-of-state titles. If the seller still has a loan for the vehicle they are selling, the financial institution likely has the title and will not release it until the loan is paid off. The seller may be planning to use the funds they receive from the sale to pay off the loan. If this is the case, you may want to see if you can pay the financial institution directly for the remainder of the loan and then pay the seller the rest. Just make sure you get the title from the financial institution and not the seller.

Why are you selling?

Pay attention to their reasoning as elaborate stories may be indicators of issues with the vehicle.

Can I have this vehicle examined by a licensed mechanic?

While you may be able to see exterior issues, not everyone is comfortable evaluating the inner workings of a vehicle. Find a licensed mechanic who will do a thorough examination of the vehicle. A dealership should have already examined the vehicle closely and prepared it for resale and they should provide records. If a private seller is hesitant to let you get it looked at professionally, it’s probably best to walk away.

Does the car have a warranty? If so, is it transferable to the new owner?

In most situations, a factory warranty stays with the VIN and not the owner, so if you purchase a vehicle that still has a factory warranty, it will still be eligible upon purchase. There are some exceptions to this rule, so you want to ask. You also want to make sure the warranty is still available. Most warranties start the date of purchase, not the model year. You can always call a dealership and have them check the VIN to determine how much of the warranty is left. Some sellers may have purchased an extended warranty. Be sure to ask them if the extended warranty is transferable or not. If it is, make sure you get the information about what is all included and what needs to be done to transfer the extended warranty.


Used Vehicle Checklist

When purchasing a used vehicle, you want to make sure you’re still getting a good quality vehicle. This checklist is not meant to replace a proper inspection from a licensed mechanic. This checklist should be used to make sure there aren’t any glaring issues before taking it for an in-depth inspection.

Before driving…
  • Is the windshield free of cracks?
  • Does the paint color match all over vehicle?
  • Are the tires the same brand and size?
  • Does the tread and wear look even on the tires?
  • Are there any scratches or dents in the body?
  • Do the windshield wipers work? Windshield wiper fluid?
  • Do the headlights work? Brake lights? Turn signals?
  • Do you see any fluid leaking under the vehicle? Look when the car is both on and off.
  • Does the trunk open and close smoothly?
  • Do the doors lock and the windows work?
  • Are the seats in good condition?
  • Does the car smell like smoke or pets? Or is there a strong smell of air freshener that may be covering up smells?
  • Does the air conditioning work? How long does it take to cool down? Any smell?
  • Does the heater work? How long does it take to heat up? Any smell?
  • Does the stereo and all the stereo controls work?
  • Do all the seatbelts work?
During the test drive…
  • Does the front end shake or vibrate at higher speeds?
  • Does the steering wheel vibrate at any point?
  • Are there any weird noises when the car is at a standstill? When you accelerate?
  • If you let go of the steering wheel, does the vehicle pull to one side?
  • Any noise when you brake?

If you feel good about the vehicle after the walk around and the test drive, ask to take it to a licensed mechanic for a complete inspection. If a seller hesitates to let you take it to a mechanic, it’s probably best to walk away from the sale.