4 Steps to Buy the Car You Want Within the Budget You Can Afford

by | BiggerPockets.com

Buying a car is a big investment, and if you’re living on a budget, you can’t afford to make mistakes. That’s why, before you head to the dealership, you need to do your homework—because there’s nothing straightforward about buying a car. Car salesmen are masters of the up-sell, and if you don’t know what you’re doing, you’ll walk out of there with a dozen add-ons you never meant to buy. You need to arrive with the tools in hand to outsmart the dealers.

These four simple steps will give you a clear sense of what kind of car you’re looking for and how much you can spend, and most importantly, they’re designed to give you the upper hand in negotiations.

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4 Steps to Buy the Car You Want Within the Budget You Can Afford

1. Calculate your costs.

The most important data point to establish before seeking to buy a car is how much money you can afford to spend. That means accounting for monthly payments, but also setting aside the funds for a down payment. You’ll also want to make sure you have a few months of loan payments set aside in case an emergency strikes because it’s going to take you a while to pay down your loan; today’s average loan is 5.5 years, but many run for 6 or 7 years because base prices on new cars are so high.

Related: 5 Advanced Excel Tips for a Better Home Budget

In addition to budgeting for car payments, you’ll also need to account for the cost of insurance, license and registration, and upkeep. These finer details tend to be where first-time buyers slip up—the expenses pile up quickly, and they tend to be front-loaded in the period immediately around the date of purchase. Other costs like taxes that aren’t included in the ticket price can also throw your initial calculations off, so be sure you know exactly what’s going to show up on your bill before you start looking at vehicles.

2. Get your loan.

Once you know how much money you can spend on a car, the next step is to get a loan—and just like car salesmen, many loan providers will push you up against the limits of what you can afford. Don’t let them. Stick to the number you’ve calculated because when you’re approved for more, you’ll feel obligated to spend it.

It’s important to get pre-approved for your loan because it gives you control over the negotiation process. If there’s a vehicle just out of your price range, salesmen are more likely to try to meet it with a special offer or discount because they know you aren’t going to spend more just because they put pressure on you.

Another advantage to getting pre-approved for a car loan is that it gives you the time to shop around for loans and find the best interest rate. Just because you know how much you can afford doesn’t mean every lender will offer it to you the same way. For example, your bank may give you a better interest rate because you’re a loyal customer, or another lender may be having a special promotion. You have to compare all the options to minimize extra costs.

3. Research best buying dates.

Over the course of the year, there are many major car sales—Memorial Day, 4th of July, even New Year’s day. But when is the best time to buy? This is a surprisingly complex question, but there are plenty of resources that can guide you.

If you’re thinking across the span of an entire year, many experts say New Year’s day is the best day to buy. That’s because no one is trying to meet any quotas; it’s a fresh slate for the dealers and a great opportunity for you. Plus, most dealerships are still trying to clear last year’s models from the lot, so there will be plenty of great sales happening.

Of course, when your decade-old vehicle breaks down in April or you’re in need of your first car, you probably aren’t in a position to wait around until New Year’s day to snag the best price. Don’t worry, because there are plenty of other great days to buy. Almost any holiday sale will allow you to snag a good deal, and on a week-to-week basis, Mondays generally show the greatest price drop. Like anything else, though, you need to research pricing in your area and check additional resources for the best upcoming sales dates.


Related: The Two Best Budget-Building Apps, Compared and Contrasted

4. Focus on function.

Finally, as you try to narrow down your options, it’s time to figure out what features you need in your new car, and that means thinking about its function in your day-to-day life. For example, if you’re going to drive for a rideshare to make money, there are generally specific rules you have to follow to qualify, like having a car that’s a 2007 model year or newer. Or, if you live in a cold or rugged area, you’ll need a car with four-wheel drive that can handle challenging roads.

Depending on your budget, you may also have a chance to consider what features you want but don’t necessarily need. If you have kids, you might want in-car entertainment options or a particular sound system, but you don’t need one. Maybe you camp and want a trunk that can handle a lot of equipment. As you plan, you can narrow down the list of models to ones that fit your criteria.

When you don’t know what you can afford and don’t have a plan, it’s easy to be taken advantage of at your local car dealership—but you’re not going to be their next mark. Now, by following these rules, you’re going to be a savvy buyer who gets what you want at the price you want.

Have you ever landed a great car deal? Any tips you’d add to this list?

Comment below!

About Author

Larry Alton

Larry is an independent, full-time writer and consultant. His writing covers a broad range of topics including business, investment and technology. His contributions include Entrepreneur Media, TechCrunch, and Inc.com. When he is not writing, Larry assists both entrepreneurs and mid-market businesses in optimizing strategies for growth, cost cutting, and operational optimization. As an avid real estate investor, Larry cut his teeth in the early 2000s buying land and small single family properties. He has since acquired and flipped over 30 parcels and small homes across the United States. While Larry’s real estate investing experience is a side passion, he will affirm his experience and know-how in real estate investing is derived more from his failures than his successes.


  1. Jonathan E Hunter

    A few side notes I learned while working at a dealership: most wealthy people buy a new car every year, and I always thought they were throwing money away. However, when you consider that the average trade in is as 36 months when the car is most upside-down in it’s loan, it actually makes sense. They only buy this year’s model and trade it in before it’s a year old, and before it hits 50,000 miles. That way they maximize the trade in value, additionally, they don’t get the add ons (leather, sunroof…) Each feature is an extra grand roughly, but has no effect on the bluebook value. So the baseline of any given model, traded in when it’s still this year’s vehicle, and they repeat. By doing this, they can claim the maximum depreciation on their taxes for the initial drop in price, get most of their money back on the trade in and have a little more equity in car each time they trade in. At the end of 6 years, they have a new car, that will be paid off that year, and has a brand new car warranty and they have never paid for any maintenance on any of their cars. If finances change, they aren’t locked into 6yr and have a new reliable car.

  2. Jonathan E Hunter

    Oh, and on average you can make an extra grand if you have time to sell the car yourself instead of trading it in. If you do trade it in, take it to the dealership that deals in your trade in model, not the model of vehicle you want. They will get the vehicle you want, but they will pay you more for your trade in because they will be able to move it more readily.

  3. Laura Tokgozoglu

    I have always felt a good car is a Toyota and second in my opinion is a Honda…a good starter car would be a late model Toyota Corolla, not new, maybe something with under 50,000 miles on it. They are great little cars if you are just looking for something to get you from here to there that is reliable and economical.

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