So how do you buy a car, anyway?
February 3, 2025 12:28 PM Subscribe
Can you tell me how one goes about financing and buying a car, step by step?
So I am a full-on responsible adult with a sterling driving record, I promise, but I just haven't had need to ever buy a car with financing. I live in New York, so when I have had cars, I've bought them with cash, or I was much younger traipsing around and I just bought beaters.
But now I am considering buying a car that I would share with my college student kid. So, looking for a reliable, low end sedna, with decent gas mileage that will run alright for a few years, and I won't have a trade-in. Looking around, 12-15K seems to be about what I'd want to spend, but I don't want / can't pay for all that in cash.
So what do I actually do? I go to my bank and say I want a loan for X dollars? After I do that and go to the dealer with my loan amount, then what happens? Do I need to worry about anything - like if I get pre-approved for a loan, could that hurt my credit? Does the APR on the monthly payments on a used car make me foolish to buy this way?
I appreciate your thoughts, patience, and indulgence!
So I am a full-on responsible adult with a sterling driving record, I promise, but I just haven't had need to ever buy a car with financing. I live in New York, so when I have had cars, I've bought them with cash, or I was much younger traipsing around and I just bought beaters.
But now I am considering buying a car that I would share with my college student kid. So, looking for a reliable, low end sedna, with decent gas mileage that will run alright for a few years, and I won't have a trade-in. Looking around, 12-15K seems to be about what I'd want to spend, but I don't want / can't pay for all that in cash.
So what do I actually do? I go to my bank and say I want a loan for X dollars? After I do that and go to the dealer with my loan amount, then what happens? Do I need to worry about anything - like if I get pre-approved for a loan, could that hurt my credit? Does the APR on the monthly payments on a used car make me foolish to buy this way?
I appreciate your thoughts, patience, and indulgence!
Best answer: You can go to your bank first and tell them that you're interested in spending X on a car over Y months, and let them give you an interest rate. The place I bought my last couple cars from actually uses my bank for their financing deals, so I've skipped the bank-first step.
Then take the rate to the dealership, but negotiate the full price of the car FIRST. No discussion of payments yet ("What do you want your monthly payment to be?" is a scam to lull you into a higher rate with more payments). If you're trading a car in, negotiate the value of that second. Then if all the numbers work out and you want to buy the car, you'll see the dealership's finance manager (the hard part). Let them set up a financing deal for you, and compare the interest rates. If the dealer's is higher than the banks, ask if they can match the bank. If they can, it makes it a little easier on you since they do all the following paperwork and you drive home in the new car that day.
If they don't, and you want to go through your bank, you'll need to get a Purchase Order from the dealership with all the finance details, take it to your bank, and they will cut a check that you take back to the dealer to get your car.
This will ding your credit slightly, but several pulls within a short period of time counts as a single pull. You won't get extra dinged for having different groups on the same purchase pull your credit report.
posted by Huggiesbear at 12:45 PM on February 3 [10 favorites]
Then take the rate to the dealership, but negotiate the full price of the car FIRST. No discussion of payments yet ("What do you want your monthly payment to be?" is a scam to lull you into a higher rate with more payments). If you're trading a car in, negotiate the value of that second. Then if all the numbers work out and you want to buy the car, you'll see the dealership's finance manager (the hard part). Let them set up a financing deal for you, and compare the interest rates. If the dealer's is higher than the banks, ask if they can match the bank. If they can, it makes it a little easier on you since they do all the following paperwork and you drive home in the new car that day.
If they don't, and you want to go through your bank, you'll need to get a Purchase Order from the dealership with all the finance details, take it to your bank, and they will cut a check that you take back to the dealer to get your car.
This will ding your credit slightly, but several pulls within a short period of time counts as a single pull. You won't get extra dinged for having different groups on the same purchase pull your credit report.
posted by Huggiesbear at 12:45 PM on February 3 [10 favorites]
I am now wary of Carmax and Carvana type models. My husband had some bad experiences. If you go this route, have whatever you buy inspected by your regular mechanic the moment you take possession of it. We got one car that had aftermarket mods after they assured us it did not ( we didn't find out until months later and they would not take it back, claimed to have no records of it, which means they didn't inspect it or do any work on it at all), one car that had an audible scraping issue noticeable within 1 mile of driving and our mechanic said it was not worth paying to fix and so we returned it and got one was supposed to come with the proper state inspection stickers but did not come with them. It inspected out fine however and we kept it. I cannot tell you offhand which company was which experience(s) though, Carmax vs. Carshop vs. Carvana.
I like Capital One Auto Navigator. You can put in your info on a soft pull to get a realistic estimate of rates, and then shop through their portal. Then you go to the dealer and pick it up. My experience has been that the dealer will hold to the terms on the Capital One Auto Navigator and completion of the deal goes quickly. My experience with Capital One as my loan servicer has been good as well. This is how I bought my most recent car, a Rav4 Hybrid, in 2023.
Otherwise, yes, you can call around to banks, do a few soft-pulls to rate shop, and then do a hard pull to get approved with whoever has the best rate. I have better luck with credit unions on this one. When I did it this way, I got approved up to a certain amount/terms and they gave me a blank check that I could make payable to the dealer and it would be honored up to and as long as compliant with the terms. Like said above, I then needed to upload some information to support the purchase quickly.
That said, I also allow the dealer to shop the loan for me. They are incentivized to beat whatever rate you walk in with because they make money on the financing. I once walked in with a great rate from a bank and the dealer beat it by a significant amount, I carefully made sure the terms were the same (that they weren't playing around with the down payment or term or anything), and then took the deal.
In terms of the APR making it foolish to buy .... there's a few ways to look at it. It depends a bit on the spread between what the money is earning for you in your savings/investment accounts and what the APR is. But it's not just a pure math decision. If you would feel safer keeping some of your cash because it is essentially your emergency fund, then I think keeping cash in the emergency fund has a practical and emotional security to it.
A hard-pull and opening a new loan account will temporarily ding your credit. But on the other hand, making consistently on time payments is good for your credit. Unless you have other major purchases you are looking to make very very soon, I wouldn't worry too much. Do be mindful about the number of hard pulls you do in this process. Never be ashamed to ask in the process "Is this a hard pull or a soft pull?"
Are you all set with how you're going to insure the new vehicle? Once you have a vin, but before you finalize the sale, you can call around or shop rates online, or the dealer's finance guy will be happy to do that for you. Dealer's finance guy has always offered me bad deals to what I had already identified, though.
posted by fennario at 12:56 PM on February 3 [3 favorites]
I like Capital One Auto Navigator. You can put in your info on a soft pull to get a realistic estimate of rates, and then shop through their portal. Then you go to the dealer and pick it up. My experience has been that the dealer will hold to the terms on the Capital One Auto Navigator and completion of the deal goes quickly. My experience with Capital One as my loan servicer has been good as well. This is how I bought my most recent car, a Rav4 Hybrid, in 2023.
Otherwise, yes, you can call around to banks, do a few soft-pulls to rate shop, and then do a hard pull to get approved with whoever has the best rate. I have better luck with credit unions on this one. When I did it this way, I got approved up to a certain amount/terms and they gave me a blank check that I could make payable to the dealer and it would be honored up to and as long as compliant with the terms. Like said above, I then needed to upload some information to support the purchase quickly.
That said, I also allow the dealer to shop the loan for me. They are incentivized to beat whatever rate you walk in with because they make money on the financing. I once walked in with a great rate from a bank and the dealer beat it by a significant amount, I carefully made sure the terms were the same (that they weren't playing around with the down payment or term or anything), and then took the deal.
In terms of the APR making it foolish to buy .... there's a few ways to look at it. It depends a bit on the spread between what the money is earning for you in your savings/investment accounts and what the APR is. But it's not just a pure math decision. If you would feel safer keeping some of your cash because it is essentially your emergency fund, then I think keeping cash in the emergency fund has a practical and emotional security to it.
A hard-pull and opening a new loan account will temporarily ding your credit. But on the other hand, making consistently on time payments is good for your credit. Unless you have other major purchases you are looking to make very very soon, I wouldn't worry too much. Do be mindful about the number of hard pulls you do in this process. Never be ashamed to ask in the process "Is this a hard pull or a soft pull?"
Are you all set with how you're going to insure the new vehicle? Once you have a vin, but before you finalize the sale, you can call around or shop rates online, or the dealer's finance guy will be happy to do that for you. Dealer's finance guy has always offered me bad deals to what I had already identified, though.
posted by fennario at 12:56 PM on February 3 [3 favorites]
Seconding the tip about going to your back (or credit union) first. Ideally, don't involve the dealer's finance department at all; they are super incentivized to squeeze every penny possible out of you. Talk purchase price only, not "monthly payments" or anything, because with a pre-approved loan from your bank, you will be making a "purchase" as far as they're concerned.
Stand your ground. They'll probably try to persuade you that they can beat the bank's rates and get you a better deal. They almost certainly cannot, and are straight-up lying to you. They want you to get into their own loan, where they can do lots of smoke and mirrors crap like extending the term ("See? The bank would've had you paying $500 a month, but we can do it for $400!" --never mind that the bank's loan was for 48 months and theirs is for 96...)
If you feel pressured or rushed to sign something or agree to terms without being given as much time as you need to carefully read and consider everything, walk away. You are being hustled.
posted by xedrik at 1:23 PM on February 3 [2 favorites]
Stand your ground. They'll probably try to persuade you that they can beat the bank's rates and get you a better deal. They almost certainly cannot, and are straight-up lying to you. They want you to get into their own loan, where they can do lots of smoke and mirrors crap like extending the term ("See? The bank would've had you paying $500 a month, but we can do it for $400!" --never mind that the bank's loan was for 48 months and theirs is for 96...)
If you feel pressured or rushed to sign something or agree to terms without being given as much time as you need to carefully read and consider everything, walk away. You are being hustled.
posted by xedrik at 1:23 PM on February 3 [2 favorites]
Best answer: Another vote for financing with a financial institution you already have a relationship with.
This is how I buy vehicles:
The main reason not to finance at the lot is that if the dealership is handling the loan then the dealership controls the money and can manipulate things that aren't to your advantage. Financing separate from the dealership means you're in control of what you pay, not the dealer.
posted by AzraelBrown at 1:41 PM on February 3 [4 favorites]
This is how I buy vehicles:
- Fill out an application with my bank, talk to them about how much I want to spend and how much they're willing to finance. Note that you can pay part cash, part loan, if you have some savings to contribute to get a better vehicle. Your bank may not actually commit to anything, by saying "go find a car and let us know when you see one you like."
- Go car shopping! Note that sometimes I do this step first, it doesn't change the overall time it takes to get the loan.
- Once you find a car, ask your bank what they need in order to give you a loan; it involves getting paperwork and info from the dealership.
- Don't sign anything or give any prepayment or anything to the dealership. Don't give them a credit card number to hold the vehicle. Don't commit yourself to a vehicle until you have a loan for the exact amount of money needed to buy the vehicle. Don't agree to any addons or upcharges unless you really want whatever it is (you probably don't).
- Once the bank is ready to do the loan, you are now armed with the fact that you have the exact amount of money the dealership agreed to sell you a car for. This prevents the dealership from doing addons or upcharges in the time between you deciding to buy the car and you actually paying for the car. This is a common thing they do; don't let them do it.
- Go to the bank and pick up a check, made out to the dealership, for the amount of the loan, and if you're paying cash for any part of the car get a certified check made out to the dealership too. This all protects you from the dealership wanting different payment or mishandling the funds.
- Go back to the dealership and pay them for the car, signing all of the paperwork and stuff to get it done. They hand you the keys and you drive away.
The main reason not to finance at the lot is that if the dealership is handling the loan then the dealership controls the money and can manipulate things that aren't to your advantage. Financing separate from the dealership means you're in control of what you pay, not the dealer.
posted by AzraelBrown at 1:41 PM on February 3 [4 favorites]
We live in approximately the middle of nowhere and so had to drive 5 hours to not the nearest dealer, but the nearest metro area that had a number of dealers/in-stock models to choose from. So in my case it was super important I was ready to actually buy that day or the next day.
With my bank, this was the process:
- Do some preliminary shopping to find the approximate amount you would be spending, including estimated tax/title/everything.
- Submit an application (we did it over the phone due to some complicating circumstances, but online works too) that includes the max you are looking to spend.
- Get pre-approved for a certain amount (in my case it was about $5k over the max I gave them).
- Actually go shopping, i.e. go for test drives and whatnot.
- Armed with the pre-approved loan, I told them I was looking to buy it outright.
- I then got passed to the financing department to actually do the paperwork. I filled in the preliminary info (actual purchase amount and VIN) in my bank's app while I sat there, told them where to send the check, and I got possession of the vehicle that day.
I had ~30 days or so from the time I was pre-approved to actually complete the purchase, so it didn't have to be as rushed as I ended up making it. (My prior car had completely broken down so I had to rush the purchase, but it doesn't sound like you're in that situation.)
In my case I was looking at a 2024 model in early 2024 that was technically "used" as a dealer vehicle, but had < 600 miles on it and so, while it was "used," my bank considered it "new". (Actually they would have considered anything >= MY 2023 new at the time.) New versus used does affect rates, so make sure you're clear with the bank on which you are going to be buying.
I also tried using my bank's car-buying service but I ended up getting a significantly better discount going through Sam's Club. Costco does offer a car-buying service as well but, in my experience from shopping with the places that offer both, Sam's fairly consistently offers a larger discount. Sam's also does used whereas Costco does not (or at least didn't at the time; not sure about now). And Sam's will give you an actual price on the website (after you submit your phone number; Google Voice FTW here) whereas Costco requires you to go to the dealer to talk to them. I did have one dealer email me the Costco price sheet but that was only 1 out of about 10 I had indicated interest in with Costco.
posted by tubedogg at 2:20 PM on February 3
With my bank, this was the process:
- Do some preliminary shopping to find the approximate amount you would be spending, including estimated tax/title/everything.
- Submit an application (we did it over the phone due to some complicating circumstances, but online works too) that includes the max you are looking to spend.
- Get pre-approved for a certain amount (in my case it was about $5k over the max I gave them).
- Actually go shopping, i.e. go for test drives and whatnot.
- Armed with the pre-approved loan, I told them I was looking to buy it outright.
- I then got passed to the financing department to actually do the paperwork. I filled in the preliminary info (actual purchase amount and VIN) in my bank's app while I sat there, told them where to send the check, and I got possession of the vehicle that day.
I had ~30 days or so from the time I was pre-approved to actually complete the purchase, so it didn't have to be as rushed as I ended up making it. (My prior car had completely broken down so I had to rush the purchase, but it doesn't sound like you're in that situation.)
In my case I was looking at a 2024 model in early 2024 that was technically "used" as a dealer vehicle, but had < 600 miles on it and so, while it was "used," my bank considered it "new". (Actually they would have considered anything >= MY 2023 new at the time.) New versus used does affect rates, so make sure you're clear with the bank on which you are going to be buying.
I also tried using my bank's car-buying service but I ended up getting a significantly better discount going through Sam's Club. Costco does offer a car-buying service as well but, in my experience from shopping with the places that offer both, Sam's fairly consistently offers a larger discount. Sam's also does used whereas Costco does not (or at least didn't at the time; not sure about now). And Sam's will give you an actual price on the website (after you submit your phone number; Google Voice FTW here) whereas Costco requires you to go to the dealer to talk to them. I did have one dealer email me the Costco price sheet but that was only 1 out of about 10 I had indicated interest in with Costco.
posted by tubedogg at 2:20 PM on February 3
IMO it really depends on your credit rating if dealer financing or a private loan is a better deal.
I agree with others that you negotiate the price separate from the financing, but if the dealer will beat your bank on financing, let them do it. They occasionally have incentives to do so. It depends on the market. Right now, it's in dealerships' favor, so the bank is probably going to be the better deal. But if the car market goes down some, it will be more even.
posted by The_Vegetables at 2:22 PM on February 3 [1 favorite]
I agree with others that you negotiate the price separate from the financing, but if the dealer will beat your bank on financing, let them do it. They occasionally have incentives to do so. It depends on the market. Right now, it's in dealerships' favor, so the bank is probably going to be the better deal. But if the car market goes down some, it will be more even.
posted by The_Vegetables at 2:22 PM on February 3 [1 favorite]
If you can get a loan from a credit union they might have better deals, definitely worth asking. When I did this they wouldn’t loan me more than the Kelley blue book value of the car, and since the dealership was charging more and I wasn’t sure what was happening I had to whomp up $3000 on short notice. So yeah be clear what you want to buy and how much money you have very early on in the process.
posted by Vatnesine at 5:55 PM on February 3 [1 favorite]
posted by Vatnesine at 5:55 PM on February 3 [1 favorite]
Another vote for Carmax: you can go there, test drive a few cars, and totally walk away, no hard sell (the only hard sell they actually do is to buy their extended warranty: knowing this in advance means you can be prepared and simply say "no thank you" and they won't press any further). The other huge benefit I've found with Carmax is that you can view their entire inventory online: what's great about this is that you can assess the market from your home, and turn up knowledgeable about your options (the biggest fail in car buying is not knowing your options). You can also pay to have a car transferred from another Carmax if you find a better deal that's not at your local one (I paid $150 to ship my last car from a neighboring state, and got lower miles and a lower price than a similar local model), and you can also take back any car you buy within 7 days, no questions asked, if you don't like it (I've done this once before).
One other note: when considering how much you want to spend, it's wise to factor in trade-in (or sale) price for when you ultimately move on from this car: spending more now on a vehicle which will retain it's value (e.g. Toyota's, Honda's) means that you'll make gains on the back-end when it's time to move on, and so your overall cost will be less (i.e. the total cost of your car is not just the price you pay now (+ any interest on a loan), but the total cost minus the trade-in or sale price when you get rid of it).
posted by 7 Minutes of Madness at 8:06 PM on February 3
One other note: when considering how much you want to spend, it's wise to factor in trade-in (or sale) price for when you ultimately move on from this car: spending more now on a vehicle which will retain it's value (e.g. Toyota's, Honda's) means that you'll make gains on the back-end when it's time to move on, and so your overall cost will be less (i.e. the total cost of your car is not just the price you pay now (+ any interest on a loan), but the total cost minus the trade-in or sale price when you get rid of it).
posted by 7 Minutes of Madness at 8:06 PM on February 3
Financing will be measured against the value of the car, so be mindful of where the asking price is alongside the Kelly blue book value (or similar valuation). All of my used cars were based on Consumer Reports reliability ratings and have lasted. There are some lemons out there. And yes, don’t let them waste your time.
posted by childofTethys at 5:39 AM on February 4
posted by childofTethys at 5:39 AM on February 4
Best answer: One important thing - do some research and figure out a ballpark of what the out the door price on the car will be. This includes things like sales tax, dealer documentation fees, license and title fees, etc. You want to figure out the TOTAL cost that you will be paying the dealer. Out the door is also your negotiation point. The price of the car is one thing, but dealers will often try to hit you with add-ons beyond TTL (tax, title and license.) Maybe they’re wanting to charge you for tint, nitrogen in the tires, vin etching, paint protection, etc. Sometimes they’ll tell you they cannot sell the car without those add-ons (often they’ll say it’s already been done to the car, etc.) Then you look and suddenly your $12,000 car is now going to cost you $17,000 to buy. TTL + doc fee is legit and might add up to $1500-2000 but everything after that is pure profit add ons. Do not be afraid to walk away from a car if they’re trying to pull this kind of thing on you. Make it clear that you’re negotiating the out the door price, period. If they keep pushing you about what kind of payment you’re looking for, leave.
But, of course you do have to consider your monthly payment. So what you should do is figure out what kind of out the door price you’re comfortable paying, get able idea of what rate you qualify to get, and then plug these numbers into an online calculator. Search “car loan calculator” and there’s plenty out there. Play with different numbers. Different loan amounts, rates, loan lengths, etc. This will give you an idea of what your payments will be under different scenarios. Absolutely check with a credit union to get pre-approved for a loan. Do you know your credit score? If not, now is the time to find out. That will determine what kind of rate you can get. I’ve always gotten pre-approved but then I’ve always ended up using the dealer financing because they’ve gotten me a better rate. (They have credit unions that they can finance through as well as banks and other lenders.) Meanwhile, go check credit union websites or go talk to a loan officer at your credit union and find out what kind of rates they’re offering. If you talk with your CU they may be able to help you find your credit score and what you would likely be able to approved for as far as a rate and amount.
Good luck!
posted by azpenguin at 8:22 AM on February 4 [1 favorite]
But, of course you do have to consider your monthly payment. So what you should do is figure out what kind of out the door price you’re comfortable paying, get able idea of what rate you qualify to get, and then plug these numbers into an online calculator. Search “car loan calculator” and there’s plenty out there. Play with different numbers. Different loan amounts, rates, loan lengths, etc. This will give you an idea of what your payments will be under different scenarios. Absolutely check with a credit union to get pre-approved for a loan. Do you know your credit score? If not, now is the time to find out. That will determine what kind of rate you can get. I’ve always gotten pre-approved but then I’ve always ended up using the dealer financing because they’ve gotten me a better rate. (They have credit unions that they can finance through as well as banks and other lenders.) Meanwhile, go check credit union websites or go talk to a loan officer at your credit union and find out what kind of rates they’re offering. If you talk with your CU they may be able to help you find your credit score and what you would likely be able to approved for as far as a rate and amount.
Good luck!
posted by azpenguin at 8:22 AM on February 4 [1 favorite]
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I would suggest a site like Carmax, or Carvana. You can browse by price and type, and Carvana has a good return service if the car develops problems.
Your bank could give you a loan, but assuming you have income you might get a better rate from somewhere like https://www.autopay.com
How it works with these sites is you get the loan, they transfer money to your checking account, you have a certain amount of time to buy the car and upload the VIN and title so they can repossess if you stop paying. There can be a small hit to your credit from checking but for me it was only 4 points and went back up after a few months.
posted by hermanubis at 12:40 PM on February 3 [1 favorite]