Know before you go

Buying a car may feel overwhelming at first—especially if it's your first car. But with a little preparation and a basic understanding of what you should look for, you'll be in a position to make smart decisions that can save you money in the long run.

New versus used

You found the car that fits your needs and lifestyle. Now it's time to weigh if a new or used one is best for you.

Consider a new car if you:

  • Want to take advantage of dealer incentives and discount financing
  • Are interested in the latest safety and technology advances
  • Need greater fuel efficiency
  • Like having a vehicle service contract and don't want to have to worry about repairs

Consider a used car if you:

  • Don't want to take the new-car depreciation hit
  • Plan on keeping the car more than 5 years or 10,000 miles
  • Want potentially lower insurance and property taxes
  • Can afford to do regular maintenance and repairs an older vehicle typically needs

Lease or buy?

  • As a general rule, it makes good financial sense to purchase a car and keep it for 5 or more years. However, depending on your circumstances, leasing may be a better option.
  • Consider leasing if you:
  • Need to keep your monthly payments within a tight budget
  • Are able to limit your driving to 10,000 to 15,000 miles per year
  • Don't have a car to trade in or the cash for a down payment
  • Are reasonably confident in your ability to return the car in excellent condition
  • Prefer to drive a new car every few years

Consider buying if you:

  • Have a long commute or enjoy spontaneous trips
  • Are more likely to incur damage beyond normal wear and tear to the car
  • Have the cash or trade-in value to make a substantial down payment
  • Would like to have the freedom to modify your car
  • Can envision keeping and maintaining your car for 5 years or longer

Know what's in your credit report

Even though your lender will check your credit score, it's a good idea to review your credit reports in advance. You can get free credit reports at

Bear in mind that a less than stellar credit history won't automatically disqualify you from getting a loan, but you may pay a higher interest rate. Another option is to consider using a cosigner.  However, the cosigner must be aware that they're responsible for paying the debt if you're unable to.

Arrange your financing before purchasing

If possible, secure your auto loan before you start shopping. Getting pre-approved helps you know how much car you can afford. It also frees you to negotiate solely on the price of the vehicle and helps you avoid the trap of an "affordable" monthly payment that may end up costing considerably more in the long run.

Knowing what a bank can provide as a loan gives you the opportunity to compare it to dealer financing. Depending on your situation, dealer financing may be a better choice if you have a low credit score.

Vehicle financing checklist

By preparing your information ahead of time, you can help simplify the loan process and save time. Most lenders will request the following information for you and any cosigners:

  • Personal information: Your Social Security number, contact information and home address (you may need to show proof of your residence, such as a utility bill). You'll also need previous addresses if you've lived less than 3 years at your current address.
  • Employment and income: Your employer, length of employment with them and their contact information. Also your gross monthly income and proof of income, such as a pay stub or tax forms.
  • Assets and liabilities: Your bank account and routing number, along with bank statements for the past 2 months, as well as proof of your rent or mortgage payments. A list of your lenders and loan amounts for any debts.
  • Vehicle to be purchased (if known beforehand): The year, make and model, the Vehicle Identification Number (VIN) and your proof of insurance.

Don't forget car insurance

Once you find the car you want, don't get shocked by how much it will cost to insure it. Check with your insurance agent or shop around to get an estimate. Make sure you can not only afford the monthly car payments, but the insurance ones as well.

The bottom line

Buying a car can be one of your biggest financial purchases—don't turn excitement into buyer's remorse. Being prepared for the entire car-buying experience can help you drive away happy.