How to Pay for a New Car

Auto dealerships are one option for financing a new car purchase.

Auto dealerships are one option for financing a new car purchase.

One of the first things to consider once you decide to buy a new car is how to pay for it. While there are a variety of alternatives, you must decide which financing option is right for you. If you walk into a dealership prepared, you're likely to walk out having negotiated a better deal. The main thing is to buy a car you can afford, to avoid taking on more debt than you can handle.

Choose how you will pay for the car. Saving up enough to pay cash will put you ahead of the game. However, few people can afford to pay out of pocket for a new car. If you take out an auto loan or lease, remember that financing a car means that you will pay more for it than the vehicle is worth, even if you get the loan at a low interest rate.

Work on polishing up your credit. You can receive better loan terms if you have good credit. Consumers with excellent credit can often benefit from special terms offered by auto dealerships and car manufacturers. In some instances, you can take advantage of zero percent introductory interest options.

Save a down payment. You will pay less interest and can decrease the length of the loan if you make a higher down payment. If you've recently paid off another car, use the money that formerly went to the old loan towards saving for a new car. Putting some cash down on a vehicle purchase gives you equity in the car from the moment you drive it off the dealership lot.

Apply for credit with more than one lender or auto dealership. If you complete multiple credit applications, make sure that there are no application fees. By shopping lenders, you can find the best rate, which will make it easier for you to pay for your car. Take advantage of online lending websites when requesting quotes from more than one lender.

Take your pre-approval for an auto loan with you when you shop for your new car. You will already know how much of a loan you can obtain for a car, as well as the interest rate. Even with pre-approval from a lender, an auto dealership may offer you a lower interest rate and more attractive lending terms.

Sell your old car rather than trading it in at the dealership. You can use that money as a down payment for your new car. You may be able to get more money for your car by selling it on your own rather than trading it in. Clean it up and make any minor repairs before trying to sell it.


  • A lease allows you to use a car for a specific period of time, after which you have the option to enter into a new lease, terminate the lease or purchase the car by paying the buyout price.
  • If you opt for an auto loan to buy a new car, you will have interest payments and must determine the length of a loan to meet your needs.

About the Author

Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.

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