Focus on the three main categories: the cost of the car, interest for a loan, and insurance payments.

It is best to negotiate and control these costs before you make a commitment. Too often, car buyers get too excited and end up spending more than they should. Car buyers who are simply in desperate need of transportation can find the same thing.

Your financial commitment to buying a car, including loan payments, car maintenance and insurance, will likely last many years. These are some ways to save money on car purchases and potentially save thousands over the long-term.

1. Get the best auto loan at the lowest rate

Arranging auto loans is a lucrative business for auto dealers. If you sign up for a loan at the dealership and don’t shop around for other lenders first, it is most likely that you will pay too much interest.

Before you meet with a dealer to purchase a car, make sure that you get loan offers from other sources, such as credit unions, banks, and online lenders. Pre-qualification is offered by many lenders. This gives you an idea about the rate that you may qualify for, without having to affect your credit score.

Although pre-qualification does not guarantee credit, it can help you identify the best lender with the lowest rates. You can then apply for preapproval or approval to the lender. This will require a hard credit inquiry, and may result in a temporary drop in your credit score.

The dealer will need to see your preapproved loan and give you a rate they can beat. If they refuse, or can’t, then you’ll still have a lower rate loan to choose from.

A few percentage points of interest can make a huge difference in the amount you pay. An example: A $40,000 car loan would have an APR of 8% and a 60-month term. This would mean that $8,664 in total interest is paid. A 6% APR on the same loan amount would result in a total interest payment of $8,664.


You may still be able to reduce the rate if you have a high-rate car loan. You might be able to refinance your car loan with another lender and get a lower monthly payment and a lower interest rate.

2. Do not buy the first car that you see.

It’s tempting to purchase a car that you like and has the features you desire. A seller will be very happy to sell a car that is too expensive to a buyer who isn’t willing to shop around. You won’t be able to compare other vehicles and find the exact same or similar model at a lower price if you don’t take into consideration them.

Although it has been difficult to negotiate due to recent shortages of cars, the supply is improving. You can use your leverage to negotiate a lower price for a car or let the dealer know that you may be willing to pay less elsewhere.

To find out what others are paying for the same car you desire, make sure you check pricing guides such as Edmunds and Kelley Blue Book before you purchase. For pricing information and other details, you can also use car-buying applications like TrueCar to search new and used cars from local dealers and online retailers. You can also search online for similar features, and perhaps find a cheaper make or model.

Remember that your car choice has many cost implications:

  • The vehicle type, mileage and age of the car you finance will all affect the interest rate.

  • What you pay for sales tax (a percentage of car price) or registration fees can be affected by the car you purchase.

Knowing your maximum monthly payment can help you stick to a budget. NerdWallet’s auto affordability tool allows you to set a monthly price limit that is within your budget.

3. You can get more than one quote for car insurance

It’s a great time to obtain insurance quotes when buying a vehicle. Different insurance companies have different rates so the premiums for the same vehicle and driver can differ. Full coverage car insurance, which includes comprehensive, collision, and liability coverage, will cost you at least until your loan is paid off. Therefore, it’s worth shopping around for the best insurance before you make any major purchases.

You may be offered a lower rate by a new insurance company to acquire your business. If you already have insurance, they may be able to beat the new rate. You might save even more by getting loyalty discounts from some companies.

NerdWallet allows you to compare the rates of car insurance from many of the country’s largest insurers using factors like age and driving record.

Ask your insurers about coverage if you finance your vehicle. Gap insurance covers the difference in the event that your vehicle is declared total loss or the amount of your loan exceeds the vehicle’s value. Gap insurance is often sold by car dealers and included in the loan. Gap insurance through your insurance company is usually less expensive and you won’t have to pay interest.