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Understanding the Car Buying Process: From Test Drive to Financing

By Jacob Henriksen-Willis

Published July 12, 2023 • 6 Min Read

Whether you’re a first time buyer or looking for your next vehicle, the car-buying process is an exciting — and sometimes confusing — experience. Knowing what to expect before heading to your dealership can eliminate stress and help you find the best fit for your lifestyle and budget.

Step 1: Set your budget

It’s best to estimate what you can afford before shopping for a vehicle. Most car buyers rely on auto loans. If you’re in the market for a loan, pre-qualification lets you know before you apply for a loan how much a lender would be willing to loan you towards your vehicle.

Pre-qualification does not guarantee approval once you do submit your application, but it can help you set your budget and reduce the chances of any unwanted surprises.

RBC’s My Auto Affordability Tool makes pre-qualification quick and easy.

Step 2: Research

Once you have your budget, it’s time to find the perfect ride. There are a lot of vehicles on the market right now, so a bit of research is necessary to narrow down the field. It’s a good idea to list everything you want from your vehicle and find the ones that check the most boxes. You might want to ask yourself:

  • What will you be using the car for? Is it to drive your kids to dance class and swim competitions? Researching autos with high safety ratings might be your next step. Is it for work? You might research reliability and engine power. Do you plan on driving it mostly to-and-from a train station? A car with 4-wheel drive for snow and ice and fewer options might suit your needs.

  • What is my personal preference? Do you want to reduce your carbon footprint with an electric or hybrid-electric auto? Do you want something sporty and fun? Or is there a favourite brand you’ve always trusted?

  • What cars fit my budget? Once you know your budget, many online auto tools can help you narrow your search by price quickly. If there’s not much in your price range, you might decide to widen your research to include used vehicles.

Check out 5 Steps to Finding the Right Vehicle for a deeper dive into choosing an auto that fits your needs.

Step 3: The test drive

Taking a test drive is an important — and fun — step, so don’t overlook it. After taking your information and usually a copy of your license, the dealer will hand you the key to a test vehicle. They may take a ride with you to point out the vehicle’s features.

Here’s a quick list of things to consider on your test drive:

  • Comfort. Check for adequate climate control (heating and air conditioning), the usability of controls like the steering wheel, pedals, gear shift and entertainment system, and look for fun additions like heated seats, Bluetooth connectivity or a strong stereo system.

  • The ride. How smooth is the ride? Pay attention to how the vehicle responds to the accelerator and the brakes — does it jerk forward or stop suddenly? Are there any loud noises?

  • Safety features. How is the visibility for you? Are there any spots where it might be difficult for you to see other motorists? Are there features like stability control, strong brakes, and any advanced driver-assistance systems (ADAS) such as lane departure warnings, adaptive cruise control, rearview cameras or automatic emergency braking?

Step 4: Price negotiation

Having a strong understanding of the market, the value of the vehicle you have in mind, and what you are prepared to pay before negotiating with your dealer will help you secure the best deal.

Reviewing car value guides and finding prices on the make and model of your vehicle will give you a good sense of what to expect. Don’t be afraid to go to another dealership if your first option won’t budge on a price over market value. Limiting yourself to one conversation with one seller may prevent you from finding better deals elsewhere. Ultimately it’s a choice between spending more time and going to different dealers to find the best price or getting the car buying process done as quickly as possible.

The dealer may shift the discussion from the total cost of the vehicle to monthly payments. They may offer to extend the loan duration to make your monthly payments more affordable, which with interest, may increase the amount you pay over time. If you’re willing, you can see if there are any discounts the dealer may offer on the sticker price to close the deal.

Step 5: Financing

If an auto loan is necessary for you to finance your vehicle, much of the negotiation may be centred around the interest rate. Interest is the amount you pay your lender for the right to borrow money from them, and in a loan agreement, it is usually expressed as a percentage of the total loan. According to Statistics Canada, the average interest rate for a car loan in Canada is approximately 7.65% as of March 2023, so you can use that as a baseline to ensure you’re getting the best deal.

When taking out your loan, you typically have two options: financing with your dealer or financing with your bank. Financing with your bank can help streamline payments at the end of the month, as your bank likely handles your other loans as well. A bank loan can go towards any vehicle, while a dealership loan is usually restricted to pre-determined makes and models. RBC clients also have the option of sending the money to their bank account or directly to the dealership.

On the other hand, a dealership loan is generally more negotiable than a bank loan, as dealers can be willing to discuss the interest rate, loan term and asking price to get the deal done. Some dealers will also offer special 0% financing options, which means there is no interest at all on your loan. This is typically reserved for the newest models, and a great credit score is required to be approved.

Read next: Important Questions to Ask Before Financing a Car

This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.

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