Best Method for Buying a New Car

Begin the search for your new dream machine by configuring your price range and analyzing pricing. If a down-payment is your option, determine what you can afford upfront and/or with a trade-in. If you are looking to make a monthly payment, will you need a loan? Many loans can feature a low down-payment (if any), but by paying more upfront, this lowers monthly payments and the cumulative insurance and lessens the burden if you are borrowing money.

Trade-in

If you are trading in an old car, you can get a good idea of its worth at auto-pricing sites with year, condition and mileage information available; these sites, such as the Kelley Blue Book, will give you both a trade-in and retail price (see Resources).

Research

Keep the cars total debt payment under 36 percent of your gross income (subtract monthly costs, including housing, credit card and other loans). Determine the number of years you want to be making car payments. Factor in the cost of sales tax, registration fees and insurance premiums. Remember, the more costly the car you drive, the more costly the insurance will be. You can take the year, make and model information to your insurance company or surf sites online to get a realistic picture of a monthly insurance rate. Research potential cars by reading reviews online and in specialty periodicals. These will usually provide you with information on fuel economy, safety and reliability.

At the Dealership

Once you are ready to visit a dealership, have all your homework done, including key facts and preliminary pricing. This will ensure any dealers who may prey on unsuspecting potential buyers are restrained in their attempts. Show up with a starting figure based on what the auto dealer paid for it rather than the sticker price. An invoice price available on sites and pricing guides will give you an idea what they initially paid, but cannot take into account dealer incentives and hold backs. Start negotiations at four to eight percent of what the dealer paid. Negotiate a solid price and then financing, leasing and trade-in figures separately. Avoid monthly payment figures that can allow a dealer to give you a nice-sounding overall figure while inflating other areas beyond necessity. Test drive the car well before you show up wanting to make a purchase. Inform the dealer you will be going to several lots and find the best deal.