Buying a new car

Get financing:

When you go to a car dealership, you're in a stronger position if you have a pre-approved loan. Unless your model has a special low-rate financing offer backed by the manufacturer, a local bank or credit union is likely to give you a better deal on a loan. And in most cases, you can take a rebate in place of any low-rate financing and use that to lower your purchase price.

When you get a pre-approved loan, that commitment usually is good for a month or more.

Credit unions typically charge 0.5% to 1% lower interest than bank car loans. You may have access to a credit union where you work, or may be eligible through a professional organization (teachers, government employees). If you don't have ready access to a credit union, check out your local bank offerings. Websites specializing in loan information will give you a quick rundown on average rates and the best rates in your area.

Negotiate a price:

Before you head for the dealership, do your homework. Using websites like Edmunds.com or Kelley Blue Book, you can find out the manufacturer's suggested retail price, or MSRP, and the dealer's cost for any vehicle. You can also find out about customer or dealer rebates, subsidized lease deals, or other special breaks that can cut your cost. Pull together a folder showing your data and sources.

Focus any negotiation on that dealer cost. For an average car, 2% above the dealer's invoice price is a reasonably good deal. A hot-selling car may have little room for negotiation, while you may be able to go even lower with a slow-selling model.

Salespeople will usually try to negotiate based on the MSRP. Try to focus the discussion away from the list price, to how much you intend to bid over the dealer's invoice cost. Bring out your research. The salesperson may know less than you do since traditional dealer training focuses on the list price and many dealers do not give sales teams the invoice prices.

Start the bidding as low as you reasonably can, but not so low that you will seem like an uninformed buyer. Though your target is 2% above invoice, you need to leave room for the dealership to budge you a little.

Trade ins:

When you hit your target or come as close as you think you can, agree on the price. Now, and not before, is the time to talk about a trade-in. You already will know what your car is worth from checking local ads and looking up your model on sites like Edmunds.com and Kelley Blue Book. If your car is a popular model in good condition and you are sticking with the same brand, you might match or slightly beat that price with your new-car dealer who sees potential profit in selling your used car. If the trade-in offer is a good one, say yes. If not, plan to sell it yourself or take it to the used-car lot of other dealers for a price quote.

Close the deal:

The salesman may call it "doing the paperwork" or some similarly innocuous description. But the finance manager you are about to meet hopes to boost dealer profits at your expense with attractive-sounding offers of mechanical and financial add-ons. In most cases, just say, "no." But there are some exceptions.

Even if you already have financing approved, go ahead and let the dealership's financing officer give you their best offer. It may still be better than what you have in hand.

The next pitch you are likely to hear is for an extended warranty. In most cases, you'll want to pass on this. Unless you're buying a car that has known dependability issues, extended warranties usually don't pay off.

Another common add-on is security etching. Having your vehicle identification number etched into the glass on your windows may, as claimed, make your car somewhat less likely to be stolen. But it is certainly not worth the hundreds of dollars some dealers charge.

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