Never tell the car dealer what you can afford to pay based on a monthly payment

The salesperson will work hard at trying to identify the monthly payment that will help him “sell” you on the car (avoid thinking in monthly payment terms, focus on the total debt instead). Do not let this happen no matter how many times he or she may ask you what you can afford to pay each month. Keep that number secret! Also, when possible, buy on the last day of the month and possibly the last day of the year (car dealers are highly motivated to reach certain quota’s at the end of those time periods).

Never go into the car buying process unprepared

Do your research prior to stepping onto a car lot and/or speaking to a car salesperson. You can do this at nadaguides.com, kellybluebook.com and/or edmunds.com. Educate yourself on the entire process as best you can. Know what your vehicle is worth and the vehicle you are interested in is worth before speaking to the salesperson. Print off some information and take it with you to the dealer if necessary (make sure you know the difference between dealer retail, private party, and trade in values). Learn more on those topics here.

Just say no on the many insurance policies and extended warranties the car dealership will try to sell you

Those policies make them a lot of money, not you. There is a reason why they push them so hard (consider underbody protection in the state of Iowa because of the gunk they put on the roads in the winter time). Learn more by watching this video at edmonds.com: http://www.edmunds.com/car-buying/10-steps-to-buying-a-new-car.html.

Do you need a car or do you want a car?

You need a car to get you from point A to point B. It does not have to be new or even pretty to get the job done. Focus your efforts on owning a quality vehicle that you can count on and then drive it for a very long time. Buying a cheap car can be a mistake if it causes you to fork over a great deal of money in yearly maintenance. You want a vehicle that you can count on and will not cost you much with those ongoing expenses. Try to find the right place in your budget where value and price meet when buying.

Buy from a private individual if possible, but do it with great care

It is likely you will get a better deal with a private party. They do not need to mark up the price to pay for costs that a car dealer must account for (you are also dealing with an amateur rather than a professional). Saying that, you want to be careful when dealing with a private party. Get the vehicle checked out by a competent mechanic before buying (this would apply also when buying from a car dealer). You can learn more about the car buying business by going here.

Pay cash when possible when buying a vehicle, but always consider opportunity cost as well

Paying cash can save you plenty by avoiding paying interest on a loan and it can stop you from buying more car than you need. Cash puts you in charge (don’t tell a dealer you are paying with cash until you have agreed on the price). Saying that, if you have the cash and a loan is presented to you at a very low rate (below 3% for example), you might consider a loan of 5 years or less instead. Why? What would that cash be earning you if you kept it in those no-load index stock mutual funds? It could be 6% or more! Ultimately, it is your call. Just make sure you consider all options prior to plunking down (or not) a large amount of money.

Buying a used 3 or 4 year old car can save you a great deal of money in depreciation and might be the ideal choice for many

The first two years of a new car will cost you dearly in depreciation. Consider letting someone else pay that, which means you avoid buying the new car. Definitely avoid leasing a vehicle. Leasing is one of the worst decisions you could make when it comes to your bottom line. When you lease, you are simply renting a car that you cannot afford to buy. Avoid leases no matter how hard they are pushed by the dealer.

Go through the car buying process as few times as possible in your life

It is expensive when you buy a vehicle. For example, in the state of Iowa, you will pay a one-time 5% registration fee (plus another 1% on a vehicle 1 to 7 years old, making it 6% in total) when you make a new purchase (this number will vary based on your state). Consider the yearly registration and insurance costs as well when selecting a vehicle. Those yearly costs add up. Focus on all of these matters as you do your research. Spend most of your time researching (10 hours of research to 1 hour in the showroom seems about right). It will be time well spent.

Vehicle ownership is expensive and reduces your wealth over time

Vehicles (cars and trucks) are wealth depleting depreciating assets that suck you dry over long periods of time due to the yearly costs (maintenance, gas, insurance, registration costs, etc.) and big depreciation, especially in the early years. Here is the bottom line when buying a vehicle: Buy what you need, avoid what you don’t, and focus on taking care of your car so it will last for many, many years. Limit how often you buy and you will be the wise and efficient car buyer/owner!