Dealers will sometimes indicate they can get you a great rate to get you to sign the contract, only to gloss over the section that says the rate is contingent on the loan approval. In some states, you could find yourself having driven home in your new car only to be asked to pay a higher interest rate, make a larger down payment or return the car.
Weigh cash-back rebates versus low-interest loans
The low-interest loans offered by manufacturers are designed to get customers into the dealership, but the reality is only 10 percent of customers qualify for them. Even if you do qualify, a low-interest loan may not be the best choice because you'll be giving up the cash-back rebate. Determine the best interest rate you qualify for and then use Bankrate's car rebate vs. low-interest calculator to determine the best deal.
Research all rebates, incentives and discounts
Manufacturer websites will list all of the current cash-back rebates and "personal" discounts (such as discounts for military personnel or recent college grads) so make note of those before you visit a dealer. Also use third-party vehicle information sites to research dealers' incentives -- cash the manufacturer is offering the dealer to sell a specific model. While this money is technically from the dealer, it can reduce the car's price, but you have to ask for it.
Start negotiating from the invoice or wholesale price
Once you've decided on the car you want, go to a third-party vehicle information site and spec out the exact car you want including model year, trim level, engine, transmission and any options. Print out the pricing page and start your negotiations beginning with a few hundred dollars more than the invoice price for a new car or the wholesale price for a used car. Once you've negotiated the price, mention any cash-back rebates, personal discounts and dealers' incentives you've uncovered.
Factor in your trade-in car
Check all third-party vehicle information sites to determine what your car is worth on a trade. Negotiate the price of the car you are buying first, leaving the trade out of the equation. If the dealer asks if you are trading, say no or that you aren't sure.
Once the price of the car has been settled, negotiate the value of your trade-in using the prices you found online. By negotiating the two separately, you are more likely to get the best price for each.
Take a thorough test drive
While a dealer may expect you to make your decision on a 15-minute test drive, you should take all the time you need. Be sure your test drive allows you to drive a short distance on city streets and get up to speed on a highway. Also, try pulling into and out of a parking space. Let them know you need more time behind the wheel if you do.
If you need to carry certain cargo or install car seats, bring those items along to the dealership to test their fit. Spend some time with the car parked going over the controls, seating, and mirror and pedal positions to help ensure you'll be comfortable for the long term.
Tara Baukus Mello writes Bankrate's cars blog as well as the weekly Driving for Dollars column, providing both practical financial advice for consumers as well as insight into the latest developments in the automotive world.