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Top 10 tips for buying the right new or used car in 2016

If you're planning to buy a new or used car in 2016, take the time to do your research before heading to the dealer.

Buying a car is typically the 2nd most expensive purchase anyone makes, next to buying a home. Making such a large financial decision in a weekend simply increases the chances you'll be unhappy in the long run.

Follow these 10 tips to make sure you buy a car you can afford and choose a model that you'll be comfortable driving for years to come.

1. Determine your budget

While cars come in all price ranges, they are still one of the most expensive purchases you will make, so it's important to be sure you can afford it.

A good rule of thumb is to budget no more than 25% of your monthly household income for all the cars in your household.

Your calculation should include your monthly auto loan payment as well as operating costs such as fuel and car insurance. If you're not sure of your monthly expenses, use Bankrate's home budget calculator to help you determine your monthly bills and necessary savings.

2. Narrow your list to a few cars

A few cars probably have caught your eye as you've driven around. Start by researching those to see if they fit within your budget.

Visit the automaker websites and independent auto information sites to assess the cars' features and get an idea of inventory available in your area.

Don't forget to note the manufacturer's suggested retail price and invoice price. Choose cars that are at least 5% less than your monthly budget to give yourself some room to cover your operating costs, including gas, car insurance, repairs and maintenance.

Print pages from these sites with the key details or keep an electronic file for your research. But don't rush to the dealership for a test drive, yet.

3. Decide if you're buying new or used, or leasing

The array of vehicle choices within your budget can be dizzying.

Regardless of your budget, you can find choices of new cars that you can buy or lease, certified preowned cars or used cars. You should decide what direction to take, since there are trade-offs with each.

You're likely to get the best value if you buy a used car, though you'll pay a higher interest rate, have a shorter warranty period and won't know the car's full history.

You'll be able to get a high-end car if you lease, but you won't own the car, and you'll need to be careful to stick within the parameters of the lease to avoid penalties.

Buying a new car means you'll get fewer car features for the same amount of money, but you'll get the full warranty and lower interest rates, as well as free maintenance and roadside assistance in many cases.

For many, a certified preowned car is the ideal compromise. These cars are cheaper than their new car counterparts, but they usually have some warranty left and must meet certain criteria to help ensure their reliability and condition.

4. Determine your overall ownership costs

Once you have your short list of cars, circle back to see if they really fit into your budget by estimating the ownership costs for each.

An auto research website like Edmunds.com will help you with a general overview of the ownership costs for your area, but remember that these numbers will vary depending on your personal situation.

Use these numbers for a more accurate budget, but do your own calculation for fuel based on the number of miles you drive annually and by calling your car insurance agent to get a quote on the cars you are considering.

Make sure you give the agent the exact model, including engine type and other specifications, to get an accurate quote.

5. Nail down financing before you visit the dealer

Don't let your eagerness to test-drive a car send you to the dealership just yet.

Dealers don't just want to sell you a car; they want to give you the car loan because they typically receive a flat fee or a commission on the car loans they facilitate. They get that kickback regardless of whether the loan is from the manufacturer or a local lender.

As a result, dealers sometimes promise a great interest rate before they have final approval, which can get you in a pickle if you sign a contract.

Instead, secure financing from a bank or credit union in advance and then compare it with what the dealer offers. Use Bankrate's rate search tool to see current interest rates. Check with local lenders, including credit unions, which offer loans that are 1% to 2% lower on average than conventional banks. Many community credit unions are open to anyone living in their area, eliminating the need to work at a certain company or in a specific industry to join. Use CULookup.com to find a credit union you can join.

6. Automaker's promotion may not be the best interest rate

You probably have seen the ads from automakers for 0% interest rates or low interest rates and have decided the car was within your budget because of the low monthly payment quoted, but the likelihood is you won't qualify.

Only about 10% of car buyers qualify for the 0% or low interest rate deals. Even if you do, you may be better off taking the cash rebate and getting your financing at a bank or credit union.

Once you've found the best interest rate, use the car rebate vs. low-interest calculator to determine which is the better deal.

7. Know the invoice price

While invoice pricing on auto research websites isn't completely accurate, it's a good indicator of what the dealer paid for the car. You'll want to keep this number in mind as you negotiate the purchase of your next car.

If your research didn't include the invoice price for new cars or the wholesale price for used cars, go back to the auto research website you visited earlier to check it.

You'll want to aim for a sale price that is close to that number before any applicable discounts. Keep in mind that running a dealership is a costly endeavor with a lot of overhead. The dealer needs to make at least a few hundred dollars of profit to cover costs.

8. Find all possible discounts in advance

While automakers usually promote cash-back rebates that apply to all buyers, small rebates that apply to specific groups may be available but not widely publicized.

Many automakers offer additional rebates for students, current and former military personnel, and even certain membership-based groups.

These discounts can be combined with each other as well as with the cash-back rebates. Check the automaker's website for these incentives in their "current offers" section.

9. Don't rush the test drive

Now that you've done all your research, you are ready to visit the dealership for a test-drive. Call in advance to make an appointment for a test-drive with the Internet or fleet manager.

If you decide you are ready to buy after the test drive, you already will be working with someone who is less likely to strong-arm you into a deal.

Since you are likely going to keep your car for 5 years or more, don't hesitate to ask for more time behind the wheel to ensure you like the driving experience.

Also, take extra time with the car parked to adjust the seats and experiment with the controls and make sure all of your typical passengers are comfortable and any regular cargo fits well.

10. Use smart negotiating strategies

When you are ready to buy, be sure to keep in mind all the discounts you researched.

It's easier to get the best price for each if you negotiate the sale price of your new car and the trade-in value of your old car separately, so don't factor in trading in your car as part of the deal for the moment.

Make sure you do your research about your current car's value online in advance so you know whether you are being offered a fair price.

Go over the list of fees associated with the deal to ensure they are accurate, and make sure you aren't paying any unnecessary dealer fees.

Once you've agreed to the price with the dealer, be prepared to say "no" to all the extras you may be offered. You can always buy them separately later, after you've researched pricing.

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