Couple in car dealership
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If you’ve spent the past few months looking at a particular model at the local dealership, or your everyday car is on its last leg, now is one of the best times of year to buy a car.

In middle to late December, salespeople are looking to clear outgoing models and meet year-end sales goals. That translates to big savings for buyers. Still, it’s important to take time to research and plan for this major purchase.

Follow these 10 car-buying tips to ensure your new (or new to you) car is affordable and well-suited to serve you for years to come.

1. Determine your budget

While you may have your heart set on a specific car, you won’t be able to take it home unless you can afford it.

A good rule of thumb is to spend no more than 25 percent of your monthly household income on all the cars in your household. This figure should include not only monthly car loan payments but all other vehicle costs, including fuel and car insurance. For the monthly payment alone, you should aim for 15 percent, according to Ron Montoya, senior consumer advice editor at Edmunds.

If you’re not sure how a new car would fit into your monthly expenses, use Bankrate’s home budget calculator to help you determine your monthly bills and necessary savings.

2. Decide: New, certified pre-owned or used? Buy or lease?

The choice between new or used ultimately comes down to what you’re looking for. “The used cars will obviously be a little less expensive, but you have to be mindful of the condition levels,” Montoya says. “Whereas a new car, they’re in perfect condition, but they will cost more.”

Consider certified pre-owned options as well. “Those are typically in better shape than an average used car, they’re going to have fewer miles on them and they’re not going to be more than probably 5 years old,” Montoya says.

You’ll be able to get the most car for your money if you buy used. However, you’ll have a shorter warranty period and may not know the car’s full history. Additionally, if you have get a car loan, you’ll pay a higher interest rate. If you lease a car, you might get a more upscale car for your money, but you won’t own the car outright and will need to be careful about the lease terms to avoid hefty penalties. A new car for the same amount of money would likely have fewer features, but you’ll also have a full warranty and pay a lower interest rate, and often you’ll get free maintenance and roadside assistance.

For many, a certified pre-owned car is the ideal compromise, since these vehicles are cheaper than new cars, but they usually have some warranty left and must meet certain criteria to help ensure their reliability and condition.

3. Narrow your choices to a few cars

Once you’ve set your budget and the type of ownership you’re looking for, start researching the cars that have caught your eye to see if they fit your criteria.

Visit automaker websites and independent automotive information sites to assess the features that are important to you, and note MSRPs (manufacturer’s suggested retail prices) and invoice prices. Check local inventory listings to see what is available in your area.

When you’ve narrowed your choices down to a few top options, don’t rush off to the dealership for a test drive just yet.

4. Assess your ownership costs

Using your short list of cars, estimate the ownership costs determine if each would fit into your budget. These should include gas, insurance, repairs and maintenance. An auto research website like Edmunds or Kelley Blue Book can provide a general overview of ownership costs for your area, but these numbers will vary depending on your personal situation.

For better accuracy, do your own calculation for fuel based on the number of miles you drive annually, and get an auto insurance quote on the cars you are considering that would apply to the drivers in your household. Make sure you give the insurance agent the exact model, including trim level, engine and sometimes certain add-on options, to get an accurate quote.

5. Secure financing — before you visit the dealer

Dealers don’t just want to sell you a car; they want to coordinate the car loan, too. That’s because they typically receive a flat fee or a commission on the auto loans they facilitate, regardless of whether the loan is from the manufacturer or a local lender.

With interest rates increasing, many dealerships are offering low promotional interest rates to top-tier customers. If you qualify, these can be great ways to save, but you should still get a preapproved loan offer before heading to the dealership. Going in with a preapproved offer is “always a good idea,” Montoya says, “just to see what you can get approved for and know what you can afford and also to be able to compare the interest rates.”

You can find current interest rates on Bankrate. Also check with local lenders, including credit unions, which tend to offer rates that are 1 to 2 percentage points 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. Don’t assume financing at the dealership is the best deal

While you may be drawn to a certain car or brand because you saw an ad for a low interest rate, it’s of no use unless you qualify. Those super-low advertised rates are especially enticing as interest rates continue to rise.

Only a small percentage of car buyers qualify for the low interest or zero percent rate deals automakers offer, though. Even if you do qualify, you may be better off taking an automaker’s cash rebate and getting financing on your own at a bank or credit union.

To find the best deal for you, first identify the best interest rate you can get and then compare using Bankrate’s car rebate vs. low-interest calculator.

7. Get all the pricing information

The research you did on independent automotive websites should have included the invoice price (for new cars) or wholesale price (for used cars), as well as the manufacturer’s suggested retail price (for new) or the dealer’s asking price (for used).

While invoice pricing on third-party sites isn’t 100 percent accurate, it’s a good indicator of what the dealer paid for the car, and it’s the best place to start your negotiation. Aim to reach an agreement on the sale price that is close to that number before any discounts are applied, and keep in mind that the dealer needs to make at least a few hundred dollars’ profit to cover the operating costs of running the dealership.

You’ll also want to ask the dealer for a detailed price quote. “Whenever you ask for a price quote for a vehicle, you want to ask for a breakdown of all the fees so that you can see exactly what’s on there,” Montoya says. “And if something is unfamiliar to you, feel free to ask about it. The typical stuff you’re going to pay for is sales tax, registration fees and a documentation fee which is what the dealership charges to process the paperwork.”

8. Research all possible discounts in advance

If the dealership is promoting any cash-back deals, these incentives should again be deducted after you negotiate the price. Remember, many automakers offer discounts to students, military members and even members of certain credit unions. These discounts can be stacked and combined with the cash-back rebates on the model. Check automakers’ websites for these incentives.

Look to the calendar for additional savings. When dealerships have their big sales events, typically around spring, fall and the end of the year, you’ll see an influx of leased cars returned. These are great times to buy used and certified pre-owned cars, as dealers are taking in newer trade-in vehicles and putting lease closeout models back on the lot.

Outgoing models will drop to their lowest prices at the end of the year, when dealerships are looking to both clear out lots for new inventories and meet year-end sales goals.

9. Take your time with the test drive

Call the dealerships you’re interested in and make appointments for test drives. By reaching out, you’re establishing a relationship with someone who might be less likely to try to strong-arm you into a deal if you decide you are ready to buy after the test drive.

When you go in for the test drive, “you want to make sure you’re driving the exact vehicle that you want,” Montoya says. “Do your own research; don’t always rely on the salesperson. Models change so much over the years that they may not know everything about the car, so you want to do you own research ahead of time and just use the salesperson to fill in any gaps in the information that you need.”

Because most car shoppers these days keep their cars for five years or more, take your time with the test drive to make sure you really love the car. Don’t hesitate to ask for more time behind the wheel to ensure you like the driving experience, and spend time in the car while it’s parked to adjust the seats, experiment with the controls and determine whether passengers would be comfortable and your regular cargo would fit well.

10. Use smart negotiating strategies

When you are ready to make a purchase, forget about trading in your old car for the moment. You’ll fare better if you negotiate the sale price of your new car and the trade-in value of your old car separately. Make sure you have already researched your current car’s value online so you’ll know whether you are being offered a fair price when the trade-in is discussed.

Once it’s time to sit down and talk pricing, come prepared with the research you’ve done. “I like to negotiate with facts,” Montoya says. See if other dealerships are offering better deals on your vehicle and seek a price match from your salesperson. You should also be prepared to say “no” to extras. Research the add-ons you’re interested in beforehand and contact the dealership at a later date to negotiate fair prices for those items.

Before you sign the final contract, go over all of the details carefully. Make sure that you aren’t paying any unnecessary fees and double check that everything you negotiated verbally is also spelled out in writing.

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