GETTING STARTED 2005 Car Buyer's Guide Tune Up Your Car Buying Skills How to Negotiate a Lease Smart Shopper's Guide to Auto Insurance MORE... CAR TOOLS Kiplinger's Car Finder How much will my monthly car payments be? Should I finance or pay cash for a car? Which is better: a new or used car? Should I lease or purchase a car? Which is better: a rebate or special dealer financing?

BASICS
Preparation Is Everything
by Dan Rutherford

To increase your odds of getting the best price on a new car you need to do your homework:

• How much car can you afford?
  
  
• How does the vehicle compare to others in terms of safety and reliability?
  
  
• What prices are local dealers quoting?

Step 1: Review your budget

Sit down and take a hard look at your monthly income and expenses to see how much room you have in your budget for car payments and insurance premiums. Use the budget and cash flow worksheets to help you with these calculations.

If you have a make and model in mind, contact your insurance agent to find out how much your premiums might change. For more information on buying auto insurance, see the "Smart Shopper's Guide to Auto Insurance."

And if you'll be sharing the new car with your spouse, make sure you agree on a vehicle type and price range to avoid conflicts later.

Step 2: Determine your down payment

Now look at your savings and decide on a down payment. Find out how your monthly payments will be affected by how much you pay up front.

Step 3: Price your trade-in

There are a couple of methods that can help you determine your old car's value:

• Take it to four or five local dealers and ask what they'd pay for it. This will take a little time, but you'll have the upper hand when you're ready to buy. If you don't like the trade-in offer, simply sell the car to the highest bidder and use the proceeds for your purchase.
  
  
• Look for similar cars online or in the classifieds. Web sites such as Cars.com or Autobytel will let you search by make, model and year. But keep in mind that these are retail prices. If you sell your old car to a dealer you'll be selling at wholesale, so check the resource that many dealers use -- Kelly's Blue Book. Remember, though, that much of a used car's value is based on its condition.

Step 4: Check loan rates

If you have to borrow, you'll want to research loan rates in your area to find out which lenders offer the best deals. Quotes are provided by Bankrate.com, and are intended to show which banks offer the best deals relative to one another. (Find out more about Bankrate.com's survey criteria.) Individual rates will vary based on the amount borrowed and the term of the loan, but at least you'll get a feel for the market.

For the latest information on manufacturer financing and rebate offers, download Car Deals (PDF, $7). You also can check the manufacturer Web sites for special deals (go to Useful Car Links for a list of manufacturer sites). If you're lucky enough to have a choice between a rebate offer or special financing, use this calculator to help you determine which would offer the greatest savings.

With a handle on your trade-in's value, downpayment and financing terms, you can hone your price range with the "How much will my monthly car payments be?" calculator. Try various purchase prices until the monthly payment is in line with your budget.

Step 5: Research your new car

Visit Car Finder to retrieve a list of cars that meet your price and needs. You can search cars by year, vehicle type, price range or monthly payment, or narrow your search by drive train and transmission. The results include photos and key stats for each model.

You'll notice that there are two prices listed for each car. The first is the invoice price, which is what the dealer pays before any discounts. The second is the MSRP, or suggested retail price, which is set by the manufacturer.

Once you've narrowed your choice to a few models, compare the cars' track records. Visit the National Highway Traffic and Safety Administration Web site for information on recalls and crash tests, and check the Insurance Institute for Highway Safety Web site for rankings on injury, collision and theft losses. The IIHS also offers more information on shopping for a safer car.

Step 6: Go for a test drive

Before making your final decision, test drive the finalists. Go to a dealership to do just that and nothing else. Be sure you are comfortable in the car. Is there enough leg and head room? How does it handle? Are the instruments easy to see at a glance?

Step 7: Get competitive bids

The best way to find the cheapest price on a new car, Krughoff says, is to get competitive bids from several dealers in your area (check the manufacturer's Web site for a list). Ask each sales manager how much above or below the factory invoice price he or she is willing to go. (The factory invoice price is the same for all dealers.) And be sure the sales manager knows that you will be taking bids from other dealers. For more information on this technique, see "How To Get A Great Deal On A New Car." If you'd rather not take the time to make the calls yourself, pay $190 to have Car Bargains, the new-car shopping service of the Center for the Study of Services, do the haggling for you.

With the lowest price in hand, you're ready to close the deal with confidence. For more on buying a car, see the planning center, "Tune Up Your Car-Buying Skills."

- Reporter: Juanita White