The loan

Set up your loan in advance

If you’re borrowing about $25,000 for a new car, a difference of only two percentage points in the interest rate can add up to more than $1,000 over the lifetime of the loan. And that can easily happen if you’re not paying attention to the financing terms.

Even before you know which vehicle you’re going to buy, you can get a jump on the process by comparing interest rates and getting pre-approved for a loan. Go to websites such as BankRate.com, ELoan.com, or LendingTree.com, to see what typical interest rates are in your area. Then check with your bank or credit union (if applicable), as well as other local banks and lending institutions to compare rates.

Focus on the annual percentage rate. And try and keep the loan length as short as possible, while still having an affordable monthly payment. A four-year loan costs you far less overall than a five- or six-year loan at the same rate.

Also, call the dealerships that sell the models in which you’re interested to see how their rates compare. Go online to the manufacturer websites and check for any special financing rates. You may find that a model on your short list has a special low-interest rate available. But if so, call the dealership to make sure you qualify for it; such incentives are often only available to buyers with high credit scores.

Getting pre-approved by a bank or credit union keeps the negotiations at the dealership simpler and removes some of the stress. And you can still decide to take a dealer loan if it’s a better rate.

Don’t get “bumped”

When arranging a loan, dealers often make extra money by bumping your interest rate up several percentage points over the rate for which you actually qualify. That’s why it’s critical to compare interest rates before you go to the dealership to buy the car.

The trade-in

Find your trade-in value

A common dealer tactic is to give you a token discount on a new car, and then make up for it by giving you less for your trade-in. You can avoid this by knowing the value of your current car before you go shopping. This depends on its age, mileage, condition, trim level, options, and the value of cars in your area.

To get an idea of your car’s worth, check its “book value” in printed pricing guides or at used-car-pricing websites, such as Kelley Blue Book and the National Automobile Dealers Association. Focus on the wholesale or trade-in value; the retail value is what you would pay for the car at a dealership.

To get a better fix on your car’s worth, check car-buying websites and local classified and dealer ads for models similar to yours. But keep in mind these are asking prices, not what people are paying.

Get an appraisal. If you want a rock-solid figure to use for comparison in your negotiations, take your car to the used-car department of several dealers or used-car lots and ask what they would give you in a straight-up sale.

Of course, you can always sell the car yourself; you’ll usually get more money that way than by trading-in, but probably less than the highest asking prices you found. But if you need the money for a down payment, you’ll have to sell your old car before buying a new one. Trading in can also lower the sales tax you’ll pay on the new car.

The price

Set a target price

Before negotiating with a dealership, you should have an idea of what a good price is for a particular model. This can range from a figure that’s close to the full manufacturer’s suggested retail price for a hot new model to thousands below MSRP for a slow-selling model.

It helps to know the dealer’s cost. You can estimate this by finding the invoice price and subtracting any dealer rebates or holdbacks from it. The invoice price can be found in printed pricing guides or on car-pricing websites. Some sites also list dealer rebates and holdbacks, but it may take a little searching. Consumer Reports’ New Car Price Reports do the math for you with CR’s Bottom Line Price, which is a good place to begin your negotiations. Try to pay as little above that figure as possible.

CR’s Price Reports also now show you the average price that buyers are paying for a model.

Get quotes

Get competing price quotes

One of the most effective ways to get a low price is to have dealers compete for your business. This can be done by e-mailing or calling several in your area or in neighboring towns. Tell them the exact model, trim level, and options you want and ask for their lowest out-the-door price. The more quotes you get, the better. Make sure you’ve done a thorough test drive before initiating negotiations.

You could also go to car-buying websites and submit a request for a dealer quote. But be prepared to be on the contact list for several dealers for a while. Consumer Reports, in conjunction with TrueCar, Inc., offers the Build & Buy Car Buying Service as an extra benefit to ConsumerReports.org, Consumer Reports, and ShopSmart subscribers and to purchasers of Consumer Reports New Car Price Reports. Intended to complement Consumer Reports suite of auto ratings, reviews, and buying advice, the program is designed to help consumers buy vehicles at competitive prices from dealers who have agreed to abide by certain guidelines. Benefits with this are that you remain anonymous until you choose a dealer to work with and dealers in the network must maintain a high level of customer satisfaction. Of course, you aren’t obligated to buy a car.

Focus on the price. Don’t discuss trade-in or financing terms at this point. Tell them you are just looking for a competitive price on a new car and will work with the dealer that treats you the best. You can tell them you’d be willing to put down a credit-card deposit over the phone if they can meet your target price; never e-mail your number. Some salespeople will try and get you to come to their showroom to discuss pricing. But many are now savvy enough to work with you electronically, which saves time for both you and them.

Play “match the price.” If you want to whittle the price down further, recontact some dealers and ask whether they can beat a competitor’s price. This can be particularly useful if you prefer one dealership, because of location or personal rapport, but another dealer has given you a lower price. If you settle on a price, have the dealer send you a detailed pricing breakdown; you’ll need this when you go to the dealership to close the deal.

Dealership

Watch the details at the dealership

This can be the most stressful part of the process, because the dealership staff could try to make up for a low price on the new car by making you pay more in other areas. That’s why you need to come in prepared and ready to maintain control.

By the time that you go to the dealership to buy the car, you should have:

Identified the model, trim level, and options that you want.Completed a test drive and walk-around, so you’re familiar with vehicle.Been pre-approved for a loan or, if you will be financing through the dealer, know what competitive interest rates are in your area.Researched the value of your trade-in, if appropriate.Gotten an idea for what a good price is for the vehicle you want. Gathered several quotes from various dealers, and settled on one that looks the most promising.

Dos and don’ts

What to keep in mind

Don’t negotiate around a monthly payment. This gives a salesperson too much room to manipulate figures to the dealer’s advantage, especially if you have a trade-in or are financing through the dealer. Instead, negotiate one thing at a time. Nail down the final new-car price before discussing the trade-in value or financing terms.

Don’t ?buy unnecessary extras, such as corrosion protection, paint sealant, fabric protection, and window etching of the vehicle ID number (VIN). You usually don’t need these services or can get them for less money later. Sometimes, VIN etching is pre-printed on the sales contract. But if you don’t want it, simply cross it out, decline to pay for it, and have them recalculate the total.

Don’t purchase an extended warranty on a car with a good reliability record. In a 2008 CR survey, 65 percent of respondents said they spent much more for the contract than they got back in savings on repairs.

Do bring a calculator if you’re financing to verify that the terms match the amount you’ve agreed to finance. Dealers can pad the monthly payment to add extras into the contract, sometimes without the buyer even knowing he or she has paid for them.

Don’t drive the car home before the financial paperwork is completed. That can result in so-called “yo-yo” or “spot” delivery, when the dealer calls the buyer back, claiming the financing fell through, to get him or her to sign new paperwork at less favorable terms.

Do???be prepared to walk out if the salesperson tries to raise a price you negotiated by e-mail or phone, or if you feel uncomfortable with the negotiations or treatment. Sometimes, your willingness to leave the showroom is your most effective negotiating tool.

For more car buying tips, visit www.ConsumerReports.org.