3 Ways To Get The Best Deal On Your Next Car

By Markets Fool.com

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Source: wikipedia user Laitr Keiows

Buying a car can be a stressful experience, and nobody wants to pay more than they have to. Unfortunately for you, car salespeople work for commission, so it's in their best interest to get every single dollar out of you that they possibly can. However, there are a number of simple things you can do to make sure you don't overpay. Here are three:

Price, financing, and your trade-in are three separate things
One of the most common questions a salesperson will ask you is "how much of a monthly payment can you afford?" Under no circumstances should you ever answer that question, at least not honestly with the actual amount you can afford. It basically gives the dealership permission to sell you the car for whatever price they want and charge whatever interest rate they want, as long as it's under the number you say.

Negotiations on price and financing should be two separate events. You should come to an agreement on the price of the car (which should be substantially less than the price on the window sticker), and then start to discuss financing.

And while we're on the subject of separate transactions, if you have a car to trade in, the price you get for your trade-in should also be a separate discussion. One of the most ridiculous things I've ever been told by a car dealer was "We'll give you $5,000 for your trade if you're willing to pay full retail for the car." A lot of dealers prefer to handle price, financing, and your trade-in with a single number. But for the buyer this makes it difficult, if not impossible, to determine how much they're actually paying.

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Is your current car worth more or less because of the price you paid for a TV? Of course not! So why should it change based upon what you're willing to pay for another car?

Build up your credit score
If you finance your car, one of the most effective ways to save money is to improve your credit score. This doesn't have to take years, or even months in many cases. When it comes to auto financing, small differences in credit scores can make a big difference in the interest rate you obtain.

According to myFICO.com, the national average interest rate for a 60-month new car loan for a FICO score of 680 is about 6.7%. For a slightly higher 700, the rate drops to less than 4.6%. On a $30,000 car loan, this can save you more than $1,700 over the life of the loan. To see how improving your credit score could affect your specific loan payment, check out this calculator.

But while certain credit factors like your payment history take years to build up, others can be fixed quickly. One of the biggest factors in your credit score is your debt utilization, or the ratio of your total credit card debts compared with your total credit limit. Experts say that less than 30% utilization is a good maximum level to have, and the lower you can get this number, the better your score will be. Thus, by simply paying off a chunk of your credit card debt, you could improve your score quickly and potentially get a better interest rate.

Shop around for financing too
Every car dealership I've ever set foot in has its own "finance guy" or finance department, and they are generally associated with one of the major banks. Wells Fargo and Ally Financial in particular have a big presence at new car dealerships.

However, there is no requirement that you finance the car at the dealership, and a lot of buyers either don't realize this or don't think it's worth the effort to shop around.

Nothing could be further from the truth. Before you go to a dealership, it's worth the effort to check out the loan rates at a couple of banks (FYI credit unions tend to have very good rates). And, it won't hurt your credit to apply at a few places to try to find the best deal. As long as all of your rate-shopping happens in a two-week time period, it will count as a single inquiry for credit scoring purposes.

As an example, if you want to finance a $30,000 car over 72 months, the difference in payments between 4% and 5% interest rates means savings of nearly $1,000 over the life of the loan. Would you voluntarily pay an extra $1,000 to buy your car? If you don't shop around for a loan, that's exactly what you could end up doing.

Remember you're in control
During the car-buying process, it's important to keep in mind that you are the customer, and the dealership would be lucky to get your business. If you start feeling overly pressured, if the salesperson won't budge on price, or if they insist on talking about your monthly payment instead of the actual price of the car, don't hesitate to walk out the door.

As long as you act like you're serious about getting the best deal possible, you should be in a good position to negotiate and drive off the lot with a car you want at a deal you can be proud of.

The article 3 Ways To Get The Best Deal On Your Next Car originally appeared on Fool.com.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Wells Fargo and has the following options: short April 2015 $57 calls on Wells Fargo and short April 2015 $52 puts on Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.