Next, run the numbers: What's your budget, what you can afford as a monthly payment, what's your trade-in worth? Don't plan to walk into the dealership and pay sticker price. Research actual invoice prices, and then learn the markup difference between what the dealer wants and what is fair (see Target Price in the charts of this Buyer's Guide and online at intellichoice.com). Now you're ready to sit down at the salesperson's desk.
Remember to keep each phase of the buying process a separate step, making it easier for you to understand and control the negotiations. Do not disclose that you are trading in your current ride until you finish negotiating the price for the new vehicle. This limits the dealer's ability to shift profit in his F&I (finance and interest) shell game from one aspect (new car) to another (trade-in).
The final step is financing. Only after you settle on a price for your new car and one for your trade-in, should divulge your preference to buy or lease and consider the dealer's finance offerings. It always pays to explore alternative financing through your bank, credit union, or local lender, but dealers often can provide compelling finance packages, especially when augmented by a manufacturer incentive.
Essential homework includes running through these financial scenarios before committing to purchase a vehicle, both to target your shopping and prepare for finance arrangements. While you should have alternative financing available, in this incentive-rich market, it's worth considering the dealership's offerings. Conventional wisdom cautions that the dealer will be acting as middle-man in the financing and collecting profit for that service, even when using a captive automaker lending agency. However, there are great deals to be had. Consider all your options, and ultimately choose what is right for you.