Before you start car shopping, you have to make the most basic decision of all – whether to buy a brand-new car or a used car, and then make sure you know how to be smart when you go shopping.

Buying Used is Smart: New car prices are higher than ever, now averaging a whopping $37,000. That’s enough to scare quite a few people outright into buying a used car. The vast majority of new car purchases are financed, which is another reason why people who understand the effects of depreciation or more likely to opt for buying a used car. Because a new car immediately drops at least 10% of its value when you drive it off the lot, most people are immediate “upside down” or “underwater” on their car loan, meaning they owe more on the loan than the car is worth. And this doesn’t change for a number of years. Total depreciation during the first year of ownership is often at least 20%, and the car continues to lose that much value every year for several more years. When you buy a great used car, you get more bang for your buck because it was the previous owner who took the big hit on depreciation.

Work with a Reputable Dealership: Some people shy away from buying a used car because they fear being taken advantage of on the price of the car, its condition, or both. But that’s the point of becoming an educated car shopper – learning what you need to know about finding great used cars. One of the smartest decisions you can make is finding a used car dealership who takes the right approach – one that focuses on newer used cars with lower mileage and in great condition, that offers a warranty on every car, that has a money-back guarantee, and that has firm up-front competitive prices so you don’t have to worry about haggling. 

Create a Budget: One of the most important things you can do before beginning to shop for your next is to really take a good look at your financial situation and decide what you can realistically afford. Few things are worse than buying a fantastic car and soon afterwards realizing you can’t afford it. To get this right, you need to account not only for the monthly car payment if you finance your purchase, but also insurance, service/repairs, and fuel. 

Avoid Common Mistakes. Whether it’s you first time or your fifth time buying a used car, a lot of people make one or more common mistakes that could easily be avoided. One of the biggest mistakes already mentioned is not knowing what you can really afford. Another is not having any idea what kind of car you want and/or need. Other people haven’t done any homework ahead of time to know if the price on any given car they’re looking at is a good one – you have to spend some time looking at your local market to see what similar cars are actually selling for in order to know this (and this would be in addition to checking out price guides like Kelley Blue Book and Edmunds TMV). Other common mistakes are not test-driving a car to see if it’s really the right choice, failing to check a vehicle history report, and not having a trusted mechanic do a thorough inspection of a car before buying it. Finally, a surprising number of people know very little about the financing process to know whether or not the financing contract they sign off on is a good one or not. A car purchase is a big deal, and is often second only to buying a house for many people, so you want to get it right.

For Sale by Owner? You can try to find the used car of your dreams for sale by its owner, but there are some drawbacks to going that route. First, you’re dealing with a complete stranger and you have no idea if they’re being honest with you, whereas a good used car dealership has a reputation with the customers it has served, and you can easily check into that reputation online. And if you do purchase a car from a private seller and decide you’re not happy with it, you have very few ways to do anything about it beyond suing the seller in small claims court, which is huge headache.

Buying Used Cars Online? These days you can, of course, buy your car online. But that also comes with its own set of issues and challenges. It’s almost always better when you can look the seller in the eye and see what kind of person they are. And you should always test-drive a car you’re thinking of buying. Shopping for a brand-new car online is fine because they’re all the same coming out of the factory except for color and trim level. Every single used car, however, is different depending on how its previous owner drove it and cared for it (or not). Feel free to do your “window shopping” for your next car online to get an idea of prices and what’s available, but when it comes down to making an actual purchase, you definitely want to see the car in person and test-drive it before signing on the proverbial dotted line.