The first thing a buyer should do is determine what type of vehicle they want and how much money they can afford.

You need to think carefully about your selection. For a couple or a single person, a small sports car may be a good choice. But not for someone who is planning to start a family. While a large SUV is great for road trips and camping with friends, it’s not likely to make for much enjoyment when it comes to filling up, paying for insurance or finding street parking.

Ronald Montoya is the Edmunds senior consumer advisor editor and content strategist. He said, “Think about what your needs are, how far you commute, how heavy you need to transport, and whether you enjoy driving.” “Avoid overbuying – you can probably get by with a smaller vehicle for most of your needs, and just rent something bigger once or twice a year, when you really need it.”

Buying a vehicle outright – often called paying cash for the car, even though it’s more likely to involve a cashier’s check or credit card rather than a literal wad of cash – lets consumers avoid monthly payments and thousands in interest. It’s not an option for all. A lot of people don’t have enough money. Dealers make more off financing so they are less inclined to bargain on the price.

According to Greg McBride (chief financial analyst, Bankrate.com), “Paying cash in cash is often your best choice because it limits the amount you can pour into depreciating assets.” But don’t drain your emergency funds just to purchase the car.

Leasing or loans are an option for shoppers who don’t want to pay cash.

With leasing, consumers generally make lower monthly payments, but don’t own the vehicle at the end of the term – typically three years – unless they pony up a big lump-sum payment. McBride stated that leasing is often an endless cycle of payments. McBride said that leasing is essentially like renting a vehicle. At the end of your lease, you must return the vehicle to start over with a brand new one.

Leasees can get into trouble for making modifications to the vehicle, such as engine or sound upgrades. The leasee must pay a fine for excessive wear and tear or terminating their lease before the end of their term. They can also be penalized for exceedingly frequent driving (usually 12,000 miles each year), but there are newer leases that allow them to drive up to 10,000.

Lease providers are also reducing mileage allowances and reducing incentives such as cash rebates or sub-prime interest rates. If you are unable to pay cash, the majority of people looking for a car should consider loans. Loans usually end up costing less than leases – especially for consumers who hold onto vehicles for years. Loans don’t require you to pay extra for mileage, wear or a penalty if the loan is terminated early. The best part is that the loan ends and the car becomes the owner. The loan term can be as long as 84 months or more. Experts recommend that you stick to short-term loans at lower interest rates to reduce overall cost.

For consumers who have owned vehicles for many years, loans are often less expensive than leasing. Consumers don’t have to be concerned about wear or mileage and they can terminate their loan at any time. Montoya said that most customers recommend getting loans. She suggested that at least 20% be put down to maintain affordable monthly payments and to eliminate GAP insurance.

GAP, which stands for Guaranteed Asset Protection, protects those who have a lease or loan on a vehicle and owe more. It pays for the difference in value between what they owe and what is owed if their car is stolen or damaged. 

McParland stated that everyone financing needs to understand their credit score in order to determine where they are. Then, cross-shop with lenders and leasing providers. McParland stated that preapproval for loans is advisable before speaking to dealers. This gives you some leverage so they can find you the best rate.

The majority of used and new car sales still take place through dealers. A dealer allows you to view multiple cars and allow you to test them out. They also offer financing options and other useful services, such as oil changes and tire rotations. In many cases, a dealer will also accept a buyer’s old car on trade in – with used vehicle prices so high, that can be a big help.

Dealers can be aggressive in their sales techniques and have a tendency to add extra services at high prices. It is possible to etch a VIN (vehicle identification number) on the windshield. This can help deter theft, and can lower your insurance rate. But dealers may charge you more than $300. A $25 kit can allow consumers to do this work themselves. Montoya stated that it is a good idea to inquire about dealer-installed options and markups in order not to pay excessive fees. Although it’s a seller market, dealers will not always waive the cost of any additional fees, buyers can still take their business to another place.

A no-haggle dealer is another option, such as CarMax and Vroom. Although these companies may be more expensive than traditional dealers, they are generally well-received by consumers. They promise stress-free shopping, a guaranteed price and money-back guarantees. In most cases, each will deliver a brand new vehicle right to your doorstep. CarMax offers locations in person where customers can view cars, which is different from the other companies.

You don’t necessarily have to deal directly with dealers. Buying from a private seller is usually cheaper – there’s less overhead to deal with and little chance for any inflated add-on costs. Privately buying can make it easier for those who are comfortable handling paperwork and arranging financing.