"It could be worth a fortune to you in the long run."--USA Today

The most difficult calls I take on my radio show involve cars. We call them "razor blade" calls, which means the situation is awfully bad. A typical call involves someone who's recently purchased a used car, sometimes for several thousand dollars, only to find it is riddled with problems. They're faced with impossible choices. The vehicle often can't be repaired properly, and the dealer won't take it back. That could mean scrapping it, absorbing an expensive loss, and trying again.

It's even worse if the buyer is making car payments on a useless vehicle. These situations are very sad, because in many cases nothing can be done to help the caller. It's simply too late.

What I hope to do is educate you so that you can avoid the most common mistakes, and at the same time buy a car more effectively, with less stress, and probably get a better deal than you ever have before.

I want to teach you the right way to buy a new car or a used car, finance that purchase, and get it fixed if something goes wrong.

Buying a New Car

There are a lot of tools available today to help you buy a car. Unfortunately, most people don't take advantage of them, because they get caught up in the emotion of buying. If money matters to you, put that emotion aside and be smart about your car purchase.

The first thing to do is to prequalify for a car loan, so you'll know how much car you can afford and what type of monthly payment you will have to budget. It also means your purchase won't collapse because you can't get financing. The best place to prequalify is at a credit union, because they're cheaper -- credit unions usually will offer car loans at 1.5 percentage points below what a bank will charge. If you're not a credit union member, check www.cuna.org, to see if there's a credit union you can join. Or try online lenders such as www.eloan.com, whose rates usually will be at least a full point below those of a traditional bank. But even if you prequalify at a bank, that's better than just walking into a dealership and trying to get financing there.

Once your financing is set up, decide what kind of car you want. One of the best times to look at cars is when a dealership is closed, so there's no salesperson there to pressure you. It may sound strange, but a shopping mall parking lot also is a good place to look at a lot of different vehicles. Just don't act like you're trying to steal someone's car.

Everyone wants a car that will run dependably and stay out of the repair shop. The best way to improve your odds of getting a trouble-free car is to check out the repair records of the models you like. Consumer Reports magazine is the best place to find repair data on cars. Each year, the magazine's April issue is devoted to car buying, and it contains detailed ratings and data on a variety of models for several model years. Consumers Union, which publishes Consumer Reports, also publishes a car-buying guide that is available year-round in bookstores. Consumer Reports is available online for a monthly fee at www.consumerreports.org.

Of course, no repair data is available on newly introduced models. I don't recommend buying a new or radically redesigned model, because if you do, you are the guinea pig for any problems the vehicle might have. After a few model years, you have a better idea if a car is well-made and worth purchasing.

Once you've narrowed your search to a couple of different models, call your insurance agent to find out how much it would cost to insure those vehicles. There may be a significant difference between your choices, even between two versions of the same model. The size of the cars' engines, for example, could be one reason for a cost difference.

Become familiar with the various versions of a car. The Honda Accord, for example, might come in DX, LX, EX, and SE versions. Each version comes with a different package of options and standard equipment. The most expensive version of the car will cost several thousand dollars more than the least expensive version. It's to your advantage to buy the least expensive version of the model that meets your needs. That's because, over time, the value of those two vehicles converges. An initial gap of $8,000 between the cheapest and most expensive versions might dwindle to $1,000 in the resale value of the two cars after a few years of ownership. If you buy the most expensive version, you pay a higher price both up front and at resale time.

I don't recommend test-driving a car at a dealership. You'll only have a short time to check out the car, and the salesperson will be right there. The best way to test-drive a car is to rent it for a day or two. Car rental companies make most of their money on business rentals, so they offer great specials on the weekends, when volume is light. I actually check out cars this way on business, since I travel so much. I've rented cars I thought I might want to buy and changed my mind after driving them for a few days. It's the ultimate test drive and it's not expensive. After all, considering that you might spend $25,000 to buy a car, spending $25 to $40 to rent it is rather inexpensive.

If you do a test drive at a dealership, a representative may ask for your driver's license. If you turn it over, make the dealership give you a signed release saying they will not pull a credit report on you. Dealerships like to check your credit while you're on a test drive, and if you visit several dealerships, the credit inquiries could damage your credit rating.

The Internet has put consumers completely in control of the car-buying process. To get the best deal, you have to have Internet access. If you're not online, find a friend who is and enlist their help, or go to a local library. It's that important. In fact, using the Internet will save you so much on your car purchase that, even if you don't have a computer or an Internet-only appliance, spending a few hundred dollars to buy one would be a bargain.

First, go to www.edmunds.com and www.kbb.com (Kelly Blue Book) and look up the actual dealer cost on the base vehicle and options you're interested in. Add the dealer cost for air conditioning, automatic transmission, whatever you want, and calculate the total dealer cost for the car. Go to both sites, because they may show slightly different figures. If they are different, use the average of the two. Any negotiating you do with the dealer should start from the dealer's cost, not the manufacturer's suggested retail price (the "sticker price"), which could be thousands of dollars more. The price you pay will depend upon the popularity of a particular model. For a car everyone seems to want, you might have to pay several thousand dollars more than the dealer cost. But for less popular or unpopular cars, you could buy the car for just a few hundred dollars above dealer cost, or even below dealer cost.

At one time, you could get an instant price quote at a number of Web sites for the model you wanted to buy, then buy the car with no negotiation. I had thought this was going to become the popular way to buy cars. But instead of more and more companies selling this way, the number has shrunk to just one, www.carsdirect.com. With this site, you enter the model, equipment, and interior and exterior color you want, and within fifteen seconds, they give you a guaranteed price quote. It's amazing. If you wish, you can then go through that process, as I have, and buy a car online. I did this at the late www.carorder.com for my mom, and was able to buy her car at $6,000 less than she had been quoted from two dealers. Maybe selling a car for $6,000 less than anyone else wasn't a good way to stay in business.

Although most of the independent shopping sites have folded, dealers have discovered that selling vehicles via the Internet can be good for them. The giant national chain AutoNation reported that it sells 10 percent of its vehicles through its Web site. Even if you don't buy on the Web, you should telephone dealers to get their best price.

If you choose to buy a car the old-fashioned way, by walking into a dealership and talking with a salesperson, be prepared for a difficult process. Some dealers still use a variety of tactics to snare you. They know you're excited about buying a new car and will use that to their advantage. One strategy they'll employ is delay. Dealers know that the longer they can keep you at the dealership, the more likely you are to buy a car. So they'll try to keep you there for several hours.

One common tactic to delay you is to make your car unavailable. When you show up at a dealership, they ask to have the used-car manager check out your current car, to evaluate its trade-in value. While you're test-driving a new car, they send somebody to look over your car and make sure you don't get it back too quickly.

In the movie National Lampoon's Vacation, Chevy Chase's character, Clark Griswold, goes to a car dealer to buy his family a new station wagon, only to receive a hideous green "truckster" car with stacked headlights. When he asks for his trade-in back, he sees that the dealer has crushed it into the size of a coffee can for the local scrap yard. So he's forced to take the horrible new car home. I hate to see anyone get ripped off, especially a guy named Clark.

One of the most despicable practices in the industry is "roofing," in which the used-car people literally throw the keys to your car onto the dealership roof, then report that they somehow can't find the keys. The purpose is to get you to drive home in the new car while they look for the keys.

I recommend that you discuss any trade-in only after you've negotiated the purchase of the new car. I'll talk more about why in the next section. But if you keep the transactions separate and stay close to your car, you won't be kept in the dealership any longer than you want to be there. The best way to protect yourself in a dealership is to be willing to walk out.