New cars these days have better safety features and more tech gizmos than models from a decade ago. And let's face it: Trading in a beat-up clunker with grimy seats is an enticing idea.

But many Americans make big mistakes in buying cars. Take new car purchases with a trade-in. A third of buyers roll over an average of $5,000 in debt from their last car into their new loan. They're paying for a car they don't drive anymore. Ouch! That is not a winning personal finance strategy.

But don't worry — NPR's Life Kit is here to help. Here's how to buy a car without getting over your head in debt or paying more than you have to.

A car is an important investment that’ll require hundreds and thousands of dollars from your pocket. Although expensive, more and more people are still buying cars as this purchase can provide many benefits, such as flexibility, convenience, independence, and personal mobility.

A car is a cost-effective investment, but with the number of models available today, choosing one can be tough. Should you buy the latest model? Or, should you prioritize looking for a cheap model? Coming up with the answer to these questions can be difficult, especially if you haven’t bought a car in the past. Thus, it’s common for first-time buyers to be overwhelmed with the many options.

For you to end up owning the car that’s right for you, make sure to look for the following when buying:

Purpose and Features

One of the biggest mistakes first-time car buyers make is to immediately visit a dealership after they’ve come up with a sufficient amount of money for the purchase. This is because buying a car is going to be an exciting experience, which is why a lot of people rush to visit dealerships. If you want to buy the perfect car, you shouldn’t do the same.
The market is filled with countless cars of different makes and models. Going to dealerships without having any idea what you’re going to buy will only waste your time and money. Knowing what your needs are is the first step when buying a car. Before heading out to a dealership, you should assess your lifestyle and what features are you looking for in a car.
Are you going to buy a car for the entire family or is the car solely for your use? Do you want a car with a spacious interior? Or one with a powerful engine? Coming up with answers to these questions will help you find a car that suits your needs.
If you're buying a car at a dealership, focus on one thing at a time. And don't tell the salespeople too much. Remember — this is a kind of game. And if you're playing cards, you don't hold them up and say, "Hey, everybody, look — I have a pair of queens," right?
So at the dealership, Reed and Van Alst both say, the first step is to start with the price of the vehicle you are buying. The salesperson at the dealership will often want to know if you're planning to trade in another car and whether you're also looking to get a loan through the dealership. Reed says don't answer those questions! That makes the game too complicated, and you're playing against pros. If you negotiate a really good purchase price on the car, they might jack up the interest rate to make extra money on you that way or lowball you on your trade-in. They can juggle all those factors in their head at once. You don't want to. Keep it simple. One thing at a time.
Once you settle on a price, then you can talk about a trade-in if you have one. But Reed and Van Alst say to do your homework there too. A little research online can tell you what your trade is worth in ballpark terms.  On Autotrader, you can also see what people in your area are asking for your car model.
So he and Van Alst say don't be afraid to walk away or buy the car at a good price without the trade-in if you feel the dealership is lowballing you on your old car. You have plenty of other good options these days.

Cost and Loan

Money is always an important factor when buying a car. Sure, a car can make your day-to-day routine easier, but this doesn’t mean that you should spend all of your life’s savings on buying one. When buying a car, it’s important to come up with a budget and have the discipline to stick to it. Buying a car that’s way beyond your budget can result in debt and financial stress in the future.

Unless you’re going to pay your car in cash, you should only apply for a car loan that’ll require a monthly payment of 30% of your monthly gross income. Spending this amount for your car every month still enables you to afford your daily necessities and keep stress at bay. If possible, choose a loan with the shortest pay period possible. This will help lessen the interest rate of the loan, allowing you to save money in the long run. Keep in mind that the longer your loan payment period is, the higher interest rates will be.

"The single best advice I can give to people is to get preapproved for a car loan from your bank, a credit union or an online lender," says Philip Reed. He's the autos editor at the personal finance site NerdWallet. He also worked undercover at an auto dealership to learn the secrets of the business when he worked for the car-buying site example. com. So Reed is going to pull back the curtain on the car-buying game.

For one thing, he says, getting a loan from a lender outside the car dealership prompts buyers to think about a crucial question. "How many cars can I afford? You want to do that before a salesperson has you falling in love with the limited model with the sunroof and leather seats. "

Reed says getting preapproved also reveals any problems with your credit. So before you start car shopping, you might want to build up your credit score or get erroneous information off your credit report.

And shop around for the best rate. "People are being charged more for interest rates than they should be based upon their creditworthiness," says John Van Alst, a lawyer with the National Consumer Law Center.

Van Alst says many people don't realize it, but the dealership is allowed to jack up the rate it offers you above what you qualify for. So with your credit score, "you might qualify for an interest rate of 6%," says Van Alst. But, he says, the dealership might not tell you that and offer you a 9% rate. If you take that bad deal, you could pay thousands of dollars more in interest. Van Alst says the dealership and its finance company, "they'll split that extra money."

So Reed says having that preapproval can be a valuable card to have in your hand in the car-buying game. It can help you negotiate a better rate. "The preapproval will act as a bargaining chip," he says. "If you're preapproved at 4.5%, the dealer says, 'Hey, you know, I can get you 3.5. Would you be interested?' And it's a good idea to take it, but make sure all of the terms, meaning the down payment and the length of the loan, remain the same."

One word of caution about lenders: Van Alst says there are plenty of shady lending outfits operating online. Reed says it's a good idea to go with a mainstream bank, credit union, or another lender whose name you recognize.

Better and keep it simple at the dealership 

After you’ve determined the kind of car you want to buy and the appropriate budget for the purchase, take some time to shop around and visit different dealerships. As mentioned, avoid buying a car from the first dealership you come across. This is because, often, you can still find cheaper and better deals.

Aside from visiting dealerships in your area, consider looking in dealerships outside of your city or region. Ideally, you should compare at least three dealerships that sell your ideal car. This will allow you to determine which dealership offers the best prices and deals.

If you're buying a car at a dealership, focus on one thing at a time. And don't tell the salespeople too much. Remember — this is a kind of game. And if you're playing cards, you don't hold them up and say, "Hey, everybody, look — I have a pair of queens," right?

So at the dealership, Reed and Van Alst both say, the first step is to start with the price of the vehicle you are buying. The salesperson at the dealership will often want to know if you're planning to trade in another car and whether you're also looking to get a loan through the dealership. Reed says don't answer those questions! That makes the game too complicated, and you're playing against pros. If you negotiate a really good purchase price on the car, they might jack up the interest rate to make extra money on you that way or lowball you on your trade-in. They can juggle all those factors in their head at once. You don't want to. Keep it simple. One thing at a time.

Once you settle on a price, then you can talk about a trade-in if you have one. But Reed and Van Alst say to do your homework there too. A little research online can tell you what your trade is worth in ballpark terms. Reed suggests looking at the free pricing guides at Edmunds.com, Kelley Blue Book, and NADA. On Autotrader, you can also see what people in your area are asking for your car model. And he says, "You can get an actual offer from Carvana.com and also by taking the car to a CarMax, where they will write you a check on the spot."

So he and Van Alst say don't be afraid to walk away or buy the car at a good price without the trade-in if you feel the dealership is lowballing you on your old car. You have plenty of other good options these days.

Driving Compatibility 

People will always have different opinions about certain topics or issues. In this case, the perfect car for your friend might not be the perfect car for you. The diversity of people is the reason why they would often leave different comments over the same year, make, and model. For you to manage your expectations and assess if a certain car model is suitable for your needs, don’t solely rely on the information you get from other people.

Instead, make sure that you take the car for a test drive before buying it. Test driving a car is an important step in the car buying process since this will allow you to personally assess the features of the car you’re eyeing to buy. Also, your experience as you’re driving the car can influence your decision on whether you should buy it or not.

Beware longer-terms six or seven-year car loans

A third of new car loans are now longer than six years. And that's "a really dangerous trend," says Reed. We have a whole story about why that's the case. But in short, a seven-year loan will mean lower monthly payments than a five-year loan. But it will also mean paying a lot more money in interest.

Reed says seven-year loans often have higher interest rates than five-year loans. And like most loans, the interest is front-loaded — you're paying more interest compared with the principal in the first years. "Most people don't even realize this, and they don't know why it's dangerous," says Reed.

See the graphs widely

Reed says that if you want to sell your car — you decide you can't afford it, or maybe you have another kid and need a minivan instead — with a seven-year loan you are much more likely to be stuck still owing more than the car is worth. So he says, "It puts you in a very vulnerable financial situation."
A better way to go, Reed says, is a five-year loan for a new car, and "with a used car you should finance it for only three years, which is 36 months." One reason that makes sense, he says, is that if your used car breaks down and isn't worth fixing — say the transmission goes — you're more likely to have paid off the loan by that time.
Reed says a five-year loan makes sense for new cars because "that's been the traditional way — it's kind of a sweet spot. The payments aren't too high. You know the car will still be in good condition. There will still be value in the car at the end of the five years."
Also, Van Alst and Reed say to make sure dealers don't slip in extras or change the loan terms without you realizing it. Read carefully what you're signing.
Reed says a colleague at NerdWallet bought a minivan recently and "when she got home, she looked at the contract." She had asked for a five-year loan but said the dealership instead stuck her with a seven-year loan. "And they included a factory warranty which she didn't request and she didn't want," Reed says she was able to cancel the entire contract, remove the extended warranty and get a rebate on it.
"But the point of it is," he says, "I mean, here's somebody who is very financially savvy, and yet they were able to do this to her. And it's not an uncommon scenario for people to think that they've got a good deal, but then when they go home and look at the contract, they find out what's been done to them."

If we miss anything. Comment below!