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The best way to buy a car is to pay cash. Financing a car is usually a means to buy more car than you can actually afford.

With that disclaimer, I know the vast majority of people won’t pay cash for their cars. It takes time and discipline to save up the money, you have to buy less car than you could if you got a loan, and you have to wait.

If you are dead set on financing a vehicle anyway, let me encourage you to make as much of a down payment as you can afford.

There are at least three good reasons to make a down payment:

The first is called being upside-down or buried in your car. This just means you owe more than your car is worth. If you put money down, you put yourself in an equity position that makes it possible to sell or trade-in your vehicle at any time. If you lose your job and realize you don’t really need that Lexus, you can sell it to Carmax right now for more than you owe because you put money down.

Another reason to put money down is that banks like to see cash. If your credit has a ding or two, the bank is a lot more likely to give you a loan with more competitive terms if you show you are committed. The risk of you not making a $350 car payment when you put $5,000 cash down is very low.

Finally, dealers like cash. If you want to wheel and deal to get the best price possible but you have no money in the bank, you have one less negotiating tool going for you. You are at the mercy of the dealer and the bank.

Dealers have to do extra work and pay extra fees for customers who are higher risk. Depending on the bank, simply not having money down could be enough to put you in high risk territory. The dealer is thinking of the costs of getting your loan done and paying the fees on top of the minimum profit he has to sell the car for to make money. If you come to the table with a large down payment, you can quickly change the dealer’s perspective.

Cash is still king. For the reasons above and others, let me encourage you to save up a down payment for your next car purchase. You’ll be more secure in your car, you’ll get better terms from the bank, and you’ll get a better deal at the dealership. Why wouldn’t you put money down?

Akin to searching for the pot of gold at the end of the rainbow, there is that elusive “incredible car deal.”

Whether its spending untold hours searching online, facing the dreaded horrors of driving to multiple car dealerships on Saturday, or perhaps braving the dark corridors of Craigslist, we love to search for a bargain, wherever it may hide.

Are there things you can do to ensure you pay thousands less than everyone else on every car you buy for life? Maybe. But are you willing to take the risks?

Bargain hunting can be a gamble, causing the car buyer to take unnecessary risks that may result in more trouble and expense than its worth. If they had just set their mind on a good deal for a great car instead of the life-altering-best-deal-in-the-history-of-car-buying kind of deal, they may have saved themselves time, headache, and even lots of money.

Let me give you an example. Bob has decided he wants a 2008 Honda Accord with good miles. But Bob doesn’t think of himself as your average, run-of-the-mill car buyer. No, he’s a bargain hunter.

Bob scours the internet. He passes up hundreds, if not thousands, of good buys on a car that fits his needs, searching high and low for that mind-blowing bargain.

Finally, Bob finds it. He finds a beautiful, 2008 Honda Accord for thousands below Blue Book right on his hometown’s Craigslist page. He pulls a Carfax. He double, triple, and quadruple checks the listing. He contacts the seller for more pictures. He covers all of his bases, drives the car, and gets the loan from the bank. His trip to go pick up his beautiful new car from the private seller feels more like a victory march than a car purchase. What a deal!

What Bob doesn’t know is that at least a dozen problems he may not even anticipate could occur at this point. Did the person selling the car even own the car or did it belong to their x-girlfriend? Does the car have a major accident, flood damage, or stolen vehicle report that didn’t show up on Carfax? The title matches the VIN in the window, but does it match the rest of the car? When Bob discovers these issues, can he find the seller? Is the phone number disconnected? Who does he call?And on, and on, and on…

Unfortunately, I’ve seen many, many people get burned bargain hunting. I’m not immune, I’ve been burned many times myself. And yet, we fall for “the bargain” again and again. I suggest that when it comes to cars, it’s not worth it.

When you are online, and you see a car for sale thousands of dollars below comparable cars, your first question should be, “What’s wrong with it?” Believe me when I tell you, it’s exceedingly rare for people to sell their perfect-condition cars for thousands less than they are worth. The likelihood of something being wrong with the car goes through the roof and you could end up spending thousands fixing a seriously flawed car.

Instead, I suggest following the steps I lay out on askthecarpro.com to ensure you get a great car at a fair price. What is a bargain after all? In my opinion, a bargain is a guaranteed car that fits your needs, fully inspected, at a good price relative to Blue Book value. If you find one, buy it. Stop looking for the pot of gold at the end of the rainbow.

The vast majority of car buying mistakes are made before buyers ever set foot in a dealership. By the time you go to a dealership, you should have already made the most important and difficult decisions you’ll need to make.

The only way to accomplish this is to do your research before hand.

Financial Research

Most of us make buying decisions based in large part upon our financial situation and philosophy. If you are a cash buyer and have $10,000 to spend, then you need to buy a car for about $9,000 plus taxes and fees.

If you are financing and you have a budget of $350/month for car payments, then you can use a car loan calculator to estimate what your price range will be at various rates and down payments. You’ll need to be realistic about your financing options, based on your credit score.

Pricing Research

Now that you know what your car budget is, you need to figure out which cars are in your price range. Are you looking for a car, suv, or truck? What mileage range should you expect?

It’s easy to get unrealistic at this point. Sure you want a 2009 BMW M3 for $10,000 – but you won’t find any. Figure out what you want, then go to a site like KBB.com and look at the book value. You can expect to pay somewhere between wholesale and retail book.

A vehicle with higher demand will be closer to or above retail whereas more common vehicles with lower demand can sometimes be had for at or below wholesale. At this point, you should have a really good idea of your budget and which vehicles would fit inside your budget.

Quality and Reliability Research

Based on your list of cars that realistically fit in your budget, the next step is figuring out the quality and reliability ratings of these vehicles. There are lots of good sources for this information, but the best start is to Google the type of car you are looking for and just start reading. Consumer Reports and Edmunds are two good sources as well.

You may like the way a particular car looks, but realize the reliability is poor. You may be able to sacrifice reliability ratings to get a car in your price range with lower miles. At least you get to think about these decisions ahead of time.

Research, Research, Research

As we consider how to buy a car, the most important step is the first: research. An educated buyer will have a better, more enjoyable car buying experience and will make fewer mistakes than an uneducated buyer. Take the time to do your car buying homework. You’ll be glad you did.

A four-square is a negotiating tactic dealers use in order to set you up for a battle. While it is an old-school tactic that is going away, a surprising number of dealers still use it. It’s in your best interest not to play this game. I’ll show you why.

Typically, a salesperson will draw a big line through the paper both vertically and horizontally. Then, in the four boxes, they’ll write payment, down payment, price, and trade.

After you have told the salesperson what you would like to see in each of the four squares, they’ll take the paper back to a sales manager or closer. The closer will then cross out your ideal numbers and write in ridiculously high numbers and try to get you to commit.

The initial pass from the closer is meant to shock you in order to get you to come off of your low numbers. They call this “peeling you off the ceiling.”

The sad thing is, these aren’t actual numbers. No bank has approved these terms at this point and the dealer isn’t even sure he can get you a loan if you were to commit to these high numbers. The goal is strictly to get you to give up what you originally hoped for.

You’ll find that, depending on the closer, every dollar will be a grind. You are trying to drop the payment $100. He’ll drop it $5. It’s a brutal battle.

Why does the dealer do this? Because after you’ve committed to a set of numbers, the finance manager has to get your loan purchased with a bank. The more room the closer allows the finance manager in your numbers, the more money the dealer can make.

For example, if you commit to a $400 payment when the vehicle can easily be purchased with a $350 payment, the dealer can raise your payment by adding any number of products or fees onto your loan. If the dealer gets you to commit to $400 a month and the bank will only approve $350, the dealer looks like a hero.

Don’t play this game.

As a rule, you are better off not negotiating at all. If you’ve done your research and are realistic about the value of the car you want to buy, make a reasonable offer. Tell the dealer what you want to pay, what you want for your trade, and that you already have financing arranged at your bank or credit union.

If the dealer says no, give him your phone number or e-mail and tell him to let you know what he can do. Be courteous but firm.

Making unreasonable offers will inevitably land you in the negotiating seat, where you don’t want to be. Many times, people will complain about the long negotiations in a vehicle purchase. What they don’t tell you is that they wanted to pay $10,000 for a car that was worth $15,000. Doing research and being realistic will help you to avoid the negotiating chair and you’ll still end up getting a great deal with less heartache.

Of course, this also assumes you have good credit and are not upside-down in your trade. In these situations, you will need to sit down with a dealer and talk through your purchase. But if they pull out the four-square, walk away.

When I train dealers, I have another name for the four square: picking a fight. If somebody wants to fight you, take your Mom’s advice: walk away.

Buying a car at an auction can be a great way to get a deal. But be careful! You can get burned.

Whenever there is an opportunity for a deal, there is an equal and opposite opportunity for getting into trouble.

Let me give you 3 Cons of Buying a Car at an Auction and give you some tips for staying out of trouble.

1. You Didn’t Mean to Bid? Too Bad.

At an auction, bidding is legally binding. One time, while bidding on a car, I meant to make the signal for a six (thumb in the air) but made the signal for a seven instead (crooked pointer finger).

I paid a thousand extra for that tan Chevy Blazer (yes, I still remember) because of a dumb mistake. Could I beg and plead or yell and scream? I could, but it wouldn’t help. I bought it.

How do you prevent mistakes like this? Glad you asked. That brings me to….

2. Auctions Prey on Your Emotions

Excitement, intensity, nervousness, competitiveness, pride – they are all there at an auction. The entire auction system is set up to get you excited, in a hurry, and primed for mistakes.

At car auctions, you’ll usually have an auctioneer up on the block and another guy, called a ring-man, on the floor with you. Both of them are fast talking, loud, and intense. Having the highest bid is called “winning” and getting outbid is called “losing.” All of these factors, and many others, are meant to contribute to the hype.

To avoid making mistakes, you need to avoid getting caught up in the emotion. Detach yourself from the situation and become an observer. You can control your emotions or your emotions, and the auction, will control you.

3. Hidden Fees and Fine Print

When you sign an auction agreement – read it. The difference between auctions can be significant.

If you buy a car and it has a bad motor, what recourse do you have? What about the 4-wheel drive system? The transmission? This will usually be spelled out in the agreement.

You’ll also find that auctions have a funny way of charging you fees on top of whatever your bid is. It’s tough, but you need to keep a number in your head that you are actually buying the car for.

For example, if the fees are an average of $250 and you are bidding $5,000, you need to remember you are actually bidding $5,250.

Auctions are fun and can be a great way to find a deal. Just remember these words of caution and hopefully you won’t get burned. Happy Bidding!