(Article from Bankrate.com, December 2005)

You're in the market for a new car, but you're more than a little apprehensive. Your last excursion into a new-car showroom was a nightmare and the horror stories you've heard are even worse. How do you make sure you don't get ripped off? By learning their tactics and preparing yourself to deal with them.

Three simple rules can assure success: Do your homework, don't become a hostage and be prepared to walk away.

This chapter will provide you with an overview of how to handle a trip to a dealer showroom. Not all salesmen are dishonest and not all dealers encourage or even allow deception in their sales force. But it happens too often for anyone to go in unprepared for the worst. In following chapters, we'll fill you in on the common strategies and techniques -- some deceitful, others merely clever -- dealers use to convince you to buy from them.

Here's what to do:

Once you have a good idea of the type of vehicle you want, get yourself a Ph.D. in the subject. Web sites such as Autobytel, CarsDirect, Edmunds, Kelley Blue Book, Cars and InvoiceDealers have tons of information on vehicle features and options, what the dealers really pay, current factory rebates, incentives and holdbacks.

Don't wait until your old rust bucket is dying. It can take weeks to choose a car, get your financing, haggle and finalize a deal, so don't be forced into hasty decisions.

Put together a folder of information on the cars you like and their prices. Take it with you to the dealer and make sure they see it. If your spouse is with you, agree beforehand: No impulse buys and no discussion of exactly what you are prepared to pay, even if you're alone in a sales office -- it might be bugged.

When you tell the salesman what you're looking for, inform him that you know what the car cost the dealer. You're ready to pay a fair profit to him, but you are not going to hand over several thousand extra dollars. This is critical. It will stop most of the nonsense that all too often follows.

You can also head him off at the pass by letting him know you are not willing to spend hours playing games. Some sales people will go to great lengths to tie up your day so that you're tired and ready to surrender. Plus, it stops you from going to a rival dealer for a comparison price.

Make the most of the test drive. Don't just cruise around a few blocks and play the radio. Check things like sight lines and how easy it is to reach important controls. Test acceleration onto highways and whether you feel entirely comfortable at the wheel. But when the salesman asks you for your driver's license, that "Ka-ching" you hear is the sound of a cash register, and should alert you to hold onto your checkbook.

Refuse. Instead, hand him a photocopy you've brought with you. If they have your license, you can't leave. Don't be held hostage. When you hand over the copy, write on its face, "No credit checks authorized." This will prevent the dealer from checking your financial standing, and automatically lowering your credit score about five points. Remind them that the Federal Trade Commission levies a $2,500 fine for an unauthorized check. When you leave the dealership, get the copy back.

When the conversation turns to financing, you may hear that "Ka-ching" sound again. And with good reason. Tell the salesman you'll be arranging your own financing to avoid the dealership's higher APR, but you'd like to know what extra discounts, such as college student rebates or first-time buyer incentives, you can expect. He could well come up with some good numbers.

If you're adequately prepared, you can even get dealers to give up some or all of the holdback, the hidden 1 to 3 percent of MSRP (Manufacturer's Suggested Retail Price) incentive the dealer gets (but will rarely tell you about) from the factory.

Don't discuss trade-in or early lease terminations unless you've already decided to surrender a lot of money to avoid the aggravation of selling your old car yourself -- even when they promise to pay off your loan or get you out of your current lease.

The dealer wants to "steal" your trade-in so he can resell it at more profit than he'll get on selling you a new car. Sure, he pays off your old loan, but you still owe it: He just adds it into your new loan, spreads the payments out over 60 or 72 months, and makes you think that because you're paying a little less each month, you're saving money.

Bite the bullet. Sell your old car privately, get someone else to assume the lease or stay with the thing until it's paid off. Sometimes, you simply should not be buying a new car, especially if you are already deep in debt.

Once actual negotiations begin over the price of the new car, the salesman will usually give you a figure he needs "to put you into this car today." Counter with your lowest possible offer, based on your homework and knowledge of what the dealership paid. When he gets up to discuss it with his manager, stop him right there. Let him know there's a limit on how long you'll wait, say about 10 minutes. Aren't you glad you didn't hand over your driver's license? They can't chain you to their showroom, so you're taking control of the negotiation.

This is very important: Be prepared to walk away. There are plenty of dealers with plenty of cars. You know within a few hundred dollars what you should be paying, and every minute spent discussing a figure significantly higher than that is wasted time. And don't feel you have to wait around to say goodbye. The salesman got your phone number in the first few minutes. If he wants to make a deal, he'll find you. Think of the number of hours and days you want to spend buying a car. The more time you spend hanging around one showroom, the less time you can spend at another dealer who may be far more willing to make you a good deal.

One more thing: Never leave a cash deposit. You can always dispute a credit card transaction, but once you hand over cash, refunds get much more difficult.