Top 10 Things to Know Before Buying a Car in 2014

If you're thinking about buying a car in 2014, start planning and budgeting now. Car buying is costly-- typically the second most expensive purchase that most Americans make after their homes. Toavoid making a bad decision, follow these 10 tips for car buying in 2014.

Having your eye on a specific car is no help if you can't afford it. Allocating no more than 20 percentof your monthly household income for all the cars in your household is a good rule of thumb for carbuying. This figure should include not only the monthly car loan payment, but all the costs to operatethem, including gasoline costs and car insurance. Use Bankrate's home budget calculator to help youdetermine your monthly bills and necessary savings.

Used cars have been in high demand for several years now, making prices higher overall, whilethere is a wider array than ever of inexpensive new cars.

As a result, you may want to consider new and used cars that fit within your budget. There aretrade-offs with each. Buying used means you can get a more expensive car for your money, but thetrade-offs include not knowing the car's history, a shorter warranty period during your ownershipand higher interest rates.

Buying a new car means you'll get less car features for the same money, but you get the benefit ofthe full warranty as well as often free maintenance and roadside assistance, not to mention lowerinterest rates.

Take that list of cars you've noticed while driving around town or at your local auto show and startresearching them online. Visit the automaker websites and independent automotive information sitesto assess the car's features that are important to you and get an idea of inventory available in yourarea.

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Don't forget to note the manufacturers' suggested retail prices and invoice prices when car buying.Choose cars that are at least 5 percent less than your monthly budget to give yourself some room tocover costs such as fuel, insurance, repairs and maintenance. Create a traditional paper orelectronic file for your research, but don't rush off to the dealership for a test drive yet.

Once you have a handful of cars in mind, see if you can afford Household Budget them by estimatingthe ownership costs for each. An independent auto information website like Edmunds.com will helpyou with cost of ownership data for your area, but remember that these numbers will varydepending on your personal situation. Use these numbers to get the best calculation, but do yourown calculation for gas based on the number of miles you drive annually and for insurance by callingyour car insurance agent to get a quote for your household. Be prepared to tell the agent the exactcar, including model, engine and sometimes certain options to get an accurate quote.

While you may be drawn to a certain car or brand because of an ad for a low interest rate, it's of nouse unless you qualify, and only about 10 percent of car buyers qualify for the zero-percent and low-interest-rate deals automakers offer. Even then, you may be better off financially by taking the cashrebate offered and getting financing elsewhere. Don't visit a dealership until you've researched thebest interest rate you can get. Use Bankrate's rate search tool to see current interest rates and alsocheck with local lenders, including credit unions, which are 1 percent to 2 percent lower on averagethan conventional banks.

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There are now many community credit unions open to anyone living in their area, eliminating theneed to work at a certain company or in a specific industry to join. You should consider theseinstitutions when car buying. Use CULookup.com to find a credit union you can join. Once you'vedetermined your best interest rate, use the car rebate vs. low-interest calculator to determine whichone is the better deal.

Don't let your eagerness to test drive the cars that interest you find you at the dealership too soon.Dealers don't just want to sell you a car. They want to get you to sign a car loan, too. Dealerstypically receive a set fee or a commission on the car loans that they coordinate, regardless ofwhether that loan is from the manufacturer or a local lender they work with. Also, use caution if that

offer seems too good to be true based on your credit or other loan approvals you've received.Dealers will sometimes indicate they can get you a great rate to get you to sign a contract, only togloss over the section that says the car loan rate is contingent on the loan approval.

Your car research should have included the invoice price for new cars or wholesale price for usedcars, as well as the manufacturer's suggested retail price for new cars or the dealer's asking pricefor used cars. While invoice pricing on third-party information sites isn't 100 percent accurate, it is agood indicator of what the dealer paid for the car. And, it's the best place to start your negotiation.Aim to reach an agreement on the sale price that is close to that number before any applicablediscounts are applied. But, keep in mind that the dealer needs to make at least a few hundred dollarsprofit to cover the costs of running the dealership.

You've probably seen automakers touting "cash-back" deals in advertisements, and these incentivesshould be factored into the price you pay. In addition, many automakers also offer discounts basedon the person that is buying the car as well, such as students, members of the military and evenmembers of certain credit unions. These discounts can be combined with each other as well as withthe cash-back rebates on the model. In addition, manufacturers sometimes offer dealers $1,000 ormore as an incentive to sell cars that make up an unusually larger inventory. Use a vehicleinformation source like Kelley Blue Book or Edmunds.com to see what incentives are being offeredto dealers on the models that you are considering and then ask the dealer to share that cashincentive with you by further discounting the price.

When you have done your research and are ready to visit dealerships, call and ask to make anappointment for a test drive with the Internet or fleet manager. That way, if you decide you areready to buy, you will be working with someone who is less likely to strong-arm you into a deal.When you do start to discuss price, keep in mind all the discounts you researched and forget abouttrading in your car as part of the deal for the moment.

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It's easier to get the best price for each if you negotiate the sale price of your new car and the trade-in value of your old car separately. Make sure you do your research about your current car's valueonline in advance so you know whether you are being offered a fair price. Once you've reached anagreement, be prepared to say no to all the extras you may be offered. Instead, do the research athome for whatever it is that interests you and contact the dealership at a later date to negotiate afair price for that item.

To get the most bang for your buck, you'll want to keep your car for five years or longer, so take athorough test drive to make sure you'll be happy for the long term. Take extra time with the carparked to adjust the seats and experiment with the controls and the car's other features. Make sureall of your typical passengers and cargo fit well and the passengers are comfortable -- even if thatmeans spending some time installing a child safety seat or putting your golf clubs in the trunk whileyou're in the dealer's lot. Finally, think about your life five years from now and try to imagine if thiscar will suit your needs then in terms of people and cargo.

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This work is the opinion of the columnist and in no way reflects the opinion of ABC News.