Know your credit score. Know the value of your trade-in. And knowing how to say no.

Armed with this knowledge and a willingness to negotiate, I recently bought a used car and saved thousands of dollars by asking for better terms and turning down unnecessary maintenance plans.

If you’re in the market for a used car, here’s what you need to know to get the best deal possible.

The used car market is hot right now

One would speculate that record unemployment, travel restrictions, and the adoption of work-from-home policies would also lead to lower car sales, as fewer people drive these days.

But the opposite was true.

Between car rental companies liquidating assets and lucrative financial incentives made possible by record interest rates, there has been a huge increase in demand and prices for used cars.

Nevertheless, I recently went looking for a deal and bought a car for the first time since 2009. It was finally time to turn my 14 year old family’s vehicle into a more attractive 2 year old model. More reliable. Some aspects of my experience were the same as 11 years ago and some were very different.

Bargaining is off limits

The last time I bought a car I was well prepared with offers to lower the sticker price and the seller was willing to negotiate with me. But this time, there was little room to haggle with the saleswoman. She knew the car was in good shape, in great demand, and that if I didn’t buy it someone else would. She even explained to me well in advance that the internet price was inflexible and already reduced.

This does not mean that there are no opportunities to save.

If you trade in a vehicle, focus on the maximum value of that trade-in. You shouldn’t just be researching the approximate cost of the vehicle you are purchasing; you should also research what the vehicle you are trading is selling for in the market. The more you can get for the vehicle you are trading in, the less you have to finance your loan or pay out of pocket for your new vehicle.

To find the best estimate of the current value of your car, check out the Kelley Blue Book, the most cited used car reviewer.

If you are not trading in a vehicle, it is best to have backup plans on the model and year of the car you are looking to purchase. You can expect to find a better deal on vehicles with higher mileage, minor deficiencies, or older models. You can find your best deals on previously leased vehicles that are at least three years old with relatively low mileage.

Know your credit score and the rates you’re entitled to

Car dealers don’t just make money selling cars. They also make money by financing vehicles for buyers who don’t have the money to buy the car. If you are looking to finance a car through the dealership, you need to understand your credit score so that you know whether or not they are offering you competitive rates.

In my experience, the dealership offered me three potential car payments without disclosing the interest rate and before performing a credit check. It wasn’t until I asked that they disclose the rate that I learned it was between 6% and 7%.

I have one high credit rating of 845, so these rates are much too high. After declining and asking for a credit check, they then came up with significantly lower payments and rates as low as 2.39% which was much more in line with an applicant like me. Over the life of the loan, the difference between the dealer’s original offer and the rates I was actually eligible for would have saved me over $ 1,500 in interest payments.

I also knew what the going rates were for auto loans before I visited the parking lot. The average rate on an auto loan for a used car for someone with high credit is currently around 4.69%, according to Bankrate.com.

Know what to expect, and keep in mind that dealers often add a little cushion for themselves, making them more expensive options than direct financing through credit unions or banks.

Understand service plans and warranties

When researching your car, try to get a good idea of ​​its reliability and expected cost of ownership by looking at ratings and reviews. Make sure your annual car budget has room to pay for standard maintenance such as oil changes, tire rotations, and repairs.

This is important because dealerships may aggressively offer you service plans and extended warranties. While these plans give you an extra layer of comfort knowing your car is protected, it also means you’re paying a premium for standard maintenance that you can probably get much more affordable elsewhere. Worse yet, the premium for plans and guarantees is often built into the loan, which means it accumulates interest in addition to the amount you borrow.

Instead, you should only get these service plans if you can pay for them in cash outside of the loan agreement. To make sure this happens, just ask the CFO if you can pay for coverage separately. If they try to persuade you to include it in your loan, stick to your guns or turn off the service altogether. You can always set aside the money you would have spent on a service plan in a interest-bearing savings account. This way your money grows over time and you can withdraw as needed.

Knowing when to say no and when to say yes

Finally, after declining several offers that included maintenance plans, I opted for a 4.9% five-year financing plan, knowing that I would pay it off much faster.

As a rule of thumb, it makes sense to finance a car for up to three years. If you need to finance over a longer period of time, it indicates that you are buying more than you can afford. Finally, try to keep your total car expenses, including monthly payments, insurance, and gasoline, within 10% of your take home pay.

Knowing what you can afford and what a car dealership shouldn’t get away with is essential.

My car buying journey, in 12 steps:

1. The saleswoman was adamant about the price. It’s like that.
2. The dealer let me down on my trade-in. According to Kelley Blue Book, my old car was worth $ 1,750, but the dealership was offering $ 1,000. I countered at $ 1,700, and they countered at $ 1,250.
3. To finance the purchase, they offered an APR of between 6 and 7%.
4. I told them it was ridiculous – and they came back with 4.9%.
5. I asked them to offset the low trade offer with a $ 500 credit. They finally agreed to meet me at $ 1,750. Check.
6. Surprise, surprise… they offered me an APR of 4.9% but only if I included a maintenance plan and a service contract. I refused. My credit score is 845… doing better.
7. We went back and forth on four, five and six year funding plans. I focused on payments, NOT rates.
8. Financial directors exchanged. I exhausted the other guy so they sent “the brother” into the room.
9. A new guy offered me an APR of 2.39%, but only if I had a maintenance plan. I refused… again.
10. We agreed on a five-year 4.9% financing plan, which I will probably pay off in 12 months. Above.
11. The phone number and address were incorrect on several documents. It took 30 more minutes to reprint them all.
12. Final agreement. A simple loan, no bells, no whistles, no plans. $ 10,000 less.