Used car buying guide

A general guideline is that your monthly car payment should not be more than 20 percent of your take-home pay. However, people shop for cars with their hearts as well as their heads, and that can be a little dangerous.

To save money, consider buying a second-tier car, from the less popular - but still reliable - manufacturers. Well-known vehicles like the Honda Accord and Toyota Camry can cost thousands more than a comparable Chevrolet Malibu or Nissan Altima, even though these are good cars. With this in mind, build a target list of three different cars that meet your needs and fall in your budget.

To see if the cars you are looking at fit into your budget, check True Market Value (TMV) pricing. Edmunds.com's TMV shows you what other people are paying for that car in your area. Also use True Cost to Own (TCO) to see what other ownership expenses you are likely to incur, including fuel economy, insurance, and maintenance.

You can filter the search by many factors including distance, mileage, price and features to find exactly the car you want. Use sites like AutoTrader.com, eBay Motors, CarGurus.com, and Craigslist. There are also many places to shop in person, such as independent used car lots, the used car section of a new car dealership, and used car superstores.

Before you contact a used-car seller, you should get a vehicle history report for the car you're interested in buying. This is an essential first step: If the report is negative, you should not go any further with this car. AutoCheck and Carfax are the two best-known sources. These reports can reveal if the vehicle has a salvage title, odometer rollback, or undisclosed accident history.

Once you find a good prospective car, call the seller before you go to see the vehicle. Establish a relationship and verify the information in the ad. Sometimes the seller will mention something that wasn't in the ad that might change your decision. Set up a test-drive appointment during daytime so you can see the car in natural lighting.

Test-driving a used car not only tells you if this is the right car for you, but also if this particular car is in good condition. Simulate your normal driving patterns - if you do a lot of highway driving, take it up to at least 65 mph. After the drive, ask to see service records. Avoid cars that have had major repairs such as transmission rebuilds, valve jobs, or engine overhauls.

If you like the way the car drives, have it inspected by a trusted mechanic before you negotiate to buy it. A pre-purchase inspection can save you thousands of dollars. A private party will usually allow this without resistance. If it is a CPO (Certified Pre-Owned) car, there is less need - but even then, a second opinion doesn't hurt.

Negotiating with a private-party seller can be quick and relaxed. Negotiating at a dealership takes longer and can be stressful. The key is knowing your walk-away number before you start - and meaning it.

At a dealership, you'll close in the Finance & Insurance (F&I) office. If buying from a private party, ensure payment is final and the seller properly transfers title and registration. Have insurance in place before you drive away. Review every line of the sales contract - it should list vehicle cost, doc fee, smog certificate, sales tax, and license fees. When buying private party, pay via cash or cashier's check and get the signed title before any money changes hands.