5 rules for buying that first new car

Talk to your insurance agent

Finding out that your insurance payment can be larger than your car payment is quite a shock -- and it happens. Generally, the kinds of cars young people like are the ones insurers don't. Think four doors and no turbocharger. And even if the rates aren't outrageous, consider how expensive a car might be to fix. Those rear-mounted spare tires on sport-utility vehicles look butch, but they tend to take the brunt of parking-lot impacts rather than the bumper, crushing into the rear hatch and turning a scrape into a major repair.

If you're financing, you won't leave the dealership without insurance coverage. Better to arrange it first, with no surprises, than to be forced to take what's available at 5:00 on a Saturday afternoon.

Have a real down payment

You need a cash down payment of least 20%, excluding any rebates; otherwise, you're "upside down" from Day One. Here's why:

Rebates are manufacturers' way of cutting the price without cutting the sticker. A new car with an MSRP of $24,000 and a rebate of $4,000 is in fact worth $20,000 on the pitiless open market. Using only your rebate effectively means you have no equity in the car -- and once the key is turned and the depreciation clock starts ticking, you're in over your head.

Many manufacturers offer additional small rebates for first-time buyers and recent college graduates. Those count, because not everybody gets them.

Say no to the finance guy

You'll have to visit, just to sign the paperwork. It's his job to sell you a few extras along the way. Say, "Just the car, please." No Scotchgard (you can buy a can for five bucks at Wal-Mart), no undercoating (you won't keep this baby long enough for it to rust), no credit life insurance (you have no spouse and kids to protect).

Say no to an extended warranty. Standard warranties typically run three years -- and lucky you, warranties on cheaper cars are getting longer. You have until the standard warranty expires to opt for the pricey extended warranties. You should know by then whether or not you'll need one.

Don't pay for window etching (an anti-theft measure you can have done far more cheaply elsewhere) or a dealer-added alarm (ditto). Don't pay a separate charge for dealer prep.

The finance officer will also explain the fees tacked onto the price of the car. Expect to pay sales tax, registration and licensing fees, a destination charge and a small documentation fee, for filing all the paperwork. Don't pay an additional dealer markup fee (the "second sticker" you sometimes see on the car's window). Don't pay administration, delivery and handling, flooring or promotions fees.

These wallet-gouging fees and extras may be printed on the buyer's order form, with the amounts handily filled in, but that doesn't make them mandatory.

You're probably itching by then to get behind the wheel, but make sure you carefully read what's in front of you. If you're financing through the dealer, check the interest rate and number of payments to make sure they match your expectations. Make sure your down payment is recorded and any rebates reflected.

Updated Nov. 18, 2009

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