Know your limits. Figure out exactly what you are willing to spend and how much you can afford. Buying a used (or "pre-owned") car usually provides the best deals, and paying cash upfront is ideal.
If you can't afford to pay cash, you can finance all or part of it. "Get pre-approved for a loan before you venture into a showroom, then check out the dealer financing," Nerad said. "Sometimes, particularly with factory incentives, dealers can beat other finance offers."
But don't assume the dealership has the best rates. Check with credit unions and banks as well to see where you can get the most favorable terms. Interest rates are still near record lows. Make sure your credit is in good condition before you start shopping because your credit score will determine the rate you pay on an auto loan. To get the best deal, you need to have an excellent score (often 750 or above).
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Shop around. Most people shop with their hearts, not their heads. Don't be duped by the sales pitch. "People fall in love with a particular car and get on a cloud and will buy anything–that's really bad," said Scot Hall, who worked as a car salesman before joining Swapalease, a company that acts as a matchmaker for people who want to swap car leases.
Use Kelley Blue Book or Edmunds.com to compare prices for new or used cars. These resources will tell you what people have paid for the same type of car in your area and give you a better idea of the target range you should aim for during your negotiations.
Don't forget to shop around among dealerships, which will often use rebates and other incentives to compete with each other. You could look at the exact same car at three different places and get quoted the same price, but one dealership might offer a cash rebate.
Always negotiate. Don't be afraid to haggle. If you're not being offered the best price or the best financing rate based on your research, move on.
"Understand that you are under no pressure to buy a car and especially to buy a car from a particular dealer right now," Nerad said. "Virtually any deal you negotiate today, you'll be able to negotiate tomorrow or a week from now."