FINANCING (from Chapter 1: Research)

    The best way to buy a car is with a lump-sum of cash. However, if you don't have the money saved up in a nest or have a rich uncle to schmooze, you'll be at the bank's mercy and must borrow--like the rest of us. If such is the case, financing becomes a big part of your research. Find out up front how much car you can afford and get pre-approved with a finance company that offers a competitive Annual Percentage Rate (APR). This way you will know how much the loan will cost you, the amount of your monthly payment, and the length of term Before you go used car shopping. Finding an auto loan that fits you is like finding a car that fits you; you have to shop around. Some loan companies offer better deals than others.

The best way to finance your car is through a home equity loan. If you're a homeowner, check with your bank to see if you have enough equity to finance the amount you need for a car. The advantage in doing this allows you to deduct the interest payments at the end of the year, whereas in a conventional auto loan you can not.

    If you belong to an employee credit union, this would also be an excellent source to check for low rates. If you don't own a home or belong to a credit union, find the best rate you can through the commercial banks and get yourself set up with one. If later you decide to go the dealership route, you can check what rates the dealership has to offer to see if they can beat the company you're with. Some do offer competitive rates.

    Most banks and finance companies like to see 20% down (depending on the year of the car) on a used car loan. If you can come up with more, it is to your advantage. I recommend putting down as much as you can and financing as little as possible. It will mean lower monthly payments or a shorter term and, most importantly, less interest to pay in the long run.

    If you do decide to finance through a dealership, watch out for loans boasting no money down and/or no payments for 90 days, etc. They sound tempting, but you'll only be burying yourself deeper into debt. Dealers will get the monthly payment really low for you, but you may end up paying interest on your interest or adding an extra year of payments to your loan. This translates to more money in the dealer's and finance company's pockets and less in yours. More information on dealership financing is covered in the Dealing With Dealers chapter.