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You've decided to buy a new or used car.  But how do you go about getting the best car loan? 

Your financing options (other than paying cash or borrowing from family or friends) include dealer or manufacturer financing, online auto loans, and financing through your credit union, bank or other financial institution.  You've seen the advertisements for rebates, zero financing, no money down... but these might not be the best deal for you.  Be prepared to do some comparison shopping when it comes to getting the best auto and the best auto loan.

Keep in mind that interest rates on new cars are generally always lower than interest rates on used cars.  Financing on new cars can typically be done for a longer term than used cars, too.  You might conclude that a new car will be cheaper given the lower interest rate and longer financing term, but consult a financial calculator to make sure you're looking at more than just the monthly payment amount.  Check out auto loan calculators for assistance. 

Before you step onto that car lot, here are some things to consider: 

Check your credit 

Get your credit report by going to AnnualCreditReport.com  www.annualcreditreport.com  Just as you wouldn't go house shopping before lining up financing, don't buy a car only to figure out the financing later. 

Line up your financing

Talk to your credit union or bank about the best terms they offer for your particular circumstances.  Know how much you should be borrowing given your debt to income ratio.  Get a monthly payment quote based on your anticipated purchase.  That way, you can let the dealer try to beat your bank or credit union terms, but the key is to know those terms before you talk to the dealer.

When shopping for an auto loan, don't just look at your monthly payments.  Some dealers will quote a lower monthly payment than your credit union or bank, but be careful to watch the loan term.  If the dealer's loan is 39 months and your financial institution's loan is 36 months, their lower monthly payment is not a lower cost to you in the end.  Here's an example: 

As you can see, you will pay a lower monthly amount the longer the term of the loan, but in the end you will pay out more in total for the car.  The longer the loan, the longer it takes you to build up equity -- that is, for the car to be worth more than you owe on it. So with a long loan it will usually be some time before you can re-sell the vehicle and clear the loan.  When you owe more than the car is worth, that's called being "upside down" on your loan.  With longer loan terms, it takes you longer to reach a point where you're not "upside down" on your loan. 

Be an informed buyer

Use the internet or consumer publications to discover the dealer's cost for the car you want to buy.  Negotiate from the dealer's actual cost up, not down from the sticker or manufacturer's suggested retail price (MSRP). 

The deal you make on your new car involves three major negotiations:  price of the car, your trade-in allowance, and the financing.  Remember, everything is negotiable, and each can be a separate negotiation.  Check out www.edmunds.com for more info. 

Negotiate your best deal

Not all the numbers in your deal will be set in stone before you buy, especially if you go with dealer or manufacturer financing. The interest rate you pay can vary, and so can the down payment and other details like the value of your trade in or the length of the loan you take. You have to decide. Don't let one number dominate you. For example, a really low down payment is not by itself a guarantee of a good deal. You need to consider all the numbers together to know what sort of deal you're getting.

What about credit insurance? 

Some dealers and lenders may ask you to buy credit insurance to pay off your loan if you should die or become disabled. Before you buy credit insurance, consider the cost, and whether it’s worthwhile. Check your existing policies to avoid duplicating benefits. Credit insurance is not required by federal law. If your dealer requires you to buy credit insurance for car financing, it must be included in the cost of credit. That is, it must be reflected in the APR.

Your state Attorney General also may have requirements about credit insurance. Check with your State Insurance Commissioner or State Consumer Protection Agency.