How Car Financing Works

Loan Shopping

­The first place to start is with your own bank. Always check out their rates and over­all loan costs. You already have a relationship there, and you may get the best deal as a result of that relationship.

Credit unions are also a good place to shop for loans. Credit unions usually have lower operating costs and can offer lower interest rates as a result. You may have to be a member, however.

Both banks and credit unions will be happy to go over the details of the loan, give you an idea of the price you can afford, as well as tell you whether or not the price you've been quoted is a good one. Take the information they give you to the dealerships when you're shopping so you have it to compare to the dealership's financing offer.

Also keep in mind that, if you're a homeowner, your best bet may be to get a home equity loan and buy your car with cash. You'll be able to deduct some of the interest you pay and may also get a better rate than you could on an auto loan. And no matter what, be sure to check online banking sources. Reputable online lenders can often save you tons of money on your overall car purchase.

Remember, while there can be high pressure and some scams to watch out for when you finance through the dealership, that doesn't mean you can never get a good deal there. Sometimes you can. You just have to be alert to what they're really telling you (or not telling you) and make sure you're getting the deal you think you're getting. If they can beat the best financing deal you can get elsewhere, then go for it.

Go to the next page for a "Cheat Sheet" of the most important things to keep in mind when financing a car.