If you’re in the market for a new car, you’ll probably put in some serious research time to hunt down the best price. But if you’re planning to finance the car purchase, you’ve only done half your homework.
The average new-car loan runs over five years, according a 2004 survey by Power Information Network. Younger buyers tend to opt for longer loan terms – up to seven years – so locking in the lowest-possible interest rate will make a big difference in how much you’ll pay for those new wheels in the long run.

Dealer Financing

About half of vehicle buyers go straight to the dealer to arrange their financing. By going to the dealership for financing, the customer can take care of everything in one place…you pick out the car, visit the finance office, who in turn will shop your credit around and find you a lender,” says Rivera.

Banks/Credit Unions

Banks and credit unions, another popular option for financing, have been offering pre-approved car loans for years. Consumers who obtain a loan from their bank before they get to the dealership will know exactly how much they are qualified to borrow and at what rate – this way, no high-pressure sales tactics can push them towards a car that they can’t afford.
Tim Campbell, a teacher in Fort Collins, Colo., is most comfortable applying for loans at his credit union, where he has financed three cars.

Online Lenders

Online financial corporations such as Capital One or E-Loan are the newest option for auto loans. Savvy Internet users can apply for loans online without ever having to leave home and talk to a lender. By searching online for a loan, shoppers can also do some serious comparison shopping on sites such as Bankrate.com, which compares national and local auto loan rates.
Also, you can acquire a good bargaining chip by learning exactly what rate you ought to qualify for. First, get your credit score (eloan.com offers it free to first-time users), then go to the calculators atMyFico.com to find out what rate you should be offered for a car loan. Armed with this information, you’ll be able to negotiate more effectively for financing.

How much is a good down-payment?

Again it all depends but the more you put down the lower your payments will be. Some people put just enough down to cover the tax and tags fees listed above, because it is silly to pay interest on that stuff other people drop a healthy sum so they keep their car in budget and not have to worry about being upside-down (when you owe more than your car is worth).

Is there an advantage when buying with cash?

It really depends on the transaction, private sellers and small dealerships, that are selling relatively inexpensive cars, normally would prefer cash or a bank check. However, if you are going to drop 40k in bills (or a check) on a Mercedes it normally doesn’t do much for you. Many dealerships get a little kick-back from the banks for the loan also if you are paying in real dollars there is more paperwork involved for transactions over 10 grandthis can add a level hassle for the dealership. More often than not they prefer you get the loan. Should you tell your salesperson you are a cash buyer? Maybe. I suggest working out the deal first and being open to the loan of the rates are good enough. If not then throw down the money and drive away. Most of the dealerships I work with will give you the best price regardless if you are a cash or a loan buyer, but some places will only give you their lowest price contingent upon using their banks.

Identify and prioritize your wants

This runs a bit counter to the previous tip. The first-time purchase doesn’t need to be your be-all/end-all acquisition, but you should still pay attention to your want list, as this isn’t a process you need to repeat every 18 months. Better to stretch a bit for those things in a car that satisfy you, than to be hit over the head — and pocketbook — with buyer’s remorse before you’ve emptied the first tank of gas. If getting what you want costs $40/month more, spend it — and skip a couple Happy Hours.

Locate a convenient dealer

For most of car-selling history (we’re talking to you, Karl) the act of buying a car for the first time has run akin to getting a colonoscopy for the first time: Come in, lay down, you’re not gonna’ feel a thing. But despite our almost inherent misgivings, the salesman on the showroom is closer to a normal person than you might think. Most of the abnormal ones — we’ve heard from reliable sources — end up selling something less precious; let your parents worry about them. And while new and late-model cars have never been more reliable, they still need attention and that attention should be easy to access. When weighing a couple of choices — let’s say Mazda3, Kia Soul and Honda Civic — compare dealer locations and, if all other things are equal, showroom environments. We tend to stay away from dealerships where two-thirds of the sales staff is sitting or standing at the front entrance.

Take a test drive

With all of the online sources available for your basic research, we believe the importance of the test drive has been marginalized. Virtually nothing is more important in your decision process than how you feel behind the wheel. And so many variables come into play — seat height, wheel adjustment, steering feel, throttle tip-in, outward visibility, control layout, etc. — that you simply must spend a reasonable amount of time driving the car. And that time should be more than five minutes on someone’s idea of a stop-and-go test route. Take at least half an hour, while trying stop-and-go, freeway merging and freeway speeds. And if your sales rep — you know, the normal guy trying to make a living — doesn’t have the 30 minutes, find a time when he or she does, or take the time to find another dealership.