Top Tip: Shopping around for your new car's financing could save you thousands on the cost of your loan!

The most common mistake people make when buying a new car is not thinking about their financing until they are in the dealership's sales office. At this point, if you have not done your homework, you are at the mercy of your salesman. If you are counting on a dealership to explain your best financing options to you, you will probably pay too much for your car loan. To get the best rates you have to find a loan that works for youbefore you go to the dealership. It's easy to do and we will show you how. On this page you will learn how to:

• Get the best rates and terms on your car loan.
  
• Save time and money by using Internet resources to shop for your auto loan. We review and recommend several on-line lenders where you can quickly get your loan: Capitol One Auto Finance, E-LOAN, Car Loan Center and Auto Credit Finders.
• Evaluate your credit score and determine what new car loan interest rates you may be able to qualify for.
• Improve your credit rating.
• Get financing even if your credit rating is not very good.
• Avoid deceptive dealer advertising and new car finance scams.
• Budget wisely for your new car.

Exclusive financing tip for homeowners: use the equity in your home to get very low cost car financing that is tax deductible! You can get quickly set up with a home equity loan at LowerMyBills (part of Experian) or fullspectrumlending.com (part of Countrywide)

Credit Reports / Credit Scores...

Your credit report and credit score are important because this is the only measure finance companies have to evaluate you for a loan. If your credit rating is good, then you may qualify for the best rates. If your credit rating is bad you'll have to pay higher interest rates or may even get turned down all together.

The most important part of your credit report is your credit score. This is a numeric score that determines whether you are a good candidate for a loan. If your credit score is above 680, you are considered to be a prime lending candidate and will usually qualify for the best rates. If your credit score is between 550 and 680, you are considered a sub-prime candidate and will usually qualify for financing but the interest rate you'll pay almost certainly will be higher than a prime candidate. If your score is below 550, you will have difficulty getting a loan from any prime or sub-prime lender. If you do find a lender the terms of your financing will almost certainly be very unfavorable (very high interest rate and stiff penalties for late payments.)

How can I get my credit score?

You can get your full credit report and score safely and conveniently over the Internet. It takes about 10 minutes. You'll want to get your credit report directly from the three major credit bureaus: Experian Trans Union and Equifax.

Watch Out!

Don't be fooled. There are many companies online selling credit reports. Most of these companies cannot give you the freshest version of your report. To insure that you get the most recent version of your report you want to get it directly from one of the three major credit bureaus. Experian and TransUnion (through FreeCreditProfile.com) are offering a free one bureau credit report if you try their credit monitoring service (which is FREE for the first 30 days). If you don't want to try the credit monitoring service then it is going to cost you about $10 for a one bureau report with credit score and $40 if you want a three bureau report with credit score. If you want to be really through it's a good idea to get the three bureau report because there may be information that one of the credit agencies has that another does not.

It is very important for you to know all of the information that appears on your credit report. Make sure that any credit report you get comes with your credit score. Do not apply for a new car loan until you know your credit score. It will be a waste of your time, money and could possibly damage your credit. For example, if you apply for a new car loan with a prime lender and get rejected because you have sub-prime credit, their refusal can drag your credit score down further. Or, if you think your credit is not very good, when actually it is fine, and you apply with a sub-prime lender, you may end up paying higher interest rate than necessary.

If find out that your credit rating is too low to qualify for the loan terms that you want, you may be able to do a few simple things that will improve you credit score dramatically. My good friend John recently purchased a new Honda. Before applying for his auto loan he checked out his credit report. He was shocked to find out he had a tax lien on his credit report that had been settled many years ago but was never removed. John wrote to the credit bureaus to explain the situation, and they removed the lien from his report. Once the lien was removed his credit score went up by over 120 points! Get your credit report before you go any further.

Do you have your credit report? Great let's continue.

Watch Out!

If your credit rating is fair to bad there are lenders who will take advantage of you. Most people with poor credit are more concerned about getting approved for a new car financing than the actual terms of the financing. High interest rates and stiff penalties are common with many sub-prime lenders. If you have sub-prime credit you will probably need to pay a higher interest rate on your car financing, but you don't have to get ripped off. See our section below for good places to get an new car financing if you have sub-prime credit.

How do I find the best car financing?

The key is to shop around. It does not take days to find a good loan. You should not have to spend more than an hour or two to locate your best resource, apply, and get approval. Here are the most common places to find new car loans:

• Online lenders. Increasing numbers of people are turning to online lenders for their new car financing. The prime advantage to using an Internet lender is that they usually offer the lowest interest rates on auto loans and the application process takes only minutes. Good online lenders do not charge an application fee. Most are able to process your application in minutes and tell you immediately if you qualify and the amount for which you have qualified. You will also have online access to your loan account once it's established.
  
  A word of caution. There are online lenders who are less than scrupulous and have deceptive or rigid lending practices. As with any loan, make sure you understand the terms of your new car financing completely. Read that important fine print, and if you have further questions call the company and speak to a real live human being. Get all your questions answered and don't accept the loan until you feel comfortable with it Capitol One Auto Finance and E-LOAN are both well established online auto loan lenders. See our review of online lenders below.
  
  
• Your local credit union. This can be a great option for new car financing. If you belong to a credit union through your place of work, I would definitely encourage you to shop their rates. Getting an new car financing through your credit union can be nice because you get to deal face to face with a real live human being (Yes, there are still some of us of who enjoy this.) Also, a credit union can deduct your loan payments directly from your pay check. The downside to the credit union is you may have to actually go there to apply for the new car financing and fill out the paper work. Plus your credit union is limited in the amount of credit they can offer you. If later you have an emergency and need a personal loan, you may not be able to get that from them if you have already fully utilized your credit with them.
  
  
• Your local bank. Some people like this option, but you will almost certainly pay a higher interest rate than if you were to use an online lender or a credit union. However, if you want to deal with someone in your local community and don't mind paying more for your new car financing, then this may be an attractive option for you. Remember, shop around and do what works best for you. Also, remember that a bank is a business and their rates may be negotiable. If you have an established relationship with your bank try, to negotiate a better interest rate for your car financing - they might go for it.
  
  
• Family / Friends. From a purely financial perspective this can be the ultimate solution. Typically, family and friends don't like to charge each other interest on personal loans. (Zero percent sounds great to me!). But if things go badly and you have trouble paying back Uncle Joe, you may not be invited to the family Christmas party next year. I personally prefer to borrow from professionals. Use your best judgment.
  
  
• Auto Dealerships. This should be your last option for new car financing. Auto dealerships spend millions of dollars each year to try to convince you to finance your new car with them. You've probably seen ads for 0% financing, or other really low interest rates. Don't believe it! If an auto dealership is trying to convince you that they can offer you the best rate and terms on your new car financing then make them prove it to you. Never agree to financing terms based on something they scratch on a piece of paper or agree to verbally. These terms have a way of magically inflating once it is time to sign. Ask the dealer for a fully filled out finance contract with all the spaces filled in. Compare the dealer rates with your other rate quotes. Then choose the financing option that is best for you.

Before you accept any auto loan, make sure you have answered all of these questions:

1. How many months should my car financing be? 48 months or less is ideal. 60 months is the max. Do not go longer than 60 months or you will pay too much in interest. Get a cheaper car if you need to.
   
   
2. What interest rate can I expect to pay? The interest rate you pay will vary greatly depending on your credit history and score. Currently you can get car financing for new cars from 4% to over 20%.
   
   
3. How much should my down payment be? As a general rule try to put down 20%. If you put down less than 20% you are in danger of being "upside down" on your car financing. This means that you owe more money on the car than it's worth. If something were to happen and you were no longer able to make your payments, not only would your car be reposed but you would still owe money on it. Protect yourself and put down enough on your car so you never owe more on it than it is worth. If you don't have enough money to put 20% down than consider buying a less expensive car.
   
   
4. Who is actually giving me my new car financing? Many lenders don't fund all of their loans themselves. Before you sign find out who is actually providing the funding. Make sure they are a reputable lender and one with whom you are comfortable. If you have any problems with the loan, with whom you will have to deal.
   
   
5. Do you know how you receive title to your car once the loan is re-paid? Make sure you discuss this with the lender.
   
   
6. What will happen if you default on your car financing and the car is repossessed? Enquire about this from the lender.
   
   
7. What is the grace period for your monthly payments? This is really important. Make sure you know exactly what the grace period for late payment is (if there is one) and exactly what penalties you will pay if you are late.
   
   
8. Does the lender charge prepayment penalties or other fees if you pay off the loan early? If you don't know find out.

How to budget wisely for your new car.

It is important that you be honest with yourself about what you can afford to pay for your new car. How much are you paying right now? Is your car payment a burden or does it fit your monthly budget. I would not recommend spending more than 20% of your monthly budget on a car payment.

Reviews of Online Lenders

Capitol One Auto Finance is America's largest online vehicle lender. Applying online with Capitol One Auto Finance is safe and easy, and you can expect to receive a response within minutes. Once approved, you'll receive a no-obligation Blank Check®, with your name and address printed on it. This works like a personal check and is good up to the approved amount of your auto loan. The Blank Check® can be used to buy a new or used car, refinance the car you currently own, or even buy out a lease. You are under no obligation to Capital One until you actually use your Blank Check®. and they ensure customer satisfaction with a $100 Loan Experience Guarantee. To apply for a loan, go to their web site, Capitol One Auto Finance.com

E-LOAN has been providing loans online since 1996. They are a publicly traded company listed on the NASDAQ stock exchange. You can apply online through there website. You will find current auto loan interest rates and auto loan calculators on their site. E-LOAN provides auto loans for both new and used car purchases, as well as four auto loan refinancing. They will tell you if you are approved for your loan within minutes of completing your application. Once you have been approved for an auto loan you are under no obligation to take it. If you accept their loan within minutes they will provide you with loan documents and step-by-step instructions for completing the loan process. You will be able to use their E-Fund agreement, for up to the maximum amount of your auto loan, to purchase your car or truck at any licensed dealer. You can contact an E-Loan advisor by telephone or email if you have questions regarding your auto loan. To apply for a loan, go to their web site, E-LOAN.com

Where can I go for an auto loan if my credit is fair to poor?

The Car Loan Center and Auto Credit Finders networks are so large they are a good resource for finding new car financing service a large network of lenders that includes some of the nations most respected lenders. They make money by connecting you with a lender who then pays them for the referral at no additional cost to you. Since, The Car Loan Center and Auto Credit Finders networks are so large they are a good resource for finding new car financing if you have fair to poor credit.

Phew, you made it!



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