Line Up Financing First

Before zeroing in on the vehicle you want to buy—new or used—it pays to have your financing already in place. This will eliminate one more area where a dealer can slip a few more dollars from your pocket into his.

There are several places to borrow the money:

Brick-and-mortar banks and credit unions. You can get an auto loan from a bank, credit union or another financial institution. You can have these loans approved before you ever hit the showroom. These sources of financing will usually offer the lowest rates you'll find, and credit unions are generally lower than banks.

Online lenders. In recent years, Internet-only finance companies such as Capital One and eLoan, have sprung up, offering very attractive rates and contract lengths. These loans can be handled entirely on the Web, putting a buyer's check in your hand in just a few days that can be used at a dealership or for a private-party purchase.

Home equity loan. You'll get a good interest rate and the payments will be tax deductible. But be sure such a loan won't leave you in any danger of losing your house. After all, it's just a car.

Family help. If financing is a stretch, your family may loan you money or co-sign for a loan. If they do, make sure all parties are fully aware of every detail of the loan and the possibilities should circumstances change or things go wrong.

Dealer/manufacturer. As a general rule, dealer/manufacturer financing will cost you more, but you may find exceptions. And those zero-percent deals often cost more than you realize because sometimes they require "dealer participation," which is doublespeak for the dealer having to subsidize the below-norm financing. So where is the dealer likely to recoup that cost? By raising the price of the vehicle, of course.

The best way to know what's what is to first negotiate the price of the vehicle as though you're paying cash or have outside financing. Then tell the dealer what you've already secured in terms of the length of loan and the interest rate and ask if he can beat it.

Rates and terms

Keep in mind that interest rates on new cars are lower than on used vehicles. And, in general, new cars can be financed over longer terms than used ones. This equation can make a new car cheaper—on a monthly basis—than a used one in many cases.

To get an early look at financing rates, check Bankrate's national averages for new car loans as well as rates available in local markets around the country.

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