Financing Your New Car

Are car loans hard to get because the economy is bad?

Or is the economy bad because car loans are hard to get?

Even top economists can't agree on the answer, but the fact is a lot of people are shying away from buying a car these days because they think car loans are difficult to get and expensive to pay for. But because the auto market has taken a huge dive in the last 18 months, auto manufacturers are more eager than ever to sell vehicles, and that means good deals abound.

So where do you find a loan?

Comparison Shop Till You Drop

Luckily, our economic system has given us a way to take care of ourselves when it comes to auto financing issues, even in these hard times. The key procedure: Shop around. Comparison shopping is the best way to determine whether securing your financing through the selling dealer is the wisest choice.

"Our customers frequently finance through the dealership and receive excellent finance rates," said the executive of a company that helps shoppers with the car-buying process. "Consumers can easily take control of the financing process by researching finance rates and shopping around. By exploring loans available through outside institutions, a consumer can use those financing rates to negotiate a lower rate from a dealership."

Deal or No Dealer?

It's no secret that dealers would rather car buyers purchase their financing through them. It's an honest profit opportunity: When consumers finance through dealerships, the dealers makes money on the financing. So, when consumers are ready to buy and tell the dealer that they have been approved for a certain percentage rate, like 4.9 percent, the dealer might offer 3.9 percent to get the customer to finance through the dealership.

Many consumers opt for dealer financing because it's convenient, but the bigger reasons right now are the scores of hot manufacturer-sponsored financing deals. For example, the manufacturer might be offering a 0 percent rate just to drum up business.

As a car buyer, you are not obligated to obtain your financing through the dealership, but there's no reason in the world not to find out what they have to offer. If you come to the dealer armed with knowledge of current interest rates and terms, which are easy to come by in this Internet age, you can quickly figure out if the dealer's financing offer is right for you.

The important lesson here:

Do your homework on financing before you walk into a dealership to buy a car.

Those minutes you spend researching finance costs could save you thousands of dollars. That's likely more than you'll save by negotiating the price of the car.

Luigi Fraschini Driving Today Contributing Editor Luigi Fraschini writes frequently about financial issues relating to car ownership.

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