So you have decided you are ready to take the plunge and buy that car you’ve been dreaming about! Whether your dream car is new or used, there are some questions you need to ask yourself about the financing of your new wheels. And obviously you need to answer those questions very honestly in order to save yourself from trouble down the road. Questions like:

- Do I really have room in my budget to take on car payments?

- Do I have the cash for a down payment?

- How much can I really afford?

- How long will it take to pay of the car loan?

- Did I take the hidden costs of car ownership into consideration? Things like insurance, fuel and maintenance add a significant expense to owning a car for the first time, or it may increase when you purchase a replacement vehicle.

Buying a car is likely to be the biggest expense you take on other than buying a house. Few people can afford to buy a car outright in cash. Typically you’ll make a 10% - 20% down payment and have the rest of the price financed. Car dealerships are only too happy to provide you with that financing as they often make more profit from the interest you pay on your car loan than they do on the sale price of the car. And that interest can make out a very large portion of the total amount you’ll pay over the lifetime of a car loan.

When you are looking for auto financing, there are much better options than dealer financing. It will be worth your time to research your options, compare interest rates and terms offered by different lending institutions and make sure you know about any hidden costs, like loan application fees. You will almost certainly be better of getting a loan from a credit union or even a bank, than making use of dealer financing. There are also several independent financing companies that can hook you up.

Being a member of a credit union has very definite advantages. Credit unions typically charge lower interest rates than traditional banks, and the application process is usually simplified because they already know you. You could get approval within hours of submitting your loan application.

Once you have your financing in place, you can go to the dealership and start negotiating the price of the car you want. Having a guaranteed car loan in place before you talk to the dealer gives you a very strong bargaining chip, since you can easily move on to another dealer to secure a lower price for the car you want.

The most important thing to remember is to do all your research before you start talking to the dealership. Find out prices for the car you want, invoice and sticker price, so you’ll have the knowledge to bargain with the dealership. Research and compare financing options in terms of interest rates and terms, and secure financing before talking to the dealership.