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How to Finance a Car

Make sure you get the best possible terms on your car loan by doing your homework.


  • Step 1: Get your credit rating Request a copy of your credit report by logging onto or by calling 1-877-322-8228. You are entitled to one free copy per year. Car loans are based on your credit rating, so make sure there are no mistakes.
  • TIP: Try to scrape together a down payment of at least 15 percent, which will greatly reduce your financing costs.
  • Step 2: Shop before you shop Once you figure out how much you can afford to spend on a monthly payment, and before you set foot on a car lot, get a bank or credit union to pre-approve you for a car loan.
  • TIP: Search online for sites that compare current auto-loan rates.
  • Step 3: Focus on the APR When comparing loans, focus on the APR -- annual percentage rate -- rather than the monthly payment. It’s more important to have a low interest rate, as long as you can make the payment each month.
  • TIP: Resist the temptation to finance a car for longer than 48 months. You’ll be paying so much in interest that if the car is stolen or wrecked, you run the risk of owing more than the car is worth.
  • Step 4: Play let’s make a deal Head to the dealership. Tell them you’re pre-approved for a car loan, and ask them if they can offer you a better financing deal than the one you’ve secured already.
  • Step 5: Do the math Always crunch the numbers before agreeing to a financing plan. If the dealer offers you a choice of either zero-percent financing or a cash rebate, do the math to figure out which is the better deal.
  • Step 6: Pay on time Make your payments on time. Late payments lead to late fees, which will affect your credit rating.
  • FACT: The average car loan is for 98 percent of the price of the vehicle.

You Will Need

  • Your credit rating
  • A pre-approved car loan
  • Math skills
  • On-time payments
  • A down payment (optional)

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