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Updated: 3/28/2003 12:53 pm Published: 3/28/2003 12:53 pm

Whether you're buying a new or pre-owned car, you may have to finance the purchase. In deciding on a lending agency from which to borrow money to finance your car, shop around for the best interest rate and obtain quotes from a number of agencies. Ask both about percentage rates and the total cost of the loan. Check with credit unions, associations, auto clubs, banks, and insurance companies that also offer financing. Car dealers may also have financing plans. If you're financing a pre-owned car, terms for pre-owned car loans at financial institutions change with the market and as interest rates go up or down. Whether you're financing a new or pre-owned car, you need to keep the payment within your budget each month, so it's important to figure the loan's total cost. Monthly payments are determined not only by the principal, which is the amount you borrow, but also by the length of the loan and the interest rate. The longer the term, the lower the monthly payment, but the higher the total cost of the loan. Try to keep the length of the loan as short as possible. A three-year loan with the same rate of interest costs less overall than a four- or five-year loan. Ask whether you'll have to pay any fees if you pay the loan off early. Don't sign a contract before reading it very carefully and understanding all its provisions. If a clause concerns you, ask to have it explained or changed. Check all the figures to make sure they coincide with what you've agreed to. Consider getting pre-approval for a loan, once you've chosen your lending agency. Some agencies will issue you a check or line of credit up to a pre-approved amount, allowing you to use the check like cash when you go car shopping. Walking into a dealership with pre-approval can give you a negotiating advantage.

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