Sit down with your budget and credit rating to determine what interest rate you can expect to be offered and what loan payment you can realistically afford to pay each month. There is no sense drooling over a new Ferrari if your budget dictates you buy a used Ford. Once you’ve determined where you stand financially, you have several options:

Dealer Financing vs. Financial Institutions
You can negotiate a loan with a bank, credit union or with the dealership you purchase from. All will compete for your business and offer vastly different deals. The better your credit rating the more clout and negotiating power you have.

Be cautious when negotiating a loan with the dealership. Negotiate the car price, loan terms and trade-in price as three entirely separate deals or you may end up paying more in the long run. Dealers will often offer an enticing interest rate and make up the difference by jacking up the purchase price or offering less for the trade in vehicle.

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Going Long or Short – Loan Repayment Terms
Aim to pay off your loan in three to five years – the optimum being three years. Although it can be tempting to negotiate a longer repayment period with lower monthly payments, you will pay far more over the long run. It is also possible you will end up paying for a car that you no longer own. If a seven-year repayment term is all you can afford you may be buying more car than you can afford. Consider buying a less expensive automobile, or postponing the purchase until you can save a larger down payment.

Ask Family For Help
If you have a limited or spotty credit history, you may want to consider asking someone with a strong credit history (often a parent) to co-sign a loan. You will both be responsible for paying the loan on time and in full, however the interest rate will be based on your co-signer’s credit rating. This is a great option if you are committed to paying the loan back in full. You will pay less interest and will improve your own credit rating. However, if your family member turns you down – remember – their first priority is to secure their own financial security. If they turn you down, it will be a very difficult decision for them to make – so be supportive and understanding. If they do co-sign for you, remember – they are family and it is your duty to ensure that the debt is paid on time and in full every month – no excuses.

Postpone Your Purchase
It may be wise to postpone your purchase if the only rates you are offered are high-interest rates that will bust your budget. Waiting will allow you to save a larger down payment and pay help you qualify for a lower interest rate.

Summary
As you can see there are many options out there. Take the time to find the one that is best for you. An automobile purchase should never be an impulse buy (unless of course, you can pay for it in cash).