2009 Winter Auto Guide
Keys in the door of a silver car
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10 steps to your best deal on a car loan

Negotiating a great price on a new car is just half the battle: You also need a great car loan to make it a great deal. 

Here are 10 tips to help you get the best auto loan:

1. Shop the loan separately from the car. Before starting negotiations on the exact car and price, begin the loan application process with credit unions, banks, well-respected online lenders and even your auto insurance company. "Generally, we've seen that online banks have been the best," says Anthony Giorgianni, associate finance editor of "Consumer Reports Money Adviser" newsletter in Yonkers, N.Y. "The little banks might be very competitive," he says. "A lot of them didn't get caught up in the credit crunch." And credit unions rates tend to be about 1 percent to 1.5 percent lower than banks, says Jim Hanson, a vice president at the Credit Union National Association in Madison, Wis.

You can get prequalification for a loan, which would enable you to go to the dealer with a blank check -- good up to a specified amount, says Phil Reed, senior consumer advice editor for Edmunds.com. Once you have a solid, written contract with the dealer, only then ask if they can beat the financing deal you already have.

"Credit unions auto rates run about 1 percent to 1.5 percent lower than banks."

2. Limit your loan shopping to a two-week period. Every time you apply for a loan -- whether you are approved, whether you use it -- your credit score goes down and it makes it slightly more difficult to get a prime-rate loan. But if you make all of your applications within a two-week period, they count as only one inquiry.

3. Get familiar with your own credit history. Get free copies of your three credit reports, from Equifax, Experian and TransUnion at www.AnnualCreditReport.com. If you want to learn your exact scores from the three agencies, you can order them for a small fee from their individual Web sites. The credit or FICO score you buy is probably not the same one your lender uses, but it should be close. With an auto loan, you have a little more wiggle room in terms of your score. "What's considered good for a car loan will be a little lower than what's good for a mortgage," says Gail Hillebrand, senior attorney with the San Francisco office of Consumers Union.

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4. Shop the total loan amount, not the monthly payment. The only time you should consider the monthly payment is when you privately calculate how much you want to spend for your car. After that, don't discuss monthly payments. Some lenders may focus on the payments to induce you to borrow more money by extending the number of months you pay. That way they make more in interest, and you have to drive your aging car longer.

5. Don't assume the best. Lenders aren't obligated to offer you the best rate for which you qualify. In 2007, car dealers marked up loans by an average 1.8 percent on used cars and 0.6 percent on new ones, according to Josh Frank, senior researcher for the Center for Responsible Lending in Durham, N.C. Let the lender know you're shopping around or already have another offer. You're more likely to see a better rate. You can find the best available auto loans in your area at Bankrate's auto rate tables.

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