Financing
Investigate your financing options. Call several banks, check with your credit union, and get quotes from the dealership you plan to shop first. Find out if they have any special rates. A difference in one or two percentage points can save you hundreds of dollars over the course of the loan. If you decide to finance through the dealership, keep in mind that their rates are usually negotiable. Remember, the dealership makes money on financing, and they would usually rather discount their rate than lose your business to another financing institution.

Shopping for your Loan
Here are some tips that are important for you to keep in mind while
Shopping for your loan.

1. Decide on a price range.
2. Decide how much you can put down as a down payment. As we mentioned earlier, too many buyers accept long rimancing arrangements in order to minimize their down payment. If they decide to trade the car W the first year or so, they often find that they actually owe more on their car than it's worth. Not a pleasant prospect, to say the least. A good rule of thumb is never to finance more than 80 percent of the true cost-i.e., the dealer's invoice-of the car. At least 20 percent (some recommend more) should be paid in cash or in the equity of your trade.In other words, if the car has an MSRP of $21,495 and the dealer's cost is $18,800, your total finance package should not be more than $15,040. Remember what we said about deprecia¬tion? The moment you drive the car, van, or truck home, the actual value will have dropped about 40 percent, and the wholesale value of the vehicle will be about $13,000. If you sold it yourself you might be able to cover your payoff and maybe recoup some of your down payment.
   
3. Go to your bank or credit union and ask them to figure the monthly payments on the amount you intend to finance for both a 24-month and 36-month loan.    Don't let yourself get trapped into a 48- or 60-month loan. Sure, the monthly payments look attractive as compared to those of a 24¬or 36-month loan, but add them up and you'll see just how much more these 48- and 60-month loans cost in actual dollars. Be aware that interest charges vary widely for the same amount of money. So take the time to shop and compare.
4. Once you've shopped for money, found the best rate, and have an estimate of the monthly payments, make a hard-nosed personal decision about whether the payments will fit into your budget. Remember, the thrill of taking delivery of an expensive, sporty new car will become the reality of monthly payments. Keep in mind that today there are nearly 600 different models of car, van, and light truck on the market. With all those choices there has to be at least one that will fit into your budget and still create some pride of ownership.
   
5. Determine the equity in your trade-in. If your car has a wholesale value of $6,500 and you owe $1,500, your equity is $5,000. On the other hand, if your car has a wholesale value of $6,500 and you still owe $7,500, you've got a $1,000 negative equity, and you might want to consider trying to sell it yourself. While selling privately can be more of a hassle, at least you'll give yourself the chance of getting enough profit over wholesale to pay off your negative equity.
6. Once you have a fix on your finances, start to shop. But stick to your budget. In fact, make it a point to try to buy your car under your budget. By using these books and doing your homework, there is no reason you can't.

Work sheet example
Here's an example of how to figure what you'll need in the way of cash, equity, and financing to buy a new car. For purposes of illustration, let's assume that your current car has a wholesale value of $6,500. In other words, this is what a used-car dealer will pay to buy your car. At the same time, let's also assume that you owe $800 on the car.
Next look at the amount of money-cash-that you plan to take from your savings account, or other sources, to put down on the car. Let's use $1,500. With the trade-in price, less the payoff, plus the cash you can put $7,200 down on the car. Now decide on the car you want to buy. Let's say it has an MSRP sticker price of $20,200. Using a source like Edmund's, you find that the actual cost of the car to the dealer-the invoice or "tissue" price-is $17,750. That's a profit Margin of about 14 percent. Now, let's assume that the strategies we will outline enable you to negotiate a sales price of $500 over the invoice. That would make the total cost of the car $18,250. (And by -he way, you'll find that in a number of cases you can actually buy it for .-Ss. Again, this will be explained.) To the cost of the car you have to .idd transportation charges, taxes, and registration fees.

Of course, there's also the matter of interest
At this point you should visit your bank, credit union, or lending insti¬tution and look at the monthly payments for two- and three-year car loans. Remember, interest should always be factored into the equation hen you're figuring the real cost of buying a car. Even though it lribbles out over a period of two years or more, it ultimately comes out of your pocket.

One of the traps far too many people fall into is spreading the pay¬ments out over four, five, or six years-sometimes even more¬because the monthly payments look sooooo low. And don't think that there aren't a few salespeople who have sold their customers on long finance deals in order to make it easier for them to "get into a new car." (By the way, there are more than a few experts who will tell you that-except in some special circumstance-you should probably never finance for more than 36 months. If for no other reason because you will probably tire of the car and want the option of considering a new one.)Look at what the number of years does to the finance costs and therefore to the actual cost of the car. For purposes of simplification and illustration, we've rounded the loan to $12,000.

Some salespeople like to refer to the purchase of an automobile as an investment. If you'd bought a Mercedes Gull Wing back in the fifties, that would have been true. All but a very few exotic cars today are expenses, not investments, and the next chart illustrates why.

After one year you decide you hate the car and want to sell it. Get out the bath soap!
Let's say you've taken out a 36-month loan and that for some reason you decide that after one year you want to get rid of your new car. Pre¬pare for a financial bath.For the average car, the wholesale value-the amount that someone is likely to pay for your car-will be based on the original MSRP less the depreciation. Typically, a vehicle will suffer between 15 and 40 percent depreciation during the first year to eighteen months. It all depends on the car, the model, and market demand. Here you can see what your decision to sell after one year would mean.

Dealer financing
You also want to look at the financing packages offered by dealers. mind that financing is a profit source for dealers. If they participating  in the package or if they are just getting a fee for having delivered vou to a financial institution, money goes into their pocket. At times dealerrship financing can be very high, and they can use it to all but  more money from customers.At other times, especially when they are trying to make room for  inventory, they will offer below-market loans from the manufactured return for your buying from their stock. Over the life of the agreement, these loans could save you hundreds of dollars. However, often a catch: The low-rate financing package is available only rs that they want to sell, i.e., the slow movers. Or you may find °.j-hile the rate is low, the price of the car is not. The message here - onsider dealer financing as an option, but to compare it to other es before you agree to anything.