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Car loans - do your homework

If you're considering buying a car, or even just refinancing your current auto loan, you'll benefit from some simple research before making a final decision.

Know your FICO and other credit report items. The overall number assigned to measure your credit worthiness doesn't tell the whole story about you or your ability and willingness to repay a loan. But it's used by every lender you approach and will have a strong influence on whether the loan is approved and what rate you might receive.

When shopping for a car loan, be sure to get current copies of your credit report from the three major agencies and review them thoroughly.

Equifax: PO Box 740241, Atlanta, GA 30374; www.equifax.com

Experian: PO Box 2002, Allen TX  75013, www.experian.com

TransUnion: PO Box 2000, Chester, PA 19022; www.transunion.com

Next, consider carefully whether any 0% loan offered by a dealer is the best deal for you. That number certainly looks attractive, compared to the 4% or higher that is often the next best thing. But you might actually be better off taking the immediate cash rebate instead.

For example, at 4% with a $2,000 rebate on a 36-month loan, your monthly payment will be $30 lower and you'll save over $1,100 on the total cost over a 0% loan. You can run various scenarios yourself by using one of the readily available online loan calculators.

Always be sure to pre-arrange financing before you go car shopping. That has a number of benefits. You'll find out in advance how much the loan can cost you and what you can afford, both in terms of monthly payment and total cost.

You'll also have a bargaining advantage negotiating with the dealer, since part of the purchase price they offer is always dependent on whether they will make the loan. Dealers will often accept a lower purchase price if you take their financing offer. Run various scenarios in advance to determine where your trade-off amount starts.

It may well be worth accepting their financing offer if the purchase price is low enough. You can refinance the day after, after all. That too has costs, though, so be sure to include that in your calculations.

Another advantage of having pre-arranged financing is the confidence you get from being able to walk away from any unattractive deal. New cars especially are virtually identical from one dealership to the next. If you get a better deal elsewhere, it may be worth it to go on to the next. Before you do, though, consider not just the immediate or lowest price but also what service you'll get after purchase.

Last, be sure to calculate the pros and cons of leasing versus a car loan versus another form of financing. Getting a home equity loan, for example, can give you ready cash with tax deductible interest and most contracts don't require you to spend the money on the house.

Being creative when considering financing options can save you money.

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