• Getting car loans can be a confusing experience.
• Do you buy or lease?
• Do you take the five or six year loan?

Should you find your own financing or leave it up to the car dealership?

These are all questions that you should have the answer to before you go shopping for your car.

Don’t let your father, who is still driving the Ford Fairmont that he purchased new, talk you out of a lease just because he wouldn’t do it (for obvious reasons). And don’t let you sister, who shops for a new car every time she gets angry at her husband, tell you a lease is better. Neither one of these car loans is better nor worse than the other, they are simply different kinds of loans.

Decide how long you will want to keep your car. Are you about to finally buy the dream car that you’ve wanted for several years but could never afford or be approved for until now? If so, then you probably won’t want to give it up in a few years. You will want a loan for this long term keeper of a car. Your payments will be a bit higher with a loan, but in four to six years, the car will be yours, sans payments.

If you don’t like the idea of maintaining a car after it has gotten old, or you just like the idea of driving a new car all the time, then a car lease is for you. With a lease you trade your car in every three years for a new one – and a new lease. Your payments will be lower with a lease, but you will always have a car payment – and a new car.

For a new car you will probably be offered anywhere from a five to a seven year loan. The longer the term of your car loan, the smaller your monthly payment will be.

Do the math

If you go with a three or four year loan that costs an additional $100 per month, but your car will be paid off three years quicker, you will have actually saved quite a bit of money over the term of the loan.

Get the shortest term of car loan you can possibly afford. You will be happy you did in the long run.

The car loan that will make the dealership the most money in kickbacks, of course. It doesn’t matter to the loan officer if you actually save money on the loan he gets you. You may find it worth your time to shop for car loans before you go to the dealership.

You can find car loans through banks and credit unions or even online. Shop them all and find your best deal. One advantage with online car loans is that you don’t typically have to have your car picked out before obtaining the loan. You can be pre-approved and know how much you can spend before you get to the lot.

This is because car loans have terms that can be stretched for over five years. With that length of time, the monthly terms for the car will be affordable for the aspiring owner.

However, this is not a good practice to follow.

Why? Because with the interest rates built into the terms, the buyer is actually paying more for what the car is actually worth. The longer the loan, the higher the total amount of the car so what appeared affordable was actually more expensive in the long run.

A lot can also happen in six or more years. In six years, a person could lose his job along the way. In six years, something is bound to happen that can cause a buyer to be unable to pay off the monthly terms. Maybe some debilitating accident would happen that would have to take priority over the car payment and would cause the buyer to default on his car loan. Virtually anything may happen in a period of six years.

In short, a car buyer is more prone and bound to lose the car that he has been paying for if he stretches the loan limit to a ridiculously long time frame.

Most people are too eager to own a car that they will automatically settle for a long-term loan when the terms are outlined. Most salesmen do not give people who inquire the actual price of the car and, to encourage purchase, he will instead disclose the terms and the length of time that the loan has to be paid for.

Being upside down on a car purchase means that you are paying more than what the car is actually worth. This is a situation that people should not get themselves into. To avoid this, people need to learn two things: keep the loan terms up to 48 monthly only, and to put down at least 20 percent of the total price as down payment upon purchase.

This is unlikely to happen, though, and instead borrowers should tell dealers that they are looking for prices and terms that could be accommodated to 48 months. If a dealer says it cannot be accommodated, then do not bother even if he proposes to offer the desired terms on a longer time period.

It is best to perform a research on available cars for a few months at the least. This way, a buyer has a higher chance of finding out prices and would have ample time to prepare for the 20% ideal down payment on the loan.