Know your credit history

As with all loans, rates and terms vary with credit scores. Credit scores range from about 350 to 800. If your score is not above 600, you will probably qualify for a car loan at the least attractive interest rates. Scores of at least 720 qualify for the best rates.

Of course dealer financing is also an option. Obtaining a car loan depends largely on the three C's:

Credit

You must be able to demonstrate a history of responsible credit and financial management. That means paying bills on time, limiting your debt and saving regularly. If you don't know where you stand, make sure to get a copy of your credit report before you apply for a car loan. Your inquiry will not count, but lender inquiries will. Limit the number of inquiries initiated to protect your credit score.

Capacity

You will need to demonstrate that you have sufficient income to repay the loan for which you are seeking approval. Income from employment will be considered here. You may also choose to include secondary forms of income such as child support and alimony payments.

Collateral

Lenders are generally more comfortable with highly liquid assets that can be recovered in the event of default. In this instance, your car will serve as collateral.

Most dealerships can provide financing through their own finance departments. You should expect to pay the sticker price plus an additional 7 - 15% according to your credit rating, financial history and ability to repay the loan. Many dealerships offer teaser rates of 0% financing. Only a small handful of buyers are eligible for these rates.

Utilizing dealership financing

Dealer financing often holds appeal because it is easier to qualify for than a bank loan. Make sure you read the fine print carefully. You should know how much you can expect to pay over the life of the loan before you sign on the dotted line.

Some words of warning:

• Do not allow yourself to be pressured into a hasty decision. Dealers are trained to get as much out of the deal as they can. Take your time and think if you want to keep more money in your pocket.

• Do not give your social security number until you made a decision. Each credit inquiry impacts your credit score.

Whether you opt for bank or dealer financing you are in control of the loan process. Learn all you can about the interest rates and terms. If a reasonable offer is not available to you, your best decision may be to wait until you have a better credit score or a significant down payment.

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