I really don't think it makes a whole lot of difference nowadays. I remember when I financed a Pre-Owned car myself in January 1994, at the same dealership where I work now (this was long before I ever thought about getting into the business myself.) My credit was pretty good, and I got an interest rate of 8%. Remember the old days, when 8% was a good interest rate? In fact, remember the 1970's, when mortgage rates shot way up and interest on cars was also sky-high?

If you have good or excellent credit, you know who you are. Your interest rate is going to be extremely close, whichever route you go, because most banksare similarfor people withgreat credit. The difference in total payment between a 5.24% interest rate and a 6% interest rate, on a $20,000 a month loan for 60 months is $7.15 more a month, or 24 cents a day. Now, if you were paying 21% interest, your payment would go up by $165.03 a month - all interest!

If you do not have excellent credit, by all means see if you can get pre-approved by your own bank or credit union. Whether you arrange this yourself or the dealership does it for you, please bear in mind that if your credit is iffy,the financial institution may demand 20% down and may impose other conditions as well. You may also need to provide stipulations, such as a copy of your home phone bill (banks don't think cell phones are the same thing - the idea is to prove that 1. you really live at that address and 2. you pay your bills on time.) Also a copy of your lease or mortgage agreement, same deal; six references with name, address and phone number; copies of your most recent pay stubs and possibly your income tax returns for the last two years.

Also, generally speaking, there is a limit to how much negative equity anyone can carry on his or her new loan. That means that if you owe $10,000 on the car that you are trading in and the current market value is $6,000, you may have to put all or some of that $4000 difference in as a down payment. The more negative equity you carry forward into your new loan, the higher the interest rate - and credit unions have much stricter rules about how much of that they will carry forward at all. If you have poor credit and the bank or credit union wants 20% down, they want ALL of the negative amount PLUS 20% of the price of the new or Pre-Owned car.

These rules, of course, change all the time. There is all kinds of information available on the web about interest rates, trade-in values, car prices etc etc - but it is extremely difficult to interpret them correctly without assistance. It's like someone going online to Google "Federal Income Tax" and then trying to put all the hits together into a coherent whole without a trained Enrolled Agent or CPA! (I know a great Enrolled Agent, if you need one, by the way.)

Get some help - remember that great referral we talked about a few days ago? Go visit the car salesperson that your sister, cousin or co-worker knows, likes and trusts... then you can be sure you are getting the straight scoop. I will talk more about financial stuff in future - not my favorite topic, but I know there is a lot of confusion about it. Go ahead and email me or post on the blog, if you have specific questions.

Next time: Photos of some recent clients with their new cars!