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What to do - and not to do - for a car loan

I'm pleased to see how diligent most people are these days about shopping for a car. But I'm equally disappointed to see how many of them fail to apply that same diligence when it comes to shopping for the money to buy a car.

When they're looking for the right make, model and price of car, they search high and low, at local dealers, sometimes out of the area and certainly online. They'll make sure they understand the value of the car they want, comparing new-car prices and scrutinizing reseller value books for used cars to make sure they're not paying a penny more than they should.

But when the negotiating is over and they're happy with their deal, they'll stop. The problem is, they're only about halfway through.

The financing that most buyers need to purchase a car is at least half of the battle. But too many buyers fail to realize the importance of shopping for the best vehicle loan.

It's not difficult. Most importantly, the shopper's tool needed to get the best loan deal is the same one that the diligent buyer has already used to find the best car at the best price.

The best advice I can offer is, don't take the first loan offer you get. You wouldn't do this with your car choice or price. But that's exactly what many buyers do when they have picked out their vehicle, agreed on price and are ready for the financing.

Start shopping for your auto loan before you shop for your new vehicle. Narrow your search to several respected lenders, offer your credit history and see what they propose.

You can include your car dealer's lending options in that search. But don't forget traditional lending resources such as your local community bank, especially if you have a relationship with that bank. An independent lender doesn't have the need to sell you a vehicle. As a result, they can look at the loan as the separate transaction that it is.

Check rates, loan terms and payment options. If one loan program looks good, ask other lenders if they can beat it.

Also, consider taking dealer incentives such as money off the purchase price instead of a lower loan rate and then trying to match or beat that rate with another lender. Doing this may give you the best of both worlds.

When you offer your credit history to lenders, it will count as an inquiry on your credit history. But if you do your loan shopping in the space of two weeks, it shouldn't impact your credit score any more than a single inquiry.

As you shop for your loan, or even beforehand, familiarize yourself with your credit history and know your credit score. This will give you a firm grasp on your credit picture and will let you know if what lenders tell you is in line.

Don't be so eager initially to talk monthly payment with your lender. Yes, this is important in the end. But one way many car buyers end up paying a lot more is by lowering their monthly payments and extending the loan term for a longer period, sometimes much longer. Do at least rough calculations about what you can afford, in terms of a down payment and your monthly payments. Think also about how long you plan to own the car as you're determining your loan term.

These are just a few tips for those in the market for a new or used car. It's great to be aggressive when it comes to finding the right vehicle at the right price. But remember that when you've struck a deal on a new car or truck, you're only halfway done.

Dale Lewis is president of Park State Bank in Duluth. You can reach her at president@parkstatebank.com or (218) 722-3500.

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