A Car Loan as Easy as 1, 2, 3...(4, 5, 6!)

If you are like most people in America, you are probably not in a position to pay cash for a car. So if you're tired of walking everywhere or sick of riding your bike in the rain, a car loan is probably in your future.

In order to get a car loan, you will first have to apply for one. The process is relatively straightforward, especially if you use this little checklist to guide your way.

Step 1 - Take a Look at Your Credit

These days, your credit score will determine your ability to do lots of things like rent an apartment or by insurance. When it comes to getting a loan, the terms offered will be based in large part on your credit score. It is a good idea that before you apply for an auto loan that you determine what your credit score is and if there are any mistakes on your credit report. You can check your credit reports for free once a year.

Step 2 - Pick a Payment You Can Live With

Before applying for an auto loan, it is crucial that you take a long hard look at how much payment you can actually afford. Once you have sharpened your pencil and arrived at that amount, and auto loan calculator will help you work backward to determine how much car you can afford.

Just as there are a variety of car loan offerings, each of these usually come with different repayment options. Don't be anxious to sign a 6-year note just because you can afford the payment because the farther you get into the note, the greater chance that the car will be worth less than what you owe.

As you are calculating how much you can afford to pay for your car each month, don't forget to include things like fuel, maintenance and insurance costs.

Step 3 - Get Pre-Approved for the Loan Before Shopping for the Car

It is a good idea to shop for a car loan even before you start shopping for the car. This step can be accomplished with a visit to your bank or credit union or by applying online. If your credit score and debt to income ratios are good, many lenders will extend you a notice of pre-approval. With a pre-approval, all that will be necessary at the dealership is to negotiate a fair price.

Step 4 - Choosing your Car

Again, making the decision of what car to buy is much easier when you don't also have to figure out how you're going to pay for it. It could be that the dealer extends you a loan offer at a better interest rate but be careful. Make sure that the dealer does not inflate the price to the point that you will actually be paying more than if you went with the original financing.

Step 5 - Wrap Up the Paperwork

Even with a pre-approval, buying a car is not like buying a shirt at Old Navy. After the price has been agreed upon and the deal is done, you will be escorted to the finance department. Whether you are financing a car through the dealership or have been pre-approved, be on your guard. This trip to the finance office will include the possibility of more selling. Add-ons such as extended warranties, paint or fabric protection or other custom features might be offered and will be added to your car loan amount. Be sure you have researched the possible add-ons to determine if their value is worth purchasing.

Step 6 - Make Regular Payments

After all the t's are crossed and i's dotted, you'll be receiving information as to the terms of repayment. It is vital that you honor the terms of the agreement. In most cases, it is possible and even profitable to pay the note in less time than the loan paperwork indicates. The faster you pay the less interest you will pay. If you do pay early, be careful that the money is credited to your account correctly so that you can enjoy the maximum savings.