Taking care to shop around for the best deal can save you a bundle in monthly payments. The following checklist will direct you towards the best financing option:

Determine your limit
The best way to find an optimal financing option is to know how much you can actually spend. Use TheStreet’s “How much car can I afford?” calculator to determine your price ceiling. Be sure to choose a term that is equal or less than the number of years you plan on owning the car—although it can be tempting to lower your monthly payments by extending the life of the loan, you increase your chances of owing more on your car than what it's worth.

Check your credit
Familiarize yourself with your credit score and take any necessary steps to clean up your credit report before you apply for any loans, since your credit score directly affects your interest rate.

Start shopping
The dealership is only one source of financing. Walking into the dealership with a loan pre-approval from another institute will show the sales staff that if they want your financing business, they’ll have to make their best offer to get it.

Financing alternatives to consider:
Your bank or credit union
Your bank or credit union will likely jump at the chance to get more of your business.
Pros: You’ll frequently be able to secure a deal with a better interest rate than the dealer can offer. You’ll also be able to walk into the dealership with loan pre-approval in hand—a handy bargaining chip.
Cons: Your interest won’t be tax deductible.

A home equity loan
If you own your home, you can tap the equity you’ve built.
Pros: You’ll be able to write off whatever interest you pay.
Cons: You will reduce your equity by whatever amount you borrow, and there may be closing costs involved.

Cash
Yes, Virginia, people do still pay cold hard cash for major purchases.
Pros: No financing means no interest, no monthly payments, and no debt.
Cons: It can take lots of discipline and time to stockpile the purchase price, and you might deplete your savings.

Beware “zero percent” financing
Many dealers will try to earn your business by offering zero percent financing—essentially loaning you the money with no interest costs attached—during a special promotional period. If it sounds too good to be true, that’s because it often is. Here are the main things to be wary of:

If you find the zero percent option just too tempting to resist, be sure you’re absolutely in love with the car and stand firm on the sticker price. If you realize it’s not for you, or you don’t qualify, remember, you’ve got plenty of other alternatives.

THE BOTTOM LINE
There is no one way to finance a car that will suit all car buyers--you have to investigate your options, crunch some numbers, and negotiate well. Knowing that you have a set of wheels that won’t bust your budget will be worth the effort.