Auto Finance Guide: Nine questions to ask

Here are some questions that you must ask when discussing financing. Write them down or print them out before going to the dealer. Make sure you get answers to these questions that you fully understand. If anything is vague or confusing, walk away and come back after you've had time to think about it. If the sales or finance person makes a claim you think is too good to be true, have them write it on the finance contract and get a manager to sign off.

What's the interest rate I'm really paying? The APR (annual percentage rate) is the best way to know what interest you are paying. It is the actual interest rate you pay annually on the unpaid balance of the loan. The rate you are offered will to a large extent depend on your credit score, a number that dealers get from your credit report.

Are there any possible penalties in my loan? Does paying the loan off early entail penalties? Are there any other possible extra charges that could occur during the term of my loan? Are there "hidden charges'' that effectively are penalties?

What is the precise (down to the penny) price I'm paying for the vehicle?

What is the total amount (be exact) being financed?

What's the dollar amount I'm paying for the credit (finance charge)?

What's the exact amount of each payment?

What is the total number of payments?

Is this deal contingent on getting subsequent approval of the financing from a third party? Some dealers will send you out the door with a car then call a day or two later to say they couldn't get you financed at the rate they quoted, but they have found a lender who will cover the loan at a higher payment. Don't fall for this. Make sure you know who the lender is and that the deal is sealed before leaving the lot. If there's any question, tell the dealer you'll come back and get the car when everything is settled.

What about credit insurance? Your lender may offer, or even demand, credit insurance. First, find out exactly what it will cost you. If you have an existing insurance policy that covers the same thing, make a thorough comparison. It's not required by federal law, and check your state's requirement (through the office of your attorney general or insurance commissioner) if your lender requires it. It's very rare that any do. But if you must pay, make sure it is included in the cost of your credit and see where it is reflected in the APR you are paying.