You probably can't pay cash for a new car. Even if you could, it might not be the best method to purchase a car in today's low-interest environment. Decide on how much you want to pay as a down payment and how much you want to borrow.

Your next step is to get ready to find a loan-you will be in a much better and stronger negotiating position if you are approved for a loan before you shop for a car. Many lenders offer pre-approval so you can shop with the money you know you can spend.

Before you apply for a loan, you should understand your credit worthiness.

What to Look For In a Loan
To find the best terms, shop for your loan. Check out at least two loan sources:

• Your local bank where you have your checking account.
• If you belong to a credit union, ask about their car loans. Credit unions typically charge a slightly lower interest rate than banks and have more lenient approval guidelines.
• AAA, the Automobile Association of America, offers financial services.
• USAA, the insurance company for military personnel.

Financing through the car dealer or manufacturer may be a convenient option. Be careful, though, that you understand the parts of the whole deal if the purchase price is negotiated along with the loan terms.

If you own your home and borrow against the equity, the interest on your loan is tax-deductible. But you are putting up your home as collateral for your car. It's better to keep car loans and home loans separate.

If you have credit problems, such as bad debt, you might have to ask someone to co-sign your loan.

Focus on the numbers when you shop for a loan. Some basic questions to ask when you explore loan choices

• What interest rate can you offer?
• What is the term (repayment period)?
• What down payment will you make?

Read the loan contract and be sure you understand every word. If you don't, ask. Don't let anyone rush you through the process.

Use an automobile loan calculator to see what your monthly payment will be with specific loan amounts, interest rates, and terms. There is a good one at http://www.bankrate.com.