Youve found the car that makes your heart race by 120 beats perminute. Now only one thing stands between you and the car of yourdreams: financing the purchase. In a perfect world, youd pay thefull price in cash without blinking. But if youre like the sevenout of ten car and truck buyers who dont live in a perfectworld, chances are youd be paying for your car through one ofseveral financing schemes.

Understanding the basics of each car financing option is key tochoosing the automobile financing strategy that best suits yoursituation. Here is an overview of auto financing options thatmay be available to you.

Auto Loans from Lending Institutions

You can get a car loan from a bank, credit union, or otherlending institutions. The car that you purchase will serve ascollateral for the auto loan. This means that the lender canrepossess your vehicle if you default on the car loan. Auto loansare a popular car financing option because they generally offerreasonable interest rates and are relatively easy to get.

Two factors are likely to affect the total cost of the car loan.One is the term or duration of the loan. Generally, the longerthe term of the loan, the lower your monthly installment will be.But youll end up paying more towards interest and this willincrease the total cost of the auto loan. If you can afford it,get a short-term loan. Your monthly installment will be higher,but youll be paying less money over all. The second factor thatmay affect the total cost of your car loan is your credit rating.Creditors with less-than-stellar credit history are usuallycharged a higher interest rate because of the elevated creditrisk.

Dealer Financing

Like traditional auto loans, dealer financing is reasonably easyto get. Most dealerships have relationships with numerous lendinginstitutions, so they can arrange car loans even for car buyerswith blemished credit histories. To compete with traditional bankloans, many dealerships offer zero percent or very low intereston dealer loans. However, such loans are available to car buyerswith stellar credit ratings. Consumer experts advise car buyersto get pre-approved on an auto loan from a bank or credit unionbefore approaching the dealership for possible financing. Bygetting loan pre-approval from another lending institution, a carbuyer gets the upper hand when bargaining for a lower rate on adealer loan.

Home Equity Loans and Home Equity Lines of Credit

If you own a home and have accumulated substantial equity on yourproperty, then you may consider getting a home equity loan or ahome equity line of credit. Home equity loans are fixed oradjustable rate loans that you repay over a predetermined period.Home equity lines of credit are open-ended, adjustable-raterevolving loans with a maximum credit limit based on the equityof your home. Home equity loans tend to have lower interest ratesthan credit cards and other types of personal loans. Interestpayments on home equity loans may also be tax-deductible up to acertain extent. Home equity loans and home equity lines of credituse your home as collateral, so make sure you are financiallycapable of paying the monthly installments if you dont want runthe risk of losing your home.

Credit Cards

A credit card advance or credit card draft from your credit cardcompany can help you drive your dream car home. Like home equitylines of credit, credit card advances or credit card drafts arerevolving lines of credit with variable interest rates. To enticeexisting customers to avail themselves of credit card drafts,credit card companies waive cash-advance fees, guarantee lowrates during the initial period of the loan, or offer high creditlimits. However, because credit card drafts are unsecured, theygenerally have higher interest rates than home equity loans,traditional auto loans or dealer loans. Financing your autopurchase through credit cards could also leave you vulnerable tohefty penalty charges if you make a late payment or exceed yourcredit limit.

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