Buying a car? That super-low monthly payment offer may cause trouble down the road.

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By Consumers Union on Friday, April 18th, 2008

If you get into a serious accident, your troubles deepen when you have a long car loan. Your car insurance will only pay what the car was worth at the time of the crash, even if you owe much more. You will have to pay the remaining balance to your lender yourself.

A longer term on your car loan also means that you will still be making car payments as the car gets older and you start to face higher repair bills.

Sort out auto financing before you ever set foot on the car lot. You’ll usually get a better rate from your credit union or bank than from the dealer. You can pre-qualify for a car loan and know exactly what interest rate you’ll pay before you buy your next car. For some advice on arranging a car loan before you go out to buy a car, click here.

Consumer Reports points out: “Walking into a dealership with a guaranteed auto loan in your hand gives you bargaining power and flexibility.” To read more, click here.

Money Mom says:

• Start saving now for your next car. If you can pay cash, then you can always be saving for your next car, instead of paying off your last one.

• If you can’t pay cash, take the shortest car loan you can afford.

• If the payment is too high for a car loan of longer than four years, reduce your payment a different way – by buying a cheaper new car or a used car instead.

• For any type of loan, look beyond the monthly payment to the total cost of the loan. Compare the annual percentage rate of interest between loans. Comparing the monthly payments of two loans of different lengths presents a misleading picture –the one with the higher monthly payment may be the cheaper loan if it has a shorter duration.

• Arrange for your auto loan before you buy the car. You can usually get a better deal on your own than what the dealer will offer to you.

• Negotiate the price of the car before you start to discuss with the dealer how you plan to pay.

For more about shopping for an auto loan, click here.

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