3 Must-Do Steps Before You Buy a Car

Nov. 7, 2011— -- Here's a car-buying horror story. Nothing new, right? Wrong. The horrible part was the financing --not the car. A woman wrote to me that she was trying to buy a car and use the dealer's financing. The salesman said something under his breath about checking her credit. Standard, fine.

BUT the dealership then proceeded to pull her credit 11 times in one day! The dealership likely did this as it approached different banks for her. Problem is, excessive credit inquiries hurt your credit score. Hers dropped from 682 to 569 that very day. Ordinarily, when you are shopping for a big loan like a car loan or mortgage, all inquiries within a short time period are counted as one, but something went wrong in this case.

And guess what? After all that, she was turned down for the financing! Argh.

What's wrong with this story? The woman felt trapped, sitting there in the claustrophobic little car dealership cubicle awaiting her fate. It doesn't have to be that way.

Here's one of my hard and fast rules: Never shop for a car at a dealership without getting outside financing quotes first. It's one more factor the dealership can play around with in the messy math equation of buying a car. The process is torturous enough. Don't add to the angst.

Below are some outside sources that you should consult:

1. Credit Unions: If you belong to a credit union, that is a terrific source for auto loans. Not a credit union member? Never fear, they are accessible to far more people than they used to be. Click here to find one.

2. Banks: Check local banks in your area. The bank where you have your checking account may even offer you a special deal for opening a second account there.

3. Websites: For good measure, try out a website that gives instant quotes like Bankrate.com.

When I checked auto loan rates at variety of financial institutions like this, I found they ranged from 4.25 percent to 11.22 percent. If you are taking out a $25,000 car loan, the national average, your savings would be $1,920 by sleuthing out that lower rate. It came from a credit union. The best deals often do because they are basically non-profit banks.

More to the point, with outside financing in hand, now you can walk into a dealership with some knowledge that gives you power. Don't ignore what the dealer has to offer; just don't consider it on its own. Getting outside quotes gives you a point of comparison. And THAT gives you power!