Once you've made up your mind that yes indeed you're going to buy a vehicle and you're going to finance it, you've got more choices to make. The first is what type of lender do you want and/or qualify for. There are four basic options:

• Dealer financing
• In house financing – loans made and serviced through the actual car lot, not the dealer
• Bank financing
• Credit union financing

Dealer financing – This is financing you get from the dealer who is selling you your car. The loan is made there at the dealer with the car manufacturer holding the actual loan. That's who you'll make your payments to; say Ford, GM or Nissan. You may be interested in financing through the dealer for a couple of reasons. It's easy, especially if you’re right there already. You don't have to deal with different companies. It's no fuss no muss. You may have seen a commercial offering fantastic rates – zero percent or two percent and want in on that sweet, sweet cheap money. But there are a couple of things to consider before making this choice.

Dealers can make just as much on financing as they do on the sale of the car so the deal may not be as sweet as it first appeared. The financial person generally works on commission only so they have a strong vested interest in getting you into a loan, which means your best interests may not be their focus.

You can't take advantage of more than one offer from a dealer so if you have a choice between a rebate and low interest you may be better off taking the rebate. Do the math before you visit the dealer and see what's going to work out better for you. It's entirely possible you'll save money with the rebate instead. The low interest rates are also usually only good for very short loans, two or maybe three years. Can you afford to pay your loan off in only 24 months? If not the low interest offer is not going to work for you.

Something else to think about if you're considering financing through a dealer is the credit crunch. For years dealers have been able to give you generous loan to value (ltv) ratios when purchasing a new car. You could borrow not just the full value of the car but sometimes up to 140% of invoice, which allowed you to buy the new car and pay off whatever you owed on the old vehicle. With credit in short supply manufacturers can't afford to be so generous. You may still be able to finance more than the cost of the car, but not much more so if you owe a lot on your current ride you should look into this before falling in love with a new vehicle.

In house financing - In house financing come with a lot of warnings. In my opinion it's something you should keep as a last resort. It's probably better to cast your pride to the winds and borrow money from a relative before turning to one of these companies and I'll tell you why.
• The interest will be very high. These loans are essentially subprime loans. They are viewed as high risk so you pay more since the chance of defaulting is higher.
• The terms can be uncomfortable. Since the lender is making money on late fees and repos they may actually want you to be late and may make payment difficult. You may need to pay weekly. You may have large prepayment penalties designed to prevent you from paying the loan off early.
• I've heard of more than one shop that requires payment not just on a weekly basis but actually in person. You have to take the time to go to the lot to make your payment and if you are one day late, which could easily happen if you had to stay late at work or your baby was sick, they repossess the car. They give it right back to you after socking you with a hefty repo fee. These lots make a tremendous amount of money from fees.
• Poor selection. What you see is what you get as the lot will have a limited number of cars available. They know you're fairly desperate and that you'll have to take what they have, unlike a new car dealer who is competing with every other manufacturer out there.
• They may try to stick you with extra fees. Some shops will tell you they won't finance the car unless you purchase extras such as rust proofing or the VIN etched on windows. Since the car got rust proofing at the manufacturer and you can put the VIN on yourself for very little money these expenses are not something you want to have to shoulder. It's even more annoying that you're financing them and paying interest on them also.

Next up we'll take a look at the kind of funding you can get from banks and credit unions.