Finance First

Buyers usually feel like they're at a disadvantage walking into a car dealership. And that's natural, considering car dealers sell cars every day and consumers buy one on average only every five years, according to the Power Information Network, an arm of J.D. Power and Associates.

While there are more and more tools to help car buyers navigate the purchase process unscathed, one of the most important has been around a long time. You have to understand where the dealer makes his profits so you can focus on each part of the deal.

For most transactions, there are three deals to watch: the purchase price of the new vehicle, the trade-in value of your old car and the cost of financing. We recommend that consumers keep the deals separate, but automakers and car dealers can make this difficult.

"You have to separate these transactions [purchase price, trade-in, financing] into the right basket, that way you'll be able to tell them apart," Daniel Ray, editor in chief of Bankrate.com, says.

We're here to talk about the last piece of the puzzle: financing. This is where consumers often leave money on the table to secure a car dealer's boat payments, even after they negotiate a good price and get a good deal on their trade-in.

One way this happens is by falling into the "low payment" trap. This often results in making affordable monthly payments for a very lengthy loan term — or at least until long after the rain is washing up through the rust holes in your car's floorboards. This is one of the hazards to watch for in the dealership's financing and insurance, or F&I, office.

"Anybody can get you a monthly payment you can afford," Susan Tiffany, director of consumer publishing for the Credit Union National Association, says. But how they do it may not be in your best interest.

Interest is the key word. The annual percentage rate that you end up paying will go a long way toward deciding what sort of deal you end up getting. How do you do that? By comparison shopping among lenders, researching current rebate and financing offers, and understanding how dealers can manipulate rates.

But the interest rate you get depends on more than just what bank or lending institution from which you're borrowing. It depends largely on you. In fact, understanding your personal financial situation — including what you can afford and what your credit rating is — will help you take advantage of the best offers available.