The moment you’ve been anticipating… that inevitable question is presented at the dealership: “How do you plan to pay for your new vehicle?”

Some may implement specialized training to control breathing and avoid hyperventilating and perspiring in front of the salesperson— a dead giveaway there is no such “plan.” Some welcome the challenge of “the talk,” as there may be a plan already in place. If the latter does not resemble your situation and you aren’t quite sure the best route to choose, read on to review some financing options.

Paying cash or borrowing from an outside source removes several variables from the negotiation process: the down payment, interest rate and monthly payment. A price is negotiated for the true cost of the car and then a check is written to the dealer for this amount.

If you are financing with a bank, credit union or other financial institution, the process begins with the obligatory credit check. Upon approval, you’re given a credit limit and a check that can be made out to the dealership. The lending institution will hold the car’s title until you pay off the balance. These loan sources usually offer the lowest rates, and credit unions are typically lower than banks.

If you want the dealership to help you finance it, you will go through the credit check process there. Based on your credit score, the loan will be arranged through the dealership’s lending institution based on the negotiated price of the car and related expenses (sales tax, title and licensing fees). Most auto manufacturers have their own companies to arrange car loans.

Auto loans are typically 36 to 60 monthly payments, but different lengths of time can be arranged. Obviously, the longer you take to pay off the loan, the lower the payments will be. In addition, the amount of your monthly payment will depend on the interest rate, the length of the loan and the amount of your down payment. The dealership will typically urge you to make a large down payment. Again, the lending institution will send the car’s title to you when all payments are made in full.

If you decide to lease your vehicle, you will still go through a credit check. Based on your credit score and the length of the lease you want, the dealer will shop for a lease for you by contacting numerous banks via their computer system. Each bank will obviously have different terms and conditions.

You will need to decide how long you want to lease for and how much you want to pay upfront. Three years is the recommended length for leasing. Try to pay as little as possible to start the lease. Tell the dealer you want to pay “drive-off fees” only.

Most lease contracts allow you to drive the car 12,000 miles a year. If you usually drive more than this, ask that the lease be written for 15,000 miles or even 18,500 miles. This will raise the monthly payments but save you money in the long run.

Your contract will contain a residual price for the car you are leasing. When all payments have been made, you can then buy the car for this residual price or you can sometimes negotiate an even lower price to purchase the car. If you decide to return the car to the leasing company, they may charge for excessive wear and tear to the vehicle. If the car is in great shape, you can get your security deposit back or use it to start the lease of another new car.

The best route overall may be through a credit union, although you must become a member to utilize their services. They generally charge lower rates for loans and are more lenient with fees and penalties. You can apply for a loan online, over the phone or at the branch, as well as at the dealer. Many offer 24-hour online services to make loan approvals more convenient for their members. Credit unions also have a special deal with CarFax (the auto title information collector), which in turn offers a discount to credit union members. For more information, visit the National Credit Union Administration at http://www.ncua.gov.

Regardless of which financing route you take, it’s well worth the effort to be prepared prior to reaching the showroom. Take the time to investigate different strategies and use them to your fullest capabilities to reduce dealership costs. And save the specialized breathing training for the gym.

SOURCE: Bankrate.com