For most people, buying a car is a major investment requiring thought, research, planning and finances. With the multitude of make, model and options available today, this major purchase is enough to make your head spin. And that’s before you’ve even waded through the wide array of financing arrangements. To be sure you make the smartest choice, you’ll need to do some homework. Here are some helpful tips to guide you through the process of buying a car.

Selecting a Car

Evaluate your needs and preferences to determine your current car style. If you know the answers to these questions, you may help yourself determine which car fits you best.

• What are the primary and secondary uses of the car? This may help you determine the best size, gas mileage, and durability for your needs.
• Who will be in the car most of the time? This will determine how much interior space you need.
• How often will the car be used? The more time you spend in your car, the more important comfort is likely to be. Considering frequency of use can also help determine engine needs.

Budgetary Issues

New or used, bought or leased – you need to know all the costs involved in getting your next car. If you’re not sure how much you can afford, talk to a financial advisor or get pre-approval on a car loan from a bank. Professional financial advice will help you know ahead of time how much you can really afford.

Once you set your price range, stick to it. If you’re buying new, don’t be tempted by unnecessary extras that will run up the price of the car, and be cautious about purchasing extended warranties. If you can’t afford everything you want in a car, prioritize the features on your list. Don’t forget that owning a car costs more than the monthly payments. Gas, maintenance, taxes and insurance should all be figured into the cost of car ownership.

Negotiate a Deal

The difference between the dealer’s invoice (estimates are available from automotive magazines, websites, and auto pricing services) and the price listed on the sticker is your bargaining range. The more information you have on exactly what the dealer pays for the standard package and for each option, the stronger your negotiating position. It also helps to know whether the manufacturer is offering any cash rebate offers or factory-to-dealer incentives (which give the dealer more latitude in pricing).

The popularity and availability of a particular car can also play a role in your negotiation with a dealer. And keep in mind that the time of year you shop may make a difference in the final price you pay. The end of the model year (September and October) favors consumers because that’s when dealers are reducing inventory to make room for next year’s models. Late December, when more folks are worried about holiday shopping than car shopping, is another good time.

Leasing a Car

When you lease a car, you make monthly payments in exchange for using the vehicle for a set period of time. Generally, at the end of the contract period, which is usually two or three years, you can simply turn in the car and walk away. Since you don’t own it, you get no trade-in or resale value. If you need to end the lease early, you may face steep charges. Likewise, you may be charged for excessive mileage or excessive wear and tear. Most leases include an option to buy at the end of the lease for a predetermined price. Generally, however, you may pay more than if you purchased the car in the first place.

On the positive side, a down payment may not be required, and monthly lease payments are generally lower than monthly payments when you purchase a car. Be sure you understand the terms of the contract and review it carefully before signing.

Buying Used

Buying used is very similar to buying new: You need to assess your needs, estimate what you can spend and do your homework.

You have one additional variable to consider when buying a used car: wear and tear. However, assessing a used car is better left to the professionals. If you think you’ve found a good option, have your mechanic check it out before you buy. A qualified mechanic can tell if the car is in good condition and worth the price, or if it’s maybe just a good wax job. To figure out the going price for a used car model, consult one of the used car price guides available, such as the Kelley Blue Book, which lists estimated values for used cars based on what car dealers are paying for various makes and models. Keep in mind that price guides aren’t the final word on a car’s fair value and that factors such as mileage can change a car’s value considerably.

Whatever your final decision may be, make it with confidence and make sure it’s the best car for you (and your family).

Whether your goal is to lower your monthly car payments or reduce the total interest you pay on your car loan, it’s important you understand how refinancing your car loan works.

Refinancing your car loan is replacing your current auto lender with another lender. This involves changing the name of the company that is listed on your car’s title, which is a document that details proof of official ownership. That means you will make payments to the new lender until your loan is paid off.

Before checking your rate for a car refinance loan check to make sure that when you obtain a quote it won’t be a hard inquiry on your credit report. This can impact your credit score. When you apply, a lender will look at your credit profile, as well as the make, model, trim and mileage of your car to determine your rate. You won’t need to have your car appraised the way you do when you refinance a home. Lenders will look at the value of your vehicle relative to how much you owe on the vehicle, called your Loan-to-Value ratio.

What else lenders will look for

Lenders will also look at how many payments you have left on your current auto loan to understand if refinancing is worthwhile for both parties. Typically, you need a minimum of a few months to show on-time payment history but after that, the more recent your current loan is the more potential refinancing will have to save you money. The way that many auto loans work is that the majority of the interest is paid during the beginning of the loan. Check the amortization schedule of your current loan to see what percentage of your payments are interest payments.
Once you get your rate, you should evaluate if the rate or terms offered to meet your financial goals. You should also make sure that you understand any additional fees or prepayment penalties so you can understand the total cost of the loans you’re comparing.

The process

Once you select your lender, there are certain documents you need to refinance your car loan. For example, your insurance and registration cards.

Once everything is verified and approved, you may be asked to complete a Power of Attorney (POA) form so your car title can be transferred from your previous lender to your new lender. A POA shows that you have authorized the title transfer to the new lender.

Your current lender will then pay off your previous lender. When you receive confirmation that your refinance is complete, your new lender will be responsible for your loan. You’ll make payments directly to them and contact them for any questions or concerns.

Depending on how fast you can submit your documents, many lenders will take between a few days to a few weeks to complete the refinance.

Want to check your rate to see how much you could save with a car refinance loan through Lending Club? Check your rate with no impact to your credit score.

The anti-lock braking system, or ABS system, is a safety system which prevents the wheels on a vehicle from locking up in a panic stop braking condition, or if you are on a slick surface.

The theory behind ABS brakes is simple. A skidding wheel has less traction than a non-skidding wheel. By keeping the wheels from skidding when you slow down, ABS brakes benefit you in two ways, you will stop faster and you will be able to steer while stopping.

There are four main components of an ABS system; the speed sensors, the pump, the valves and the controller. The speed sensors are located either at each wheel or in the differential, they provide the information that the wheel is about to lock up. The valves are located in each line at the brakes and they pass thru, stop and release the brake fluid from the master cylinder to activate the ABS system. The controller is the computer in the car. It watches the speed sensors and controls the valves.

When the ABS is at work you will feel a pulsing in the brake pedal, which comes from the rapid opening and closing of the valves. Some ABS systems can cycle up to 15 times per second. This equates to 60 up to 100 times of pumping action per wheel revolution.

Antilock brakes when used properly really do help you stop better. They prevent wheels from locking up and provide the shortest stopping distance on slippery surfaces. Properly operating the brakes is a definite factor, though, you should not pump the brake pedal on a car with ABS. The ABS controller has the valves open and close while the pump adds pressure so that the brake pedal pumps for you.

There is really no maintenance or service that is needed with the ABS system. When the ABS light illuminates on your dash the ABS system has been disabled because there is an error in the system. We recommend having that diagnosed and repaired if that light comes on.

Being able to stop and steer your vehicle in a slippery or skidding situation is the main benefit of the ABS system. Steve and Karen Johnston are owners of All About Automotive in Historic Downtown Gresham.

Most of us need car insurance, yet few of us fully understand it.

Dozens of car insurance companies may be vying for business in your area, including nationwide players and local insurers. Each offers an eye-glazing assortment of policy options, making it hard to compare policies and figure out what is the best and cheapest car insurance.

If you are looking for the lowest prices, there are some guidelines worth following as you do your research. Here are eight things you can do to ensure that you’re getting the best coverage at the best possible rate.

1. Don’t assume any one company is the cheapest

Some companies spend a lot of money on commercials, trying to convince you that they offer the lowest car insurance rates.

The truth is that prices individuals will pay for the same coverage at the same company vary widely, and no single company can claim to be the low-price leader. The insurance company that’s cheapest for one person in one place might be the most expensive option for a driver in another state. Some insurance companies have also developed complex predictive models that may charge you higher rates if they show you are unlikely to switch providers. This practice, called “price optimization,” is banned in 16 states.

And there’s quite a bit of saving at stake: A recent NerdWallet analysis found a difference of $859 a year between the average insurance quote and the lowest available quote.

The only way to ensure you’re getting the best deal is to shop around.

2. Don’t ignore local and regional insurance companies

Just four companies control nearly half the nation’s car insurance business: Allstate, Geico, Progressive and State Farm. But smaller, regional insurers, such as Auto-Owners Insurance and Erie Insurance, often have higher customer satisfaction ratings than the big names — and they may have lower rates, too. NerdWallet can help you compare rates for companies that serve your area.

3. Check for discounts

Insurers provide a variety of discounts, including price breaks for customers who:

• Bundle car insurance with other policies, such as homeowners insurance
• Insure multiple cars with one policy
• Have a clean driving record
• Pay their entire annual or six-month premium at once
• Agree to receive documents online
• Own a car with certain anti-theft or safety features
• Are members of particular professional organizations or affiliate groups

Discounts vary by company and location. Check insurance company websites or consult with agents to find out which ones might apply to you.

4. Pay your bills on time — and not just your insurance bills

Your credit is a significant factor in the car insurance quotes you’ll receive — except in California, Hawaii, and Massachusetts, which don’t allow insurers to consider it. Insurance companies say that customers’ credit has been shown to correlate with their risk of filing a claim.

Improve your credit — and lower your premiums — by paying your bills on time and reducing your debt. Track your progress by checking your credit reports at least once per year.

5. Consider insurance costs when buying a car

You probably already pay attention to factors such as fuel efficiency and repair costs when deciding which car to buy, but you should also consider insurance premiums, which can vary between popular models. A NerdWallet review of rates for best-selling vehicles in 25 cities found that the Toyota Camry, for example, cost an average of $187 per year more to insure than the comparable Honda Accord. Similarly, a Toyota RAV4 cost an average of $201 more to insure than a Honda CR-V.

6. Skip collision and comprehensive coverage for your clunker

Collision coverage pays to repair the damage your vehicle receives in an accident involving another car or an inanimate object. Comprehensive pays to repair vehicle damage caused by weather, animals or vandalism or reimburses you for your car if it's stolen. But both will only pay up to the value of your car. If your older and has a low market value, it may not make sense to shell out for the two policies.

7. Consider raising your deductible

If you need to carry comprehensive and collision — because your car is a later model or your lender requires it — you can save a substantial amount of money by raising the deductibles. A NerdWallet study of rates in Florida and California found that customers who increased their deductibles from $500 to $1,000 saved about $200 per year on premiums, while those who increased them from $500 to $2,000 saved $362 per year. Keep in mind that this will mean you’ll pay more out of pocket if you do make a claim.

8. Consider usage-based plans, especially if you don’t drive much

If you’re a safe driver who doesn’t log very many miles, consider a usage-based insurance program, such as Allstate’s Drivewise, Progressive’s Snapshot or State Farm’s Drive Safe and Save. By signing up for these programs, you allow your insurer to track your driving electronically in exchange for possible discounts, based on how much you drive, when you drive and how well you drive.

If you drive less than 10,000 miles per year, you might be able to save money with a mileage-based insurance program, such as Metromile or Esurance Pay Per Mile. Metromile is currently available in seven states, while Esurance Pay Per Mile is only available in Oregon.

When you walk into a dealership, you won’t be there long before a salesperson asks how you intend to pay for your new car.

When the dealer starts in, just explain that you intend to pay in cash. Saying you’ll be paying in cash doesn’t mean you’re going to open up a briefcase with bricks of money inside, it just means that you’re not interested in dealer or manufacturer financing.

In some cases (if you have perfect credit if the car is about to be replaced by a newer model) dealer-sponsored financing might be a good deal, but most of the time it isn’t. You can usually find better deals on car loans at credit unions and banks.

Telling the dealer that you’re not interested in their financing takes away an opportunity for the dealer to pad the deal with an extra profit. Dealers make money on charging you, so they have ways of slipping various extra fees and charges into your financing arrangement. Forgoing dealer financing also allows you to focus on the features and purchase price of the car you want — a far more important and useful task than focusing on the monthly payment figure.

After declining financing, your next task is negotiating the purchase price of the car. Some survival tips:

Resist the temptation to lease. Leasing is basically an extended car rental. When you lease a car, you must return it at the end of the lease or buy it from the dealer at a predetermined price — usually higher than what you’d pay for a similar used car. When you take a loan out to buy a car, you pay down the loan and then the car is yours, free and clear. The only payments you’ll have to make after that are for gas, repairs, and insurance.

Lots of people lease. Smart, respectable people lease. It’s not a terrible thing to do, but it’s not the best way to keep a car because you’re always making payments. Lease a car for three years and, when the term expires, you need to look for a new lease or shell out thousands to purchase the car you’ve been driving.

Consider factory certified pre-owned cars. “Certified pre-owned” is another term for “used.” But these cars do come with extra assurances about the car’s condition. Going pre-owned can be a really smart move because most cars lose 18% of their value in their first year. A certified pre-owned car is one that has been inspected and fixed before it goes on the market, and comes with a manufacturer-backed warranty like new cars do.

Size up your future car loan. Once you decide you want a new car, the first thing you should do is figure out how many cars you can afford. Calculate this amount before you go shopping; don’t let a car dealer influence your decision.

Figure out how big a loan you should get. A good rule of thumb: Your monthly car payment should be no more than 20% of your disposable income. That means that after you’ve paid all your debts and living expenses, take one-fifth of what’s left. That’s your maximum monthly auto expense. Ideally, this number should cover not only your car payment but also your insurance and fuel costs.

Decide how long you’ll give yourself to repay your car loan. A monthly payment is, essentially, the amount of your loan, plus interest, divided by the number of months you have to pay back the loan. The more months you have to pay it back, the lower the monthly payment will be. But stretching out a car loan too long—or any loan, for that matter—will ultimately cost you a truckload more in interest payments.

For example, say you take out a $20,000 car loan at 5%. If you borrow the money over four years, your monthly payment will be $460.59. At the end of four years, you’ll have paid $2,108.12 in interest.

If you borrow the money over ten years, your monthly payment will only be $211.12, but at the end of 10 years, you’ll have paid $5,455.72 in interest.

Keep your loan term to five years or less (three is ideal) and you should be in good shape. If the monthly payments are too much even for five years, the car you’re looking to buy is probably too expensive.

Consider all pools of money. Should you sell investments to pay for the car instead of borrowing at 7%? That’s a tough call; usually, we’d say no. Do not spend any of your tax-sheltered retirement savings (IRAs, 401(k)s), as you’ll pay through the nose in penalties and taxes and rob from your future. As for taxable investments, consider whether cashing out would have tax implications (you’ll pay 15% on capital gains for investments held longer than one year; investments held less than a year are taxed at your ordinary income-tax rate) or whether you may need that money for something else over the next two to three years.

Should you take out a home equity loan to pay for a car, since the interest of those loans is tax-deductible?

Many people think home loans are the perfect way to finance the purchase of a new car. But the length of the term for a home loan — most require payments over at least 10 years, with penalties for early repayment — will send your total costs through the roof, even after the tax savings. Borrow for no more than five years, lease (if you must) for no more than three. If you’re considering a home-equity line of credit to pay for your car, remember that most HELOCs have a variable interest rate, so it’s possible your payments will rise over time.

How to Find the Best Auto Loan

You’re going to show up at the dealer with your own loan, but where should that loan come from?

Begin by getting a sense of the prevailing rate for a new-car loan. Focus on is the APR or annual percentage rate offered by each lender. The APR is the annual cost of the loan or interest rate. With this number, you can cross-compare loans from one lender to another, so long as the duration of the loans is the same.

You’ll probably get the best deal at a credit union— a members-only, nonprofit bank that can offer lower-cost loans than a traditional bank can. But check out rates at traditional banks and online-only car lenders such as YouAutoMotive Auto Loans.

Don’t be distracted by dealerships offering rebates or zero-percent financing if you obtain your loan through them. “Zero-percent financing” means you are not charged any interest on the loan. So if you were buying a car that cost $24,000 and you had a 48-month car loan, your monthly payment would be $500, without any added interest. A rebate is a money taken off the price of the car. Rebates are also called cash-back deals.

Here’s the thing about those offers: The money you save via interest and rebates is probably coming from somewhere. If you qualify for 0% interest (and most people don’t, as it’s given only to people with near-perfect credit), your dealer won’t budge on the sticker price. If you take the rebate, you won’t get a rock-bottom or 0% interest deal.

That’s why splitting up the financing and purchasing of your car is a good idea: First, you can shop around for the best credit-union car loan, and then you go to the dealer and focus on negotiating the purchase price of the car. Bundling the transactions can lead to lots of stress and added expense — you may be so focused on financing costs that you the punt on the purchase price — to keep them separate.

If you do choose dealer financing, be extra vigilant about what you agree to, and what you’re signing—it’s not uncommon for dealers to add in various unnecessary fees (rustproofing, extended warranty) that fatten their bottom line. Question everything that wasn’t explicitly discussed during negotiation, and don’t be afraid to walk away.

There are some easy ways to catch a break with your dealer when negotiating the price of your car. Timing can be everything:

Shop early in the week. Weekends are prime time for dealers. But if you show up on a Monday, a salesman may be more motivated to cut a deal because business will be slow for the next few days.

Shop at the end of the month. Car dealers get monthly bonuses if they move enough metal. If you show up on the 30th and your salesperson is two cars short of a bonus, he or she may cut you a better deal so to make numbers.

Shop for a car that’s about to be replaced/discontinued. Pretty simple logic here: Things that are about to be considered “old” sell for less. If you’re looking at a 2008 Honda Accord and the 2009s are about to arrive at the dealer, you usually can get a bargain. If the 2009 model is completely new and different from 2008, you’ll save even more. (Who wants to be seen driving the old-looking model? Smart, frugal people, that’s who.) And if Honda decides the Accord isn’t selling much anymore and kills it after the current model year? (OK, fat chance, but this is just an example.) Untold riches await. As do potential maintenance headaches — remember, some cars are unpopular for good reason.

You’ve likely heard about the benefits of refinancing a home loan. With today’s low interest rates, those who have enough equity in their home and the credit required for a refinance could lower their monthly payments considerably.

But did you know that, similarly, you could lower your car payments by refinancing your auto loan?

A common misconception about auto refinancing is that it is similar to home refinancing in complexity and requirements, says Phil Reed, the senior consumer advice editor at auto information website Edmunds.com. The process is actually much simpler, in terms of both qualification criteria (there is more emphasis on the applicant’s credit than on the balance and value of the car, according to Reed) and the time and costs involved.

Here’s what you need to know about auto refinancing and how to determine whether it could help you save.

Are you a good candidate?

Thanks to today’s low interest rates, anyone who purchased and financed a car a few years ago could potentially find an auto loan with a lower rate. A few general guidelines:

* Is your current interest rate significantly higher than what you could get today?

In the fourth quarter of 2008, a 48-month new auto loan issued by a commercial lender averaged 7.06%. Today, the average rate on a 36-month used-car loan is 5.47%, according to Bankrate. And the average rate on a 48-month new car loan is 4.89%.

“Most people aren’t aware of the interest rates’ impact to their monthly payment,” says Reed. Edmunds and other online resources offer basic calculators that allow you to quickly determine just how significant a lower interest rate can be on a monthly loan payment.

* Has your credit score improved?

You could save even more if your financial situation has changed for the better – and your credit score is higher — since you took out that original car loan.

As with any loan, you do need good credit to qualify for auto refinancing. However, the criteria is far less stringent than that associated with home loans, says Reed. According to FICO (the company that calculates the widely-used FICO scores), you need a FICO score of 720 or more to qualify for the best auto loan rates. On a $25,000 36-month loan at 4.784% (the national average as of March 30, 2011), your monthly payment would be $747. On that same loan, you’d have a $828 monthly payment if your FICO score was between 620 and 659, which would put you at an average 11.762% interest rate, according to FICO.

* Are you in a lengthy loan (five- to eight-year term)?

Jack Nerad, executive editorial director and market analyst for Kelley Blue Bookadvises anyone in a lengthy auto loan (with an original five- to eight-year term), to research auto refinancing.

Many people only pay attention to their monthly payment when purchasing a car and have no idea how much of that payment is interest. The longer the term of the loan, the more interest you’ll fork over to the bank until it’s paid off, even if your monthly payment seems low. Refinancing into a loan with a shorter term will lower the total amount of interest you’ll pay, even if it doesn’t considerably lower your monthly payment.

Avoid Refinancing Your Auto Loan If:

* Your existing loan has a prepayment penalty or the new loan is fraught with fees that would negate the potential interest savings.

Anyone seeking an auto refinance should completely understand the details behind the new and existing loan terms, says Reed.

* Refinancing will extend the life of your loan.

Unless you’re seriously in danger of missing payments or defaulting on your loan altogether, avoid refinancing into a loan that would extend your current one. Your monthly payment may go down, but you’ll end up forking more money to the bank or dealer’s financing arm over the life of the new loan.

How to Get Started

Unlike refinancing a mortgage, auto refinancing is quite painless, according to Reed. It can often be handled online, and might take just one or two hours to complete. The first step is to understand your current loan terms (check your monthly statements for the interest rate, remaining balance, and payoff amount) — which you already should have done to determine if you’d benefit from refinancing to begin with.

Reed also advises informing your current lender that you are actively seeking a better deal. They may be willing to refinance your existing loan and save you from switching to a new a lender. As with any rate-based loan, negotiation is always an option, but Reed acknowledges that particularly when dealing with large banks, auto refinancing interest rates may be fairly fixed. Further, the person you are dealing with may not be authorized to make sweeping changes to your loan agreement.

Where to Look?

Don’t ignore dealer finance programs, either. They are currently subsidized by auto manufacturers, making them a potentially competitive resource,