The car loan can be a helpful tool to get into a car that you need. The problem is that in many cases people jump into notes that they cannot afford because they are excited about the ride they are about to purchase.

The most important time to think about what you need is before you leave your house. Don't get caught up in trying to think about what you can and can't afford after the salesperson has talked to you. Know exactly what it is that you need out of your car. Is it more passenger room? Is it fuel economy?

Next, look at your budget. If you haven't created a budget yet, that should be your first step, because you don't want to get caught up in missing payments. After the budget is done, how much money is left over each month after the bills are paid? If it's $400, then most will try to find a $400 monthly payment, but you should actually look at 50% or less of that figure. Remember that emergencies do happen and if you have no wiggle room in your budget, then you are stuck. Also, always stick to your top figure when negotiating. Even taking that $200 monthly payment to $220 could cause headaches later.

Now, what terms are most desirable? Leasing can be a great thing, but watch the mileage limits. Also, what's the term? The fine print at the bottom of most ads today will show the term of the advertised deal of the week. Some big headlines will show "$149 A MONTH!", but the term might be over 72-84 months. That's 6 to 7 years! Do you want a $149 monthly payment AND full-coverage insurance that long? Imagine paying $149 a month in the final year of the note on a car that's only worth 25% of it's original value.

Lastly, are you wrapped up in a bad deal and want to get out of it? Some believe that "I guess I'm stuck", but you need get right-side-up from that upside-down loan. You must pull that bandaid off, but pull it quickly, not slowly. What's more painful? Does it make any sense to "just stick" with paying several hundred dollars a month (on top of taxes and insurance) for a car that is causing you financial distress every day? It might hurt you for a month or two to get that car out of your sight, but getting a cheaper used car that was purchased for cash will make you smile later.

Your car should give you a pleasant driving experience in addition to financial peace of mind. If it doesn't give you both, it's time to get a new ride!