Window shopping for a car loan pays off

You just found your Dream Car. You told the salesman you'll take it, and he happily leads you into an office near the showroom. Here, another employee at the dealership tells you he'll be glad to arrange financing.

At this point, you should leave - at least long enough to do a little of your own shopping for the car loan.

The dealer may have an arrangement with a local bank to provide financing to its customers, but if you take this loan, you'll probably end up paying the highest possible interest rate, unless you're getting some sort of discounted rate.

With car sales continuing to show strength, there are no rebate programs these days; dealer prices are firm (some even charge $1,000 or so extra on the most popular models); and there are few, if any, cut-rate auto loans. Some dealers that are offering a below-market annual percentage rate (APR) may only be using it to push slow-selling models out the door.

In the Boston area, interest rates are running in the 14 to 15 percent range, with some lenders charging as much as 17 percent. At the same time, a few dealers or dealer associations are advertising special rates of 10.1 percent or lower. Usually, these lower rates are made possible because the dealer or the association is paying part of the difference between what the bank gets at the higher rate and the lower rate the consumer is paying.

Before you start looking for financing, however, look for the car. If you start out trying to get the cheapest interest rate from a dealer, you may end up paying more than you want for the car, because it has been loaded up with costly options to boost the dealer's profit. So, first look for the best purchase price of the car you like, get the options you want, do whatever haggling you can over the new car's price or the trade-in for your old car, then look into financing.

If you haven't bought a new car in several years, you'll be making some discoveries - apart from the price (''Such a little car for that big price''). First, to make the payments on that big price affordable, most loans are repaid over 48 months instead of 36. You can even get a 60-month repayment schedule. But if you can afford larger monthly payments or make a big down payment, you'll come out way ahead with a shorter term. An $8,000 loan at 15 percent will be be about $50 cheaper on a monthly basis if you pay it off in 48 months. But that loan will cost you $800 more than if you had taken the 36-month term.

When the dealer or your banker starts throwing his rates around, make sure you are both talking about the same thing. You want it quoted as an APR. This rate gives you credit for repaying the loan by figuring that the balance on the loan gets smaller as you pay it down, and building in a lower interest rate as time progresses.

The rate is the number you will want when you're calling around to banks, savings-and-loans, credit unions, or finance companies (in a pinch) to compare rates. If you have a longstanding relationship with a bank or S&L or are in a credit union, you'll probably get the best deal there. You may even have a bit shaved off the APR if you are already a customer.

Apart from relatives, there are at least a couple of other places you may be able to borrow from: yourself and your life insurance policy.

If you have all or nearly all of the purchase price in a fairly liquid form, like a money market fund or certificates of deposit about to mature soon, you'll be better off borrowing from yourself. If you do this, however, try to repay yourself every month as if you were paying a loan. If you can manage it, have the payments include the interest you are losing by not having all the money on deposit.

If you have had a whole life insurance policy for some time, you may be able to borrow a substantial part of the car's price from that policy. For many years , the interest rates on these loans were in the dirt-cheap range, but some companies have started to raise these rates somewhat, and some have only raised the rates on newer policies.

Speaking of insurance, you probably don't need credit life insurance, which guarantees to pay off the loan if you die before the end of the term. If you already have a life insurance policy of your own or sufficient group term coverage through your employer, you don't need credit life, even though some dealers or lenders will try to hint that it is required. If you really need extra insurance to cover the car loan, go out and find the cheapest five-year renewable term policy you can.