After your home, your car is likely to be the second largest purchase you ever make. The size of the purchase can make the process stressful, but you can eliminate much of the stress by taking the right steps ahead of time.

1. Look at Your Credit Report

Getting a good interest rate is just as important as getting a good deal on the car you want. Note also that auto loans are the third largest cause of debt behind home and student loans. As a result, the first thing you want to do is to find out about your credit score. Lenders use your credit history when determining the interest rate for your loan.

Get a copy of your credit report, which is available from Annualcreditreport.com at no cost. Examine it to make sure that the data in it is up to date and accurate. Knowing your credit score lets you know the strength of your position when you go shopping for an auto loan.

You can still get a car even if your credit is less than perfect. It just means that you will have to pay a higher interest rate. Your best option to lower that interest rate is to ask an older relative to cosign for you. If the problem is that you do not have a long enough credit history, you may have to come up with a larger down payment.

2. Prequalify for a Loan

The problem with getting financing from a dealership is the fact that they will charge you a markup. Because of this, you should shop for auto financing well before you even think of going to negotiate with a dealer.

Go to a bank or credit union and preapproved for a car loan. This will tell you what kind of car you can afford. You will also be able to find out the amount of the monthly payment you will be making.

After you have compared lenders and chosen the one with the best terms, get a preapproval letter and start shopping. When you go to a dealer with a pre-approval letter in hand, they may actually try to give you a better rate.

Keep in mind that you should be ready to start shopping within two weeks of getting your pre-approval letter. Doing it within this timeframe lessens the number of hard inquiries into your credit. Hard inquiries occur when a lender checks your credit score prior to making a lending decision. This type of inquiry can remove a few points from your credit score.

3. Decide What to Do With Your Present Car

If you currently have a vehicle, learn what it is worth. Kelley Blue Book is just one of the many online resources that can help you with this. Be honest about the car’s condition when evaluating it. Note that even if you took excellent care of it, the condition is unlikely to be regarded as being better than fair. Factor in any features that might increase your car’s value.

Once you know your vehicle’s value, consider one of the following options:

  • Trade In at the Dealership

You will likely not get the vehicle’s value if you decide to trade it in at the dealer; however, it is the easiest option. Your dealer will see it as an opportunity to maximize their profit margin; however, you should still prepare yourself by learning its value.

  • Sell Your Vehicle on Your Own

This is arguably your best shot at getting a good price for it. This is because the buyer will be willing to spend an amount closer to the retail value, whereas a dealer will not. The problem with this is that it takes time and effort. You will have to schedule test drives as well as deal with financial institutions among other things.

  • Sell to a Large Chain

Large chains like CarMax make the process of selling a car as simple as possible. Their buying process is transparent and standardized in addition to taking less time than selling the car yourself.

4. Come Up With a Budget

Once you have completed the steps above, you can budget for your new car. Factor in the amount for which you have been preapproved along with the trade-in value or what you got for selling it. Remember that you will be paying fees and taxes so you should account for those as well. In addition, consider using an online car affordability calculator. Start with the monthly payment that you find most comfortable. If a monthly payment of $350 is right for you, the calculator will show you the kind of car that you can get on that budget.

Consider the loan’s duration and the interest rate estimate as well.

The tips above can give you a good handle on the costs that come with financing a vehicle. You will also get a solid understanding of the kind of vehicle that you can afford. Knowing these things can help you to negotiate with greater confidence.