5 financial steps to take before you buy a car

The 2012 car models will soon roll out to dealerships. If you’re looking to buy a car, you've undoubtedly done your research in advance about the right model and trim. The key to affording your dream ride works the same way: Get your financial situation under control before you step foot on the car lot. Here are five crucial steps to take that will help you save thousands of dollars when you buy a car:

1. Know your credit score

Charles Krupa/AP
A 2012 Ford Focus Hatchback and other sedans are lined up at the Salem Ford dealership in Salem, N.H., this month. Before you buy a car, check your credit score to make sure you qualify for the best loan terms.

If you plan on using financing to buy a car, your credit score is key to getting the lowest interest rates. Your credit score is a three-digit number that uses your credit information to assess how risky a borrower you are, and it can significantly influence how lenders decide the terms of your loan. The higher your credit score, the lower your risk and the lower your interest rate. The lower your credit score, the riskier you are and the higher your interest rates. Be proactive in checking your credit score beforehand so you know where your credit stands before you apply for a loan.

You can check your credit score for free at my company's website, CreditKarma.com, or other credit score websites. Aim for a 720 credit score or higher, which is considered the threshold for the best interest rates. If your credit score still needs work, consider holding off on your new car purchase and taking the next few months to build better credit to score better interest rates, which can save you hundreds of dollars in interest over the life of your loan.

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