Auto loans: What you need to know

NEW YORK (CNNMoney.com) -- Few of us have the means to write a check for the full amount of a new - or even used - vehicle.

Unfortunately, car buyers, treating financing as an afterthought in the car buying transaction, can easily waste thousands of dollars.

Here are some tips on what to do and what to avoid.

Web sites like Edmunds.com (which provides automotive data for CNN's Web sites) list available incentives in your area. Often there are low-interest, or even zero-percent, financing deals you might qualify for.

Don't assume you need perfect credit. Ford Motor Co. (Charts), for example, has recently opened up its zero-percent financing incentive to buyers with a few potholes in their credit history.

It's true that a car company's "captive finance arm," - for example, Ford Motor Credit or Toyota Motor Credit - will probably be able to offer you a better financing deal than an outside bank or credit union. After all, it's their job to help you buy one of their parent company's products.

But that's not automatic. It can't hurt to make them work a little for your business by researching the cheapest financing you can get before you go to the dealership. A credit union or an organization like AAA or USAA can sometimes offer you access to rates you couldn't get at a regular bank.

Companies like Capital One Auto Finance will even allow you to bring a check to the dealership without having to agree to take the loan. The loan doesn't start until you write the check, which can be up to a pre-approved amount. Until then, all you've done is arranged competitive financing. You can still take it or leave it.

Just don't forget that interest rates are negotiable. If you arrange financing at a car dealership, part of that interest goes to the dealership itself. The dealership's business manager also has an incentive to work with you to earn your business.

Before you go car shopping, you have to know how much car you can afford. That means you need to know how much of a down payment you can make, how much you're likely to get for your current car and how much your monthly payments will be.

It's tempting to just let the dealership work it all out for you.

In that scenario, you tell the salesman what kind of monthly payment you're looking for and show them your trade-in. They'll tell you whether you should stick with the entry-level model or if you can move up a step or two. And you'll probably be pleasantly surprised that you can drive a much nicer car than you thought for monthly payments that fit your budget. Yes, the loan stretches out for six years but... look at this car! Feel those seats. Listen to that big, strong V8. Come on, if you can afford it each month, who cares how long the loan is?

Well, obviously, another year or two of payments means thousands of extra dollars out of your pocket. It's just being removed more gently.

Then there's another problem you might find out about years later. The longer your car loan is, the longer you'll be "upside down" in your car payments. In other words, a longer loan extends the period during which you'll owe more on the car than the car is worth.

So figure out your payment situation and know what you can afford before you start shopping.

Once the deal's all figured out, there's one simple step a lot of people forget to take. Get out your pocket calculator and figure out how much that car is really costing you.

Just multiply your monthly payment by the number of payments you'll be making. Then add on your down payment and the value of your trade-in. If you were fortunate enough to qualify for zero-percent financing, there shouldn't be any surprises.

If you're paying interest, especially if you've taken out a long-term loan, you might be shocked by how much that car is costing you.

For example, a six year loan at 7.9 percent on a $35,000 car would cost you almost $10,000 more than the same vehicle if you were paying no interest, according to Edmunds.com.

Then you can decide if that car is really worth almost $45,000.

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