Your credit history is very important when it comes to taking any kind of loan. It is only when you have a bad credit score that you will face difficulty obtaining one.

There are many options open to you from where you can receive the loan. If you look at the financial market there are number of lenders ready to lend you and with varying interest rates. You can opt for an auto loan not only for new ones but can also get them for used cars.

If you were like most people, you'd be considering of borrowing money to finance the car. Not just because they are expensive, but also because it doesn't seem sensible to pay the whole amount using the money in your savings account. So a car loan it has to be!

Let's understand how auto loans work and what you as a potential buyer should know about them before you visit a car showroom.

First things first. You can borrow money not just from the auto showroom but also from banks and other financial institutions. The only difference is, with the dealer you get everything done at one place like selecting the vehicle, deciding the cost, working out the details of the amount, etc.

Whereas, with other options you'll have to select the vehicle and it's cost from the dealer and obtain your finances from a different place. Usually, you would get a better rate with the banks and financial institutions, so do check their rates before you visit a car showroom. If you get a similar rate or even better rates then it's much more convenient to complete the deal at the showroom.

But before you sign the deal with your auto dealer make sure you understand how much exactly you'll end up paying. The EMI (equated monthly installments) may look small but if it's a long duration, then you effectively end up paying a much higher rate.

Also make sure that when you've signed the contract, there is no clause, which says that the contract is subject to financing. If there is, then the dealer may have the option to ask for a higher rate even after the contract is signed. So read the contract carefully for such a clause.

To help you sound smarter while negotiating, here are some terms that you could get familiar with before you make your visit.

Down payment: The amount you pay upfront on your own.

Front-loaded loans: Here, the EMI that you pay has a higher interest component.

MSRP: The total Manufacturer's Suggested Retail Price. This is the price of the car without any options.

Prepayment penalty: A penalty amount that you have to pay if you pay back the amount before the end of the term.