Dear EchoBay Expert:

Dear Loyal Reader: There are several things your lender will be looking at when deciding on your interest rate. The first is your credit report. Your credit report contains information on all of our past and current debts. It shows the lender how well you follow through with your debt obligations.

The higher your score, the lower your interest rate will be. Your lender will also look at your income and how long you have had your current job. Again, they are looking for repayment ability. The length of your auto loan can also impact your interest rate. Many dealers offer 0% - 1.9% financing on new cars.

However, this is reserved for those with excellent credit and the terms are generally no longer than 36 months. If you can afford the payments for a 36-month loan, this can be a great way to get a low interest rate. Generally, the rates offered on 48 and 60-month loans are very similar.

You will see a rate increase if you plan to finance for more than 60 months. Also, the lender will consider your down payment. When you put money down on a car, it shows good faith. The lender knows you are less likely to walk away from your car payments when you have invested your own cash.

A higher down payment could also ensure a lower interest rate. Perhaps one of the most important things you can do is research interest rates beforehand at your bank, credit union or online, so you know if you are getting a good rate.

Dear EchoBay Expert:

Dear Loyal Reader: You have great tastes, but the BMW 525 doesn't come cheap. Say that you pay $44,000 for the car with the options you want, including tax, title, and license fees. If you were to finance it over 60 months at 7 percent interest and you were to put $4,000 down, your monthly payments would be in the ballpark of $811.

Even if you qualified for the low 2.99 percent financing being offered by some of the dealers, your monthly payment would drop to about $718, but that's still quite a hefty payment. The only way to get your car payment to a reasonably low amount would be to put a large down payment towards the purchase price.

You should generally try to keep your car payment to less than 10 percent of your gross monthly income, assuming that your debt-to-income ratio would qualify you for the amount of the auto loan you're applying for. If you earn $2,000 per month, your car payment should be at about $200.00 per month.

On the other hand, if you earn $8,000.00 per month and your debt-to-income ratio is in balance, you can easily afford the $800 per month required to pay off a BMW 525. If you just can't make that kind of payment, you could always wait a couple of years and purchase one second hand after the car has depreciated a bit, making it more affordable.