Car buyers need to be on their toes to get the best possible auto financing this year. This was no simple proposition even back in the era of easy credit, and with financial institutions still suffering the hangover of the global financial meltdown, it will pay – literally – to do your homework. Shaving a single percentage point off the loan for an average car today, you could easily save over $500 on your purchase.

The starting point is to get a pre-approved loan from a bank or credit union before you even walk into a dealership, and then see if the dealer can beat it. "I can't think of any other way to do it," said Michael Royce, AOL Autos contributor and publisher of beatthecarsalesman.com. "You shop around."

Even if a pre-approved loan does not beat an automaker's financing incentive, it improves your bargaining position by setting a standard, giving you something concrete as a basis of comparison. Without a pre-approval, it's almost impossible to tell whether a dealership's offer is a good one. Once you have it, you're "gold," as salespeople like to say.

Fewer Options

Bear in mind you may have somewhat fewer loan options today than you would have had two years ago, so you may not be able to play one lender against another as easily as in the past. Banks can still be shy about making loans and may look at you more warily than they did before. But the good news is that lenders are indeed becoming more comfortable making loans since the financial meltdown of 2008.

Credit unions have been strong lenders throughout the slowdown. Their share of auto loans shot up to 37 percent in early 2009, from 24 percent the previous year, and it remains at a relatively high level. That may not be a bad thing, according to Royce. "From my experience," he said, "credit unions often have better deals than banks."

With auto loan delinquencies trending downward, community banks are loosening up, too. And there are other choices for borrowers. Many automotive and financial websites route consumers to sources of car loans. Car.com and LendingTree, for example, have institutions competing for customers with good, bad and indifferent credit.

At times, the weak lending environment may seem to make shopping for loans tougher. "There are a lot fewer banks playing in this space," said Gary Pierce, national account director for cars at LendingTree.com. For example, HSBC, a bank that once dealt directly with consumers, now provides car loans exclusively through dealers, he said.

Bank of America focuses on borrowers with excellent credit, Pierce said, while Capital One is active with customers with mid-range credit. Strangely enough it is possible to be turned down if your credit is too good. If you're not one of the bank's target customers, said Pierce, it may prefer to lend to others and charge more interest.

If buyers have problems with financing, Royce recommends they simply press ahead. "In the past, you might have been approved at three or four places, and you picked the best one. And now you may only be able to get one or two," he said.

Low Rates – For Now

The silver lining of all the economic turmoil is that normal interest rates are still low by historic standards, thanks to the Federal Reserve's efforts to bolster the economy. Right now, interest rates for new car purchases bottom out at about four or five percent for five-year loans. In practical terms, that may mean it is going to be cheaper to finance your car this year than next, when interest rates are expected to rise.

The automakers' own economic woes have also resulted in a steady flow of huge incentives, at least for now. These often force consumers into the altogether pleasant position of having to choose between a big rebate and a zero-percent (or other low-rate) financing deal, or between bank and dealer financing. Don't assume that a hefty pile of cash on the hood will be better, but do the math. "You have to look at the total cost of ownership," he said.

First you shop for the lowest price on the vehicle you want to buy, subtract the rebate, and then figure out the payment based on your pre-approved loan deal. Then calculate what the payment would be with the zero-percent (or other low-rate) deal, based on the full purchase price without the rebate. Compare the two payments and that will tell you whether to take the cash and go with your pre-approved loan or get your financing at the dealership to take advantage of the zero-percent (or other low-rate) offer.

Financing At The Dealer

Both Royce and Pierce warn against automatically taking zero-percent incentives from manufacturers at face value, however. The automakers themselves point out that not everyone qualifies for their lowest rates. A spokesperson for GMAC, the lender for Chrysler and General Motors, declined to disclose the share of buyers who do qualify.

The real problem is that buyers might not learn they don't qualify until too late, Royce said. Most people have a hard time getting up from the table and walking away from a deal. If they aren't willing to walk, they may end up paying a lot more for financing, he said. This is another reason why it's best to always have that pre-approval in your pocket.

That said, it's worth investigating whether the dealer can beat your pre-approved loan. The dealership may still turn out to have the best offer, and not simply because it opens the door to the manufacturer incentives. Dealers have good access to consumer financing and may even be lenders themselves. They can be especially helpful if you are having a hard time getting a loan.

F&I departments (finance and insurance) are the conduit for incentives and a legitimate alternative to banks and credit unions. Over the years, they have become a major source of dealership income, offering everything from extended warranties and alarm systems to window tinting and pinstriping. Along with service operations, the F&I department helps dealers offset the low profit margin on car sales. "In many cases, dealerships are willing to sell a car at cost or below cost, knowing that they can make it up on the financing," Royce said.

Buyers need to protect their flanks, however. Dealers may try to increase the selling price with extra options if they sense they aren't going to be making enough money on the financing end. "Dealerships may charge you a higher overall cost of the vehicle because you are just paying a small amount of interest," said Pierce.

Of course, you can stand firm on any price increases and resist the temptation of paying for options or trim you don't want. As a last resort, you might want to dig out the business card you picked up at another dealership, make the call, and start the process all over again. After all, the money you save could represent your own personal economic recovery this year.

"Take a look at the whole picture," Pierce said. "You might save yourself thousands of dollars."