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Because cars now cost tens of thousands of dollars, most of us pay for them the same way we buy houses: we have a financing institution pay the bill and we repay the financer in installments that include the price plus interest. Automotive sales prices have risen at an unprecedented rate and many of us have turned to auto loans and leases in order to afford the car we want and need. Higher prices for cars are partially due to the higher cost of labor and materials, as well as the research and development of fuel-efficient engines. Safety features such as air bags, antilock braking systems, and reinforced structural components also contribute to higher prices. But I believe that prices are also influenced by the fact that many financing institutions and dealerships have taken the opportunity to make inflated profits by literally charging us "as much as traffic can bear" for auto leases and loans. Despite the high prices, many people do a good job a negotiating down the price of their dream car. Yet many of those same people just as quickly make very bad decisions on their auto loan. Countless others include auto loan negotiations in their actual negotiations for the purchase of a vehicle and quickly become lost in the complexity of annual percentage rates versus difference in trade, allowance versus months financed, or life insurance versus payoff. If you are going to be a smart buyer, it's important to realize the two can't be mixed. First, negotiate the best possible deal on the car. And then apply the best method of financing. If you plan to pay cash, you have to know how much money you need to buy a car and to know the tactics dealerships will use to try to switch you to a auto loan. If you plan to finance, you must first know how much auto loan you can afford and for how long, before you know how much car you can buy. You must know the best source and method of financing before you shop. So, you need to shop around to find out how much you really can afford each month. Once you have determined how much you can afford, determine the total "available" cash you will have to purchase a car. Determine how many months you want your auto loan to be, and consider the addition of life and health insurance.