#cheapest car loans
Your Money: Car loans are cheap, but shop around
Scott Halleran, Getty Images
New luxury sedans are seen at the Mercedes-Benz of Houston Greenway dealership in Houston.
New luxury sedans are seen at the Mercedes-Benz of Houston Greenway dealership in Houston. less
It’s hard to beat the thrill of jumping behind the wheel of a new car at the North American International Auto Show, especially if your clunker is already 9 or 10 years old.
But how exciting is a car loan? Just itching for another monthly payment? Yeah, right.
The hot news about car loans this year, though, is that rates are lower than last year — so shopping around for car loan could prove invigorating when you snag a real deal.
“We’ve never seen rates this low” in the surveys of banks and credit unions, said Greg McBride, senior financial analyst at Bankrate.com .
Bargain car loan rates — both for used and new cars — are hovering around 3% or so now at banks and credit unions.
Plenty of carmakers are offering 0% and 1.9% financing on several models, too. But make sure to run the numbers on various online calculators to determine whether you’d be better off taking a cash-back rebate than 0% financing, if given a choice.
In mid-January, the average new car loan rate was 4.15% for a five-year new car loan at banks and credit unions surveyed by Bankrate.com .
The average used car loan rate was 4.77% for a four-year used car loan, according to Bankrate.com.
“We’re in a prolonged low-rate environment, and I don’t think they’ve bottomed yet,” McBride said.
Another trend: Some lenders are offering new car loans that go beyond five years, say 72-months, and a few are rolling out 84-month car loans.
Comerica’s 3.99% rate, for example, applies to 60-month and 72-month car loans.
Melinda Zabritski, director of automotive credit for Experian, said some consumers with lower credit scores can qualify for a more expensive new car if they opt for a six-year loan instead of five years.
Some consumers with higher scores opt for seven-year car loans to buy luxury brands, she said.
“A lot of it is an effort to make some expensive vehicles a little more affordable on a month-to-month basis,” Zabritski said.
Be warned, though: Dragging out a car loan to six or seven years drives up total interest paid for a car; and a consumer risks owing more on the car than it’s worth when it comes time to sell.
Another warning: If you don’t shop around for a car loan rate, though, it’s easier to get taken for a ride on rates.
“We see greater disparity in auto loan rates than any other product,” McBride said.
Lenders often decide what kind of market share they want in the auto loan business and price their car loans accordingly. And yes, many realize that consumers don’t shop for car loans as diligently as they should.
Does that mean everyone gets a car loan at less than 5%? Absolutely not. Rates vary by credit history.
The Detroit-based Communicating Arts Credit Union had received an initial $1.5 million federal grant in November 2011 to develop a bailout program for people who have extremely high car loan rates.
As part of that program, the credit union had 34 auto bailouts that had original car loan rates in excess of 19%. One customer refinanced a rate of 25% to 3.25%.Other customers refinanced rates of nearly 25% to a range of 9.5% to 12.5%.
Going to 5% from 25% would drop the monthly payment to $188.71 from $293.51 on a five-year, $10,000 car loan.
Hank Hubbard, president and CEO of the Communicating Arts Credit Union, said many times shoppers don’t realize they have alternatives. Some old loans may have been made during the credit crunch.
We’ve swung from one extreme where anyone could get a car loan during the economic boom to another extreme where lenders were paranoid about making loans to creditworthy consumers during the financial meltdown.
Now, “Lenders are certainly making loans available,” Experian’s Zabritski said.
Typically, Toprak said, someone with a 620 credit score could be getting a rate of 8.9% or higher now; while someone with a 500 credit score could be offered 13.9% now.