rates on new car loans have hit high levels not seen
since 2010, driving up the need for consumers to work a
little harder when shopping for the best deals.
average rate on a new car loan was 5.2 percent in
February — up from an average 4.4 percent in February
2013, according to Edmunds.com. Average rates had fallen
as low as 3.9 percent back in December 2012 — down
from 5.3 percent in February 2010. Figures are based on
financing completed at dealerships.
more startling: Only 31.6 percent of consumers who
bought or leased a new car even bothered to negotiate a
car loan rate, compared with 76 percent who negotiated
the price of the car or truck, according to a Federal
Reserve survey of households in 2015.
11 percent of borrowers do not know the interest rate on
their car loan, according to the Fed survey.
not seeing worst rates — nothing even close to the
average 8 percent for a car loan consumers faced in
January 2006, according to Jessica Caldwell, executive
director of industry analysis for Edmunds.com.
many consumers will end up spending more money to buy a
new car or truck this year, as financing costs go up and
automakers try to hold the line on incentives.
average payment hit $527 a month in February, up from
$462 five years ago, according to Edmunds. Consumers are
buying pricier SUVs and trucks, borrowing more money and
taking out longer-term loans.
will be running into higher rates across the board in
2018, if forecasts prove true.
Federal Reserve is expected to raise rates by 25 basis
points at its next two-day meeting ending March 21. If
the Fed moves as expected, its benchmark interest rate
would move to a range of 1.5 percent to 1.75 percent.
is a strong likelihood that we will see at least two
more fed funds rate hikes this year after March,"
said Robert A. Dye, chief economist for Dallas-based
expects three quarter-point hikes at the Fed meetings in
March, June and September.
odds of a fourth rate hike this year, coming on December
19, are increasing," Dye said.
do you find the best deal on a car loan? Here are some
tips to consider:
not dwell only on the car payment
might seem responsible to begin shopping by thinking you
can afford $300 a month for a car. After all, looking at
the monthly payment is how you decide to buy a cell
phone or sign up for Netflix.
start with the best intentions for setting up a
budget," Caldwell said.
car deals can trick you with hidden costs tucked into a
monthly payment that ultimately will boost what you’re
paying in the long run for the car.
said a car dealer might help you get a lower monthly
payment by extending the term of that car loan, for
example. Yet if you’re taking out a six-year or a
seven-year car loan, you’re spending more money
overall and taking on the risk that you’d still owe
money on the car if you need a new one in three years.
average new car loan was for five years and nine months
for new cars financed at dealerships in February,
roughly about three months longer than the average new
car loan was five years ago, according to Edmunds.com.
amount financed jumped to $31,313 in February from
$26,700 five years ago for a new car loan, according to
out a car loan — and taking on more debt — may be
the only way that some consumers can get into a popular,
well-equipped truck or SUV. One less-popular option to
control costs: Opt for another lower-priced vehicle.
your credit score before you car shop
higher credit score means a lower interest rate. Make
sure to get a free copy of your credit report long
before you apply for a car loan to have enough time to
dispute any errors or incorrect information that may be
dragging down your credit score.
boost that score, you’d also want to pay down credit
card balances, particularly if you can get the balance
below 10 percent of the credit line, said Greg McBride,
chief financial analyst at Bankrate.com. If you have a
$2,000 line of credit, you’d want the balance below
$200 if possible.
you don’t want to take out new loans right before you’re
shopping for a car.
time to shop for a car loan
consumers do not go online to even review going rates
for car loans before they talk to a dealer about
car buyers just take whatever rate they’re
given," said Miron Lulic, founder and CEO of
SuperMoney, a tech startup that has an online platform
to compare auto loan rates.
he said car shoppers should ask for a better rate. A
$35,000 five-year car loan with a 7 percent annual
percentage rate will cost you roughly $3,800 more than
the same loan with a 3 percent APR.
can be all over the map.
said tough competition for car sales has put some limits
on increases in rates, even after a string of rate hikes
by the Federal Reserve .
lenders are marketing rates of 3.39 percent to 3.99
percent on three-year car loans. Promotional rates at
banks on five-year car loans are around 3 percent to 4.5
percent, according to Bankrate.com.
noted that the average rate being marketed by banks for
five-year car loans is 4.53 percent now, compared with
4.36 percent a year ago.
the numbers in any deal
for the lowest interest rate offered at a dealership isn’t
always the way to get the best deal. Sometimes, you
could be better off taking a car loan with a rate of
4.94 percent instead of a 1.9 percent special rate
offered on a specific car at a dealership, according to
research by Cox Automotive.
reason: What kind of rebate or incentive could you be
giving up to get that 1.9 percent special rate?
for example, one recent promotional rate on a 2018 Ford
Fusion SE. To get the 1.9 percent rate, you’d lose a
$3,000 incentive, according to Cox’s research. As a
result, you might need to borrow an extra $3,000. If so,
the overall cost would be about $1,100 more if you opted
for the 1.9 percent rate, instead of a rate of 4.94
tip: Your savings could be even greater if you found an
interest rate in the 2 percent to 3.4 percent range at a
local credit union — and grabbed the $3,000 incentive.
tip: Ask if you can get a better rate, if you put more
industry experts expect that 0 percent promotional rates
will continue to be offered, even as interest rates edge
higher in 2018. After all, a 0 percent rate on a TV ad
can drive traffic.
one in five car buyers can still find loans with
interest rates between 0 percent and 2 percent through
financing at a dealership, according to Edmunds.com.
0 percent or 2 percent isn’t always the best deal, if
you can find a low rate elsewhere and obtain a rebate
instead at the dealership.
for car loan rates at credit unions
what types of rates are being offered by a local credit
union, even if you’re not a member, suggests Charlie
Chesbrough, senior economist for Cox Automotive. You
might find its easy to become a member, if you want a
credit unions have been aggressively lending into the
auto market," Chesbrough said.
said shoppers should talk to different dealers about
options for getting a lower rate, as many dealerships
may know of lenders who are actively promoting car loans
for borrowers who have less than perfect credit.
Consumers need to ask plenty of questions.
have to be very diligent in their shopping,"
Chesbrough said. "There are other offers out there
that they do qualify for."