Auto Loans Rates

For most people, the largest purchase that they will make other than their house is their car. Since, according to the National Automobile Dealers Association, the average new car in America costs $28,400, it is also most people’s largest obligation, other than their mortgage. It makes sense to research the best loan possible to save money on this major purchase.

The best loan is, of course, no loan at all. Although a loan allows one to spread the payments out over time, the interest that is paid, ultimately, makes the car to be purchased more expensive. As an example, a major national bank is currently offering a rate of 5.78% to extremely well qualified borrowers for a 60 month auto loan. Because of that car loan’s interest rate, borrowing $25,000 will actually cost $28,708. For most people, paying interest to borrow money is a necessary evil, but for those who have the option, it can be quite wise to pay cash for a vehicle.

Assuming that one is to get a loan, there are two key ways to save money. The first is to put as much down as possible and borrow as little as possible. Doing this will not only reduce the loan balance, but may also lead the lender to reduce the interest rate. The more equity that the borrower has in the car, the less likely the bank is to lose money on the loan. Because of this reduced risk level, lenders will frequently offer a lower rate. The second way to save money is to take the shortest loan possible. A shorter loan will not only reduce the total amount of interest paid, but the interest rate on these car loans will also be lower. This happens because shorter loans reduce the lender’s risk, since their money is coming back sooner while more value remains in the vehicle.

Once one has figured out what one can afford, one should shop for a loan before visiting the dealership. Credit unions typically offer the best auto loan interest rates, although sometimes major national banks will offer car loans at low rates to attract new customers. The chosen lender will usually issue a pre-approval letter which one can use to actually purchase a car.

With the pre-approval letter in hand, one can go to the dealership to then shop the available rates on their auto loans. Promotional rates from the manufacturer, such as 0.0 or 2.9 APR for 60 months, will frequently be the best loan available and should be chosen. If rates such as those are not being offered, one still has the peace of mind of a preset rate which can be used for comparison shopping against the dealer.

The difference between a 0% and 10% rate is $110 per month on a $25,000 60-month loan. Shopping amongst auto loans for the best rates can save the borrower significant money.