Why Compare Auto Loan Rates: Save Thousands on a Car Loan

Conventional wisdom says to shop around for a new vehicle. Most people consider vehicles from multiple lots and, after a series of test drives, negotiate the best possible deal for their chosen vehicle. However, many simply take the dealer?s?auto loan terms as-is ? without attempting to bargain or find another lender.

Comparing?auto loan rates?is an important but often overlooked aspect of the vehicle purchase process. Neglecting to?compare auto loan rates?is at the buyer?s peril, as thousands of dollars are wasted on unnecessary interest expenses.

Fortunately, after reading this article, you?ll laugh at the dealership?s auto financing offer and demand the?lowest car loan rates?available!

Compare Auto Loan Rates: How Much Can You Save?

Can a one percent reduction in?car loan?interest rates?really save all that much? Yes ? especially as the sale price rises.

Below is an illustration of the interest expenses you?d incur per $1,000 on a five-year?auto loan?at each percentage point from three to eleven.

Rate (%)	Average Monthly Interest Expense	Total Interest Paid
3	$1.30	$78
4	$1.75	$105
5	$2.20	$132
6	$2.67	$160
7	$3.13	$188
8	$3.62	$217
9	$4.10	$246
10	$4.58	$275
11	$5.08	$305

Bill ultimately opts for a brand new SUV, which runs him $28,000. He puts down $4,000 and finances the remaining $24,000 on a five-year loan.Suppose two competitive brothers, Bill and Ed, are each shopping for a new vehicle. Each wants to have a better set of wheels than the other without selling the farm in the process.

Example 1: Lower Pricetag, Higher Auto Loan Rates

As we can see, the monthly interest expense increases by a seemingly innocuous $0.40+ to $0.50 per month with each percentage increase. However, that adds up to nearly $30 in extra interest expenses per $1,000 borrowed.? On a $20,000 loan, a buyer at the low end (3 percent) would pay over $4,500 less than a buyer at the high end (11 percent) over the life of the auto loan.

Ed sees Bill drive off the lot in his shiny new SUV and decides to one-up him. He goes to the dealer down the street since ?some guy he knows? told him the salesmen are more flexible at that lot. Using this knowledge, the ever-brilliant Ed purchases the same model as his brother for $1,000 less, making him ?smarter? than his older brother. Plus, Ed opts for a bright red exterior instead of the ?boring? blue Bill purchased ? real smooth, Ed! He puts down $4,000, leaving him with $23,000 to finance ? $1,000 less than Bill.

What Ed doesn?t know is that Bill also shopped around for the lowest car loan rates. So, while Ed bought the sales pitch and took the?dealership?financing?with a 6.5 percent interest rate, Bill financed his SUV through an independent lender and landed an interest rate of four percent. Let?s see how this would pan out:

	Bill	Ed
Purchase Price	$28,000	$27,000
Down Payment	$4,000	$4,000
Loan Term	5 Years	5 Years
Interest Rate	4%	6.50%
Monthly Payment	$442	$450
Total Interest Paid	$2,520	$4,001
Total Cost of Vehicle	$30,520	$31,001

As we can see, although Ed walked away with a cheaper sales price than Bill, he?ll ultimately pay nearly $1,500 more to finance his SUV ? thanks to higher car loan rates. As a result, he?ll spend almost $500 more than his brother for the same model. Looking at it another way, by shopping around Bill saved enough on auto loan interest expenses to cover gas for almost three months.

Example 2: The More You Spend, the More You Could Lose

Suppose a stock broker, we?ll call him ?Ross?, haggles the price of a new luxury car down to $95,000 and will finance $85,000 of it.? The offered?dealer financing?comes with an auto loan rate of five percent. At that rate, he?d pay around $11,250 in interest over the life of the loan.

However, knowing the effects of interest and that car loan rates are currently around four percent, Ross decides to shop around. He spends a few hours ? say, three ? performing research and filling out applications. He is able to secure an offer for a?pre-approved auto loan?with a four percent interest rate with another lender. At that rate, he?ll pay a bit over $8,900 in interest expenses, meaning he saved about $2,350 ($783 per hour) by finding?the lowest car loan rates.

In other words, as the price of your chosen vehicle rises, so should your effort to get the lowest interest rate possible.

Finding the Lowest Car Loan Rates is Worth it

Comparing auto loan rates is about as exciting as filing taxes. However, by spending some time and effort on the front end, you can save thousands of dollars down the line.

Think of it as part of the negotiation process. After all, you already compare the prices of similar vehicles among several dealerships and bargain with the salesman before sealing the deal. Why not take the extra step and save even more money?

Source: http://www.gobankingrates.com/auto-loans/compare-auto-loan-rates-importance/

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