Car loans are cheap, but do your research

  • The interest rates on cheap auto loans are currently hovering around 3% 25 or so
  • You need a good credit score to get one
  • Some loans now run for up to seven years

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 Klunker is already 9 or 10 years old.

But how exciting is a car loan? Itching just for one more monthly payment? Yes, exactly.

However, the hot news about auto loans this year is that interest rates are lower than last year – so shopping for auto loans could prove invigorating if you can get a real deal.

“We have never seen interest rates this low in surveys of banks and credit unions,” said Greg McBride, senior financial analyst at

The cheap car loan rates – for both used and new cars – are currently around 3% with banks and credit unions.

Many car manufacturers also offer 0% and 1.9% financing for several models. But be sure to run the numbers on different online calculators to see if you are getting better at a cashback rebate than 0% finance if your choice is yours.

In mid-January, the average new car loan rate was 4.15% for a five-year new car loan with banks and credit unions surveyed by

According to, the average used car loan was 4.77% for a four-year used car loan.

“We are in a persistent low interest rate environment and I believe they have not bottomed out yet,” said McBride.

Another trend: some lenders are offering new auto loans that go beyond five years, say 72 months, and some are offering 84 month auto loans.

For example, Comerica’s 3.99% rate applies to 60- and 72-month auto loans.

Melinda Zabritski, director of car loans at Experian, said that some consumers with lower credit scores can qualify for a more expensive new car if they opt for a six-year loan instead of a five-year loan.

Some higher-scoring consumers are opting for seven-year auto loans to buy luxury brands, she said.

“Much is an effort to make some expensive vehicles more affordable from month to month,” said Zabritski.

Be warned, however: extending a car loan to six or seven years drives up the total interest on a car; and a consumer risks owing the car more than it is worth when it comes to selling it.

Another warning, however, unless you are looking for a car loan price, it is easier to get involved with the rates.

“We see bigger differences in car loan rates than any other product,” said McBride.

Lenders often decide what type of market share they want in the auto loan business and rate their auto loans accordingly. And yes, many realize that consumers are not as diligently buying car loans as they should.

Does that mean everyone gets a car loan at less than 5%? Absolutely not. Prices vary based on credit history.

The Detroit-based Communicating Arts Credit Union received an initial federal grant of $ 1.5 million in November 2011 to develop a rescue program for people with extremely high auto loan rates.

As part of this program, the credit union had 34 auto rescues with original auto loan rates in excess of 19%. One customer refinanced an interest rate of 25% to 3.25%. Other customers refinanced interest rates of just under 25% up to a range of 9.5% to 12.5%.

A 5% increase from 25% would decrease the monthly payment from $ 293.51 to $ 188.71 on a five-year car loan of $ 10,000.

Hank Hubbard, president and CEO of Communicating Arts Credit Union, said shoppers often fail to realize they have alternatives. Some old loans may have been drawn out during the credit crunch.

We have moved from one extreme where anyone could get a car loan during the economic boom to another extreme where lenders were paranoid about lending to creditworthy consumers during the financial crisis.

“Lenders certainly provide loans,” said Experian’s Zabritski.

Typically, Toprak said, someone with a credit rating of 620 could now get a rate of 8.9% or more; while someone with a credit score of 500 could now be offered 13.9%.

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