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What You Need to Know About Car Loan Rates

Get everything you need to know about car loan rates here. We'll explain the pitfalls of dealership financing and give you advice on pre-approval.

Dealership Financing: The Pros & Cons

If you are like 70% of American car buyers, you are going to have to finance your new vehicle. When looking for car loan rates, most car buyers stop at the dealership. Truth be told, the dealership is probably the most convenient source of financing. However, convenience rarely translates into the lowest car loan rates. In other words, you pay a hefty price for the convenience of dealer financing. For one, dealerships almost always have higher car loan rates than independent lenders. This is because dealerships often make more profit on the financing deal than on the sale of the car, which means they will inflate your car loan rates to pad their pockets. In fact, the additional costs of dealership financing are estimated to cost consumers about $1 billion per year! As you can see, inflated car loan rates are a huge cash cow for dealerships, so you're better off shopping for car loan rates elsewhere. Remember these facts if you pursue car loan rates through a dealership:

  • Dealership financing is probably the most convenient source of financing
  • Dealers often make more profit on the financing deal than the car sale
  • Studies show that members of visible minorities are charged higher car loan rates by dealerships
  • Dealers sometimes make money by selling your auto loan to other lenders who pay them commission for the interest mark-up they charge you on your car loan rates

Get Pre-Approved for Your Car Loan

Ideally, you should shop for car loan rates before you even begin looking for your new car. This way, you can get pre-approved for your car loan before you even set foot on a car lot. Entering a car-buying transaction with pre-approved financing makes you a more attractive buyer to dealers. Additionally, you can use the offers you get on car loan rates as leverage to negotiate with the dealer. If your dealer offers you a choice between 0% financing and a cash rebate, you are always better off taking the cash rebate. Research shows that only about a third of customers actually qualify for 0% financing, and the hidden costs of such loans are considerable. Instead, take the cash rebate and apply it toward your down payment on independent car loan rates. This way, you will get competitive car loan rates without the hidden costs and higher monthly payments.

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