We publish an auto lender review guide to help buyers see current rates from top nationwide lenders.
For your convenience, here is data on what rates looked like across Q2 of 2022.
|Super Prime||781 - 850||2.96%||3.68%|
|Prime||661 - 780||4.03%||5.53%|
|Nonprime||601 - 660||6.57%||10.33%|
|Subprime||501 - 600||9.75%||16.85%|
|Deep Subprime||300 - 500||12.84%||20.43%|
Source: Experian 2022 Q2 data, published in August of 2022
For historical comparison, here is what the data looked like in Q1 of 2020 as the COVID-19 crisis spread across the United States.
|Super Prime||720 or higher||3.65%||4.29%|
|Prime||660 - 719||4.68%||6.04%|
|Nonprime||620 - 659||7.65%||11.26%|
|Subprime||580 - 619||11.92%||17.74%|
|Deep Subprime||579 or lower||14.39%||20.45%|
Source: Experian 2020 Q1 data, published on August 16, 2020
Across the industry, on average automotive dealers make more money selling loans at inflated rates than they make from selling cars. Before you sign a loan agreement with a dealership you should contact a community credit union or bank and see how they compare. You can often save thousands of dollars by getting a quote from a trusted financial institution instead of going with the hard sell financing you will get at an auto dealership.
If our site helped you save time or money, please get your accessories like cell phone chargers, mounts, radar detectors and other such goodies from Amazon.com through our affiliate link to help support our site. Thank you!
Auto dealers frequently offer customers a rebate or low interest, even zero interest, financing. While both options have their benefits, it isn't necessarily a matter of flipping a coin. Before making a final decision in either direction, it's definitely a good idea to know what distinguishes auto loans with low interest rates and rebates. That's the best way to determine which option best suits specific needs, including budgets and long term effects.
Try to have a thorough knowledge of what incentives are available before contacting any dealership. This includes rebates, low interest financing, disounts and other incentives. They know it's a volatile market. Retailers and manufacturers are constantly looking for promotions that will get you into the dealerships to buy their product. But don't dive in until you have an upper hand.
Know your price range and stay with it. Your credit history is all important. It can be a path to extremely low interest rates or disturbing high ones. If your monthly credit obligations are in good standing, you're in good shape. That will definitely give you room to negotiate a solid rate because the dealer knows you can go somewhere else, maybe even getting zero interest financing. Remember that incidentals like extended service contracts, auto protection, credit insurance, etc., are not included in the price of the car.
A rebate is a powerful motivator used by car dealerships and manufacturers to entice customers to buy. Rebates are amounts of the total cost that's returned to the consumer. It can be done by reduction, refund or return on any money to be contributed to the purchase. A rebate can cover a large portion of a down payment or completely cover the down payment, either way making any subsequent monthly payments smaller.
These incentives are heavily promoted. The market is fierce and the economy is revolving. Consumers are holding onto older products, like their cars, longer. Marketers are keenly aware one of the best ways to encourage customers is through the promise of saving while spending. Rebates support this line of thinking quite effectively.
There are several forms of rebates. An instant rebate is the ideal. In this situation, the promised cash return is applied instantaneously to the auto's price. Mail in rebates may arguably be the most common method applied to rebates. In this case, the consumer purchases the new vehicle at retail but they are supplied with a coupon, sales receipt or barcode. This data would be presented to the manufacturer, or in some cases, back to the retailer, via snail mail, phone or the Internet. The promised rebate amount would then be issued via paper check or a prepaid card. The process will typically take between four to eight weeks. There are rebate periods that can last up to twelve weeks. The state of Connecticut and Rhode Island require consumers offered the net price of any item after rebate receive that amount with purchase.
One disadvantage to a potential rebate is, of course, the customer will need to have the funds upfront. Despite any eventual savings, unless it's an instant rebate, waiting a good month or more to get that hard earned $1,000 back can be a tough call.
Rebates aren't only for the consumer. They've become a great marketing tool for retailers and manufacturers.
There are a number of financial products that constitute financing for a new automobile. They all allow a consumer to acquire a vehicle without a lump sum payment. A third party supplies the financing. This can be the retailer, a bank, a lending institution or any combination therein. The buyer and lender enter into a contract agreeing on terms for repayment, as well as finance charges and the period of time given for repayment. This is the most common method for getting a new car.
Laws regarding auto loans can vary state to state. It might be prudent to contact your state's Attorney General or consumer protection agency to find out more about them. Federal laws for auto financing are strictly regulated.
Right now, purchasing a vehicle is a buyer's market. Thanks to the Internet, consumers can easily find the most competitive rates in regions that they couldn't reach a decade ago. In today's environment, financing has never been easier and certainly hasn't been more convenient. With these advances, consumers are definitely in a better position to realize the range of financial options available to them.
Before agreeing to any loans, make sure you can cover monthly living expenses on top of the added payments. Most lenders will make that decision and could promptly reject you. Typical loans are usually based in 3 year (36 months), 4 year (48 months) or 5 year (60 months) periods. The total financing payments will be broken into equal payments across those time frames. If that payment plus living expenses exceeds monthly income, it's not likely any low interest financing will be approved. So, when looking at a new car, take these things into account and price your dream vehicle accordingly.
Here are some financing terms to be aware of:
It might be prudent to do a little research about current car finance conditions before looking at new cars. See whose offering the rebates, best rates, discounts, etc. In many cases, one could find their new car or have financing in place before ever setting foot in a car dealership.
There are resources to prepare for purchasing a new car. There are sites that review vehicles and compare prices; dealership and manufacturer websites that offer plenty of information; quotes for potential low interest financing; access to calculators that can tell a consumer if they're better off with a rebate or low interest financing and much more.
One exceptional platform for automotive research is marketplace websites that provide access to real time information.
You've done your responsible due diligence and through this careful research found the perfect car. You've gotten the answers to all the right questions. Now you're ready to shake hands, the first offering in sealing the deal. But first: low interest auto loan or rebate?
An auto loan will always be available. It's the interest rate that matters. As a rebate is a promotional tool, dealers have to offer it. You're should be aware of any rebates. If not, it never hurts to ask before sitting at the table. To start off the negotiations, inquire about a zero percent auto loan. These are auto loans where the financing come with no interest. Not everyone qualifies, but if you're putting down a sizeable down payment and have an outstanding credit history, you have a good chance.
An auto loan will only be approved if your credit history and current expenses fall in line with loan payments. If you are looking at the car of your dreams, use an auto loan calculator to predetermine what monthly payments will look like. Take that number and add it to your monthly expenses. This should include rent or mortgage, energy bills, phone bills. There's no real way to tell what a lender will uncover when they do their background search. They may even factor in an estimate of what you're spending on groceries. So be as comprehensive as you can. If that number exceeds monthly income, you may have to move down a notch on your list of dream cars. It's not merely about being denied the loan, per say. It's should also be about not wanting to bite off more than you can chew at this time. Going into debt over a car is not practical.
Compare and tread wisely. It's not unusual to be offered deals that come with no payments for a year. That can be incredibly enticing, especially in this economy. Overall, these incentives don't really do anything except put off the inevitable. On top of that, interest rates are more likely to rise. If you are given a locked in rate, what if they miraculously go down? In the long run, you won't necessarily save anything by prolonging the payments. You could end up paying more over the long haul. The better bet is to go for a lower rate or, yes, a rebate.
A rebate can reduce the balance of the down payment or lower monthly payments. If the loan rate is low, it may beat out the eventual savings of the rebate. If the rate on the loan is high, the manufacturer's rebate will probably be a better option. There are calculators that will compare rebates against low interest rate auto loans. Use them to determine which will suit your car buying needs in the long run. These tools will use:
There are really no hard and fast solutions to choosing between low interest auto loans and rebates. Use the calculators to establish which transaction is apt for the purchase. Whether you save (a) upfront or (b) in the long run and how that helps your overall budget should be the deciding factor. There are excellent calculators for this at sites like AutoTrader and Edmunds.
In a perfect world, you'd take the rebate and the low interest rate auto loan. That won't always be the case. It's a viable option for customers with outstanding credit. The rest of us will have to pick one or the other.
One of the easiest ways to shop for a car today is by getting a pre-approved loan first. It gives you a starting point. You can approach negotiations with a little more confidence knowing financing isn't on the table. Dealers are also exceptionally happy to deal with customers that have pre-approved auto loans up front. They certainly don't want you to take that money across the street.
Using websites like CarsDirect and TrueCar to help — maybe even find — your car can only help you. Familiarizing yourself with market trends, current APRs and potential discounts puts you at the advantage. Use that information and your budget to find the best vehicle that meets your desires and personal needs. Be realistic. We'd all love to have that one car but sometimes that simply isn't feasible.
Bring the best credit history possible to the negotiations. If your history is spotty, expect tough times. You might want to weigh getting a new vehicle now against waiting until you've gotten your credit back on track. That can take six months to a year of working with your creditors and paying your bills on time. That due diligence alone will serve you in more arenas than buying a car.
Buying a new car can be a daunting task and time consuming, especially if a consumer isn't aware of the best way to prepare for the ordeal. Hopefully, this information will help make finding a new car a little easier.