You may have seen coverage recently about auto dealership charging minority customers exorbitant loan rates. Some auto makers have recently settled lawsuits. But Consumer Reports says anyone who is buying a car a dealer will likely pay more for an auto loan. But you don't have to. Here is what you need to know.
If you are looking to buy a car like most people you will get an auto loan through the dealership. But what you may not realize is you will probably end up paying much more for the loan than you have to.
Consumer Reports Laura Washington says dealerships routinely mark up auto loans. "Your interest rate is based on your credit history. What most people don't realize is the dealer then tacks on an additional 2 or 3 percent to that interest rate." That means you could end up paying thousands of dollars more for a car than you have to.
To see why auto loan markups are so costly, consider a typical 22 thousand dollar loan for a 60-month period. Your credit rating qualifies you for a loan at a 5 percent interest rate. But the dealership quotes you a rate of 8 percent. The total cost of the vehicle with the 5 percent loan is a little less than 25 thousand dollar. But with the 8 percent loan you would end up paying close to 27 thousand dollars for the vehicle or one thousand eight hundred and fifty five dollars more.
"Believe it or not, it is legal. There are no laws against it. It is a industry wide practice."
Consumer Reports says you can usually do better at a bank or credit union. But no matter where you apply for an auto financing, to get the best rate on a car loan: First, get a copy of your credit report before you go shopping. Check to be sure it will include your credit score that is important. Then compare interest rates being offered.
Web sites like bankrate.com can help you scope out the going rates. Now, if you want to finance through a dealership, you are in a position to negotiate a better loan rate.
Everyone knows the sticker price on the car is negotiable. What people also need to realize is the interest rate the dealer quotes them is negotiable as well."
And if you are not happy with the rate, you can take your business elsewhere.