Auto Loan Factory

Save Hundreds of Dollars with a Pre-approved Auto Loan
By Zenon Olearczuk

With America's Top Three automakers (General Motors, Ford and Chrysler) introducing their new 2007 models at this year's auto shows, consumers are comparing and shopping for the best financing deals online.

While consumer spending is down as a result of high-gas prices, and the average new vehicle loan at $24,000, buyers are financing their vehicle purchases over a longer period of time – from 4 years to 60 and 72 months. Nearly 57% plan to comparison shop through “multiple financing sources” before buying (http://moneycentral.msn.com/loan/loan.aspx?iType=3) according to a recent survey conducted by a leading lender.

What’s driving consumers buying behavior are “loans” and “purchase price.” A difference of a couple of percentage points can save or add about $1,500 in finance charges to a $25,000 loan. That’s why shopping for financing before you purchase your next car can save you hundreds of dollars.

Before visiting your dealer, remember their goal is to move cars off the lot. Having your financing in place, whether from a traditional brick-and-mortar bank or online lender, can give you the competitive edge you need to get those extra features (e.g., moon roof, leather interior, GPS navigation, etc.) at a budget you can afford.

In an effort to encourage consumers to buy on “impulse” many manufacturers have come up with creative financing options like “zero percent” or “factory rebates.” Subsidized by parent companies, these “captive financing companies” usually compete on rates and terms. Even smaller manufacturers have partnered up with national lenders, leaving them vulnerable to absorb finance charges and having to make up profits elsewhere.

This has left many banks and credit unions looking to compete on overall value. For instance, if a consumer has a choice between a 60 month term from an automotive manufacturer at a 2.9% APR or a $5,000 factory cash rebate at a 7.33% APR (the national bank average) on a $25,000 purchase, which should they choose? In this instance, using the Monthly Payment Calculator at MSN Money (http://moneycentral.msn.com/loan/loan.aspx?iType=3), obtaining a bank loan would offer the greatest savings -- nearly $2,400 over the course of the loan.

It’s best to figure out your total payment and understand what you can afford each month before you shop. You should never negotiate financing terms until you’ve agreed on the overall price. Knowing what amount you have pre-approved ahead of time can save you hundreds of dollars off your next purchase.

© 2006 Informa Research Services, Inc.

Zenon Olearczuk is a staff writer at Informa Research Services who writes about trends and investment opportunities in the financial services market. He can be reached at http://www.informars.com.

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