2014 AUTO FINANCING REPORT

December 2014 - Is now a good time to buy a car? Well, a lot of people certainly seem to be doing it. Through October 2014, year to date new vehicle sales are up 5.4% over 2013 at 13.6 million vehicles sold, according to the National Automobile Dealers Association. And, through the second quarter of the year, used car sales are at 18.72 million, according to Edmunds.

With the economy improving, the average vehicle at 11.4 years old and a variety of technologically advanced new models hitting the market, it seems that demand is high. Prospective buyers also have near record low interest rates on their side, making the purchase decision easier for the roughly 92% of consumers who finance or lease. But where can the best deals be found in this market?

In order to help people determine whether it’s best to go new or used, loan or lease and bank, credit union or dealership, we analyzed auto financing offers from 157 lenders, including 27 community/small banks, 47 regional banks, 10 national banks, 52 credit unions, and 21 car manufacturers. Hopefully, the benchmarks and trends revealed through this analysis will provide the necessary foundation for a strategically managed car buying decision

Key Findings

Car manufacturers charge the lowest auto loan rates for new cars (40% below average), followed by credit unions (24% below average). National banks charge rates that are close to average, while regional banks charge the highest rates (40% above average). Mitsubishi, Nissan and Kia offer the lowest financing rates out of the manufacturers we examined, while Chevrolet, BMW, Mitsubishi and Honda offer the best lease deals.

You’ll pay 20% less interest on a new car than a used one these days – the highest spread recorded in the last 2 years. In other words, if you’ve ever wished to buy new, now is the time to push the deal through!

Financing a car costs four times more if you have fair credit than if you have excellent credit. This would amount to roughly $6,000 in extra interest paid over the life of a $20,000 five year loan.

Interest rates on bank car loans have fallen by around 15% since Q1 2012 for new cars and by around 10% for used cars and appear to have stabilized in recent months.
Car manufacturers are altogether not very transparent about their leasing plans with the most transparent companies – Mazda, Infiniti and Mini – only receiving scores of 6/10 in this category. All other manufacturers received a score of either 3 or 1.

Car dealers are infamous for marking up the auto financing rates they pass on to consumers from other financial institutions. According to the latest data from The Center for Responsible Lending, the average dealer markup for new car loans is 1.01 percentage points and the average markup for used car loans is 2.91 percentage points. This practice costs consumers roughly $26 billion in additional interest over the life of their loans and has recently been the focus of scrutiny by the Consumer Financial Protection Bureau. As a result, it is important for consumers to always shop around for auto financing and not take car dealers at their word.

If you plan on keeping your car for 3 years, 90% of car manufacturers offer a better deal if you finance rather than lease. Based on this data, it is clear there is no universal rule for when to lease vs. buy, and consumers should always make sure to crunch the numbers before making a purchase.

Who Offers the Best Rates?

Financing Offers by Car Manufacturer

It is important for consumers to understand that car dealership financing offers may originate from the financing arm of a car manufacturer or from a third party financial institution. The following offers reflect financing available directly from car manufacturers’ financing arms.

Note: Above data is based on a 36-month term. The APRs presented for the financing and lease programs of the car manufactures are only informative. The actual values that one can obtain are based on various factors, including credit worthiness, income, location, promotional programs and, believe it or not, negotiation skills. Make sure to always check upfront with a dealer about the availability of any discounts for particular groups (i.e. USAA members) that you might qualify for as well as whether any other costs and/or restrictions may be imposed, especially in the case of lease contracts.

Rates over Time

Note: Above data is based on a 36-month term.

Excellent vs Fair Credit Score

Note: Above data reflects a $20,000 5-year loan for a new car with a fixed interest rate, using WalletHub’s interest rate data from Q4 2014.

Manufacturer Transparency

Leasing offers are the most difficult type of car purchasing arrangement for consumers to understand, as they lack the equivalent of an APR that can be used for comparison purposes. As a result, the transparency of manufacturers about these deals is integral to the consumer’s ability to make informed decisions.

Raz Daraban • Communications Manager, WalletHub

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