With the COVID-19 pandemic and rising interest rates, the automotive industry has experienced a turbulent last few years — and getting a new car is becoming costlier. That’s not good news for drivers whose new car budgets may be tighter than before inflation took off.
But there is some good news, at least for those looking to take out an auto loan: Prospective buyers who shop around could save an average of $5,198 by choosing the offer with the lowest APR over the one with the highest, according to our analysis of auto loans offered on the LendingTree platform.
Here’s what else we found.
Key findings
- People who shopped for auto loans on the LendingTree platform in January 2023 could save an average of $5,198 by choosing the offer with the lowest APR over the one with the highest. The average highest APR offered in January 2023 was 13.82%, while the lowest APR was 8.98%. The average amount offered was $32,012 over an average term of 66 months. That comes to an average monthly payment of $695 versus $616.
- Prospective car buyers with higher credit scores could save more than those with lower ones. Super-prime borrowers with credit scores of at least 720 could save an average of $6,711 over a typical loan. This is because they see the biggest average difference (or spread) between the highest and lowest APRs offered to them for the same loan at 5.75 percentage points (or 575 basis points).
- Shopping around isn’t the only way to save a huge amount of money on a car purchase — raising your credit score is key. Someone with a near-prime credit score between 620 and 659 could pay $5,491 more than someone with a super-prime credit score to borrow $32,012 for an auto purchase — even after shopping around for the lowest possible rate.
Auto loan borrowers could save an average of $5,198 by shopping around
Shopping around for an auto loan could save potential car buyers thousands. As of January 2023, people who shopped for auto loans on the LendingTree platform could save an average of $5,198 by choosing the offer with the lowest APR over the one with the highest.
In our analysis of the LendingTree platform, the average highest APR offered was 13.82%, while the average lowest APR was 8.98%.
Average auto loan offers
| Average minimum offer (APR) | 8.98% |
| Average maximum offer (APR) | 13.82% |
| Average amount offered | $32,012 |
| Average term length offered (months) | 66 |
Source: Analysis of a random sample of more than 1 million auto loan term offers to LendingTree users on the LendingTree platform in January 2023. Note: Calculations were done using non-rounded figures but rounded figures are displayed.
The average amount offered was $32,012 over an average term of 66 months. Those taking the maximum offer would pay an average of $695 a month, while those taking the minimum one would pay an average of $616 a month.
Average monthly payment
| Average monthly payment on a minimum APR offer | $616 |
| Average monthly payment on a maximum APR offer | $695 |
| Monthly difference | $79 |
| Difference over average term length offered | $5,198 |
Source: Analysis of a random sample of more than 1 million auto loan term offers to LendingTree users on the LendingTree platform in January 2023. Note: Calculations were done using non-rounded figures but rounded figures are displayed.
According to LendingTree chief credit analyst Matt Schulz, those potential savings could be big for car buyers.
“Over a year, that’s more than $900 that could be used to pay bills, knock down debt, build an emergency fund, save for retirement or college or countless other things that can help make a family’s financial life easier and more secure,” he says. “Spread those savings out over a five- or six-year loan and the numbers are eye-opening.”
High credit score buyers could save more than low credit score buyers
Some consumers could save even more than others — particularly those with good credit. In fact, super-prime borrowers with a credit score of at least 720 could save an average of $6,711 over a typical loan.
That’s because they see the biggest average difference (or spread) between the highest and lowest APRs offered to them for the same loan. The average highest APR super-prime borrowers were offered on the LendingTree platform was 11.88%, while the average lowest APR offered was 6.13% — a spread of 5.75 percentage points (or 575 basis points).
Super-prime borrowers were also offered the biggest loans, at an average of $37,298. In total, this represents a 13.3% discount on the cost of purchasing a vehicle.
Average auto loan offers by credit score
Source: Analysis of a random sample of more than 1 million auto loan term offers to LendingTree users on the LendingTree platform in January 2023. Note: Calculations were done using non-rounded figures but rounded figures are displayed.
Meanwhile, prime borrowers with credit scores between 660 and 719 could save $5,448. With an average maximum APR of 12.25% and an average minimum APR of 6.99%, there’s a difference of 5.26 percentage points. That’s on an average offered loan of $31,155 across 67 months — representing a 12.6% discount on the cost of purchasing a vehicle.
Following that, near-prime borrowers with scores between 620 and 659 could save $4,276. That’s thanks to an average difference of 4.22 percentage points between the average maximum APR (15.01%) and minimum APR (10.79%). On an average offered loan of $28,074 across 69 months, that’s a 10.2% discount.
Subprime borrowers with scores below 620 could still save a decent amount of cash, though their savings are much less significant than those with better credit scores. These potential buyers could save $1,964. They see the lowest average spread — with an average maximum APR of 19.84% and an average minimum APR of 17.48%, that’s a difference of 2.36 percentage points. On an average offered loan of $21,372 across 69 months, that represents a 5.5% discount.
Average monthly payment by credit score
Source: Analysis of a random sample of more than 1 million auto loan term offers to LendingTree users on the LendingTree platform in January 2023. Note: Calculations were done using non-rounded figures but rounded figures are displayed.
According to Schulz, higher credit score buyers have more financing options than those with low credit scores because lenders see them as less risky.
“Your credit score tells a lender how likely you are to pay them back if they lend you money,” he says. “Banks are eager to lend to folks with great scores, but they’re much more reluctant to lend to those who don’t. The truth is that there is little in life that is more expensive than crummy credit. It can cost you thousands and thousands of dollars in the form of interest, fees and other costs associated with everything from auto loans to insurance premiums.”
Raising your credit score could unlock more auto loan savings
Given the difference in offers between those with good credit scores and those with poor credit scores, it’s worth emphasizing that shopping around isn’t the only way to save some cash on a car purchase. Raising your credit score is also crucial.
On the average loan size of $32,012, someone with a near-prime credit score between 620 and 659 could pay $625 a month over 69 months based on the average lowest APR offered; meanwhile, those with super-prime credit scores of 720 and above could pay $588 over 64 months. That means near-prime credit score borrowers could pay $5,491 more than someone with a super-prime credit score — even after shopping around for the lowest possible rate.
Total cost of a $32,012 loan by credit score
Source: Analysis of a random sample of more than 1 million auto loan term offers to LendingTree users on the LendingTree platform in January 2023. Note: Calculations were done using non-rounded figures but rounded figures are displayed.
Unsurprisingly, that difference is most prominent between subprime and super-prime borrowers. On the average loan size of $32,012, subprime borrowers with scores below 620 could pay an average of $739 a month over 69 months — meaning they could pay $13,354 more than super-prime borrowers even after shopping around.
Looking for an auto loan? Here’s what to keep in mind
If you’re looking to finance a new car, Schulz says shopping around is the best thing you could do to try to get low rates. Particularly, he recommends:
- Get preapproved for financing. “Chances are the financing deals offered by the car dealership aren’t going to be nearly as good as what you could get from an outside lender,” he says. “Take the time to rate shop. It can make a big difference.”
- Don’t be afraid to wait. “Auto loan rates are high right now,” he says. “If you can wait a few months to get that vehicle, using that extra time to save money for a down payment, it’s likely a good idea.”
In addition, for those who aren’t super-prime borrowers, Schulz recommends taking steps to improve your credit score. While it takes time to raise your credit score, he offers the following tips:
- Knock down your credit card debt. “That’s a good thing to do for many reasons, but it could also send your credit score higher because it could improve your credit utilization, which is the second-most important factor in FICO credit-scoring formulas,” he says. “Of course, paying down that debt is easier said than done, but it should be every credit cardholder’s goal.”
- Increase the credit limits on your current credit cards. “It’s vital that you don’t just see the higher credit limit as an excuse to spend because — if you do — you’ll end up making things worse on yourself,” Schulz says. “However, if you can avoid the lure of spending that new credit, it could lower your utilization rate and bump up your score.”
- Removing mistakes from your credit report can significantly boost your credit score. “These errors are more common than people realize and can do real damage to your score,” he says. “It’s difficult enough to have a good credit score. The last thing you want is for someone else’s mistakes or fraudulent activity to weigh down your score unnecessarily. Review your reports from the three major bureaus at AnnualCreditReport.com and report any mistakes to the bureaus when you find them. Just know that the process of removing these errors can take time.”
- Ultimately, nothing matters more to your score than your payment history. “If you’re planning to apply for a loan soon, take steps to make sure you’re always paying on time,” Schulz says. “Autopay can be a great way to do so.”
Methodology
LendingTree researchers analyzed a random sample of more than 1 million auto loan terms offered to LendingTree customers on our platform in January 2023.
The average lowest and highest APRs offered to each customer were calculated, along with the average loan size and term length offered across all the offers they received.
These results were then aggregated by credit band category before being used to calculate the average monthly payments and total amount paid over the length of the loan under the highest and lowest offered APRs.
The credit band categories are defined as:
- Subprime (credit scores below 620)
- Near-prime (620 to 659)
- Prime (660 to 719)
- Super-prime (720 and higher)
This article originally appeared on LendingTree and was syndicated by MediaFeed.
More from MediaFeed:
- The creepiest unsolved mysteries in America
- Ranch dressing, root beer & other fave foods that foreigners hate
- The most breathtaking hikes in America
Like MediaFeed’s content? Be sure to follow us.
14 things to consider before buying a new car
There’s more to buying a car than kicking the tires and taking the first price that comes along. You need time to ask questions, but perhaps aren’t sure where to start. Here are questions that cut to the chase of what’s important when looking for a car — new or used.
SPONSORED: Find a Qualified Financial Advisor
1. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to 3 fiduciary financial advisors in your area in 5 minutes.
2. Each advisor has been vetted by SmartAsset and is held to a fiduciary standard to act in your best interests. If you’re ready to be matched with local advisors that can help you achieve your financial goals, get started now.
DepositPhotos.com
Things to pay attention to include miles, total price, rebates and accessories. Ask the salesperson these questions upfront to avoid surprises later on, both in the finance office and years down the road.
DepositPhotos.com
The odometer most likely won’t be zero. The car should have at least a couple miles on it from when the dealership did a safety inspection. It may have several miles from other people taking test drives. It should not have more than 100 miles. If it does, you could use that to negotiate the price down.
DepositPhotos.com
It’s important to ask not just how long a warranty is, but what it covers during that time. A “lifetime warranty” typically lasts for as long as you have the car, but usually covers only the powertrain of the vehicle, not the things most likely to break. Things more likely to break, such as electronics, are covered for less time. You may have to start paying for repairs three years into your car ownership, rather than never. Every brand has a different warranty and every warranty has limitations on what it covers and what it doesn’t. For more information on warranties, you can read this warranty guide.
Extended warranties. Another reason it’s important to ask about included warranties is that the dealership will most likely try to sell you an extended warranty. If your Ford Mustang already has a three-year/36,000 mile “bumper-to-bumper” warranty, do not get a four-year/48,000 mile warranty because that only adds one year/12,000 miles to what you already have. Extended warranties on new cars start the moment you buy the car, not when the manufacturer’s warranty ends.
DepositPhotos.com
The “out-the-door price” includes fees and taxes. It is what the car would cost you if you bought it for cash. This price doesn’t include APR, but it does include all fees and taxes. This way, you won’t be surprised by unexpected fees — and it allows you time to look up the fees to see if they are legit and negotiate them before you get to the finance office.
DepositPhotos.com
Any rebates should be included in your out-the-door price, but it’s a good idea to ask the dealer about them specifically. Go down the list of available rebates. The dealership won’t necessarily think to ask if you or anyone in your household graduated from a college or trade school within the last two years, in which case you might qualify for $500 off.
Rebates come from the manufacturer, not the dealership, so it’s not like the dealership will play coy in telling you what’s out there. What helps you helps them make a deal. You can check out this guide for more information on how rebates work.
DepositPhotos.com
An auto loan pre-approval could help you a lot. If you already have a loan offer, you can ask the dealership to beat it instead of depending on the dealership to tell you what your interest rate will be. Consider applying to your bank, credit union or online lender to get a pre-approval. And at LendingTree, you could get up to five potential auto loan offers from lenders by filling out one online form.
DepositPhotos.com
Some car models do not come with a spare tire as a way to save money and space. If a particular thing is important to you and you don’t see it, ask about it. Floor mats? Roof rack? Cargo cover? Navigation chip? It could be that some of the features, such as the floor mats, are just in the trunk, or that small, expensive things, such as the navigation chip, are kept under lock and key until someone buys the car. But it could also be that something very important to you doesn’t come with that trim level or car model. You might have to buy accessories separately, negotiate them into your car deal or switch to a different model.
DepositPhotos.com
Questions you should ask when buying a used car differ from those for a new car. For a used car, the focus is on potential problems and the vehicle’s history, which will tell you if the vehicle is likely to have problems down the road.
DepositPhotos.com
Ask if the car is “as is” and for a copy of the return/repair policy in writing. In many states, selling a car “as is” means there is no warranty on it and the seller is not responsible for any problems that may arise. So if you get a lemon car, you may not be able to do anything about it, depending on your state.
Different states have various consumer protection laws. Some states, such as New York, have a three day “cooling off” period that could allow you to cancel a contract and return a vehicle. Other states such as Colorado and Alaska not only do not have a “cooling off period,” their lemon laws don’t cover used cars.
You can check on the vehicle manufacturer’s website to see if the car is still under some type of warranty, read up on how to find the best extended car warranty and read more on how to avoid buying a lemon car. You could also look up your state’s lemon laws on your state’s department of motor vehicles or attorney general websites.
DepositPhotos.com
Basic maintenance is essential to a vehicle’s longevity. Regular oil changes are the best way to keep an engine in working order, according to Mary Melchor, a service adviser in San Antonio. “Check the owner’s manual to see what type of oil is recommended and the recommended maintenance schedule,” Melchor said. By comparing that answer with the salesperson’s — or, even better, a maintenance log — you can get a good idea of how the car has been maintained. The rule of thumb on oil changes is you should change standard oil about every 5,000 to 7,500 miles; synthetic oil every 10,000 to 15,000 miles. If the owner doesn’t have maintenance logs, check the vehicle history report, which we discuss more below.
DepositPhotos.com
This is a nice way to ask if the vehicle has any problems. The owner or salesperson might recommend you get new tires before you go. Whatever they tell you, look up the cost of fixing or replacing that thing and see if they’ll deduct that from the price.
DepositPhotos.com
A VHR could tell you how often the car was maintained: oil changes, tuneups, in addition to the following, all of which could impact how much the car is worth and whether it’s trustworthy.
- Accident history. Whether it was in an accident (and if so, how bad it was). If the car was in a major accident, it might not be trustworthy to keep passengers safe in the next potential accident.
- Number of owners. If it had five owners in four years, it probably has expensive problems passed on from owner to owner.
- Vehicle locations. If it was used in Alaska for 11 years, it might have rust problems underneath the car you wouldn’t normally see.
- Odometer data. If the VHR says the car had 90,000 miles the last time it got an oil change two months ago, but the current odometer has 70,000 miles, the owner might have fooled with the odometer and rolled miles back to make you think the car is in better shape than it is.
- Theft and salvage history. If it’s stolen, that would obviously be good to know, and if it is considered salvage, that means the insurance company considers the vehicle a total loss. A salvage vehicle can look perfectly fine but is worth much less than an undamaged car. Many lenders won’t finance a salvage vehicle and you might have a hard time finding auto insurance.
Most car dealerships provide a CarFax VHR for free. Private owners may or may not give one, but you could obtain one yourself from CarFax, AutoCheck or the National Motor Vehicle Title Information System.
DepositPhotos.com
Having an independent auto mechanic tell you whether the car is in good shape could be invaluable for your peace of mind and your wallet. This is one of the best ways to determine if the car is worth the price and whether it will be trustworthy. If the owner or dealership doesn’t allow it, that’s a red flag.
DepositPhotos.com
In addition to the questions above, here are a few questions to ask when buying a used car from another person (versus from a dealership or used car lot).
DepositPhotos.com
When you buy a used car directly from a private owner, you typically have the advantage of seeing and having a conversation with the person who knows it inside out. This is your opportunity to strike up a good, short relationship as you need honest information and want a cordial negotiation.
A key piece of information is why they’re selling the car. Is it simply time for a nicer, newer car? Or is it because this car started having problems? See how they answer the question and pay attention to nonverbal cues, too. If the seller is overly nervous, in a hurry or tries to rush you, that’s not a good sign; it may be a scam. (You could read about how to avoid a Craigslist car scam here.) On the flip side, if they’re relaxed, readily answer questions and show pride in the car’s appearance and upkeep, that may speak well of how they have maintained the car.
DepositPhotos.com
By asking this, you’re asking the seller to justify the price they set. It also gives you information you could use to negotiate. They might say they just made the price up, thought it sounded fair or that this exact price covers their bills. If they present any of these reasons, you could counter them with legitimate research such as what similar cars are selling for in the area or what an industry guide like National Automobile Dealers Association or Kelley Blue Book gave as vehicle worth. NADAguides and KBB are free online tools often used by lenders to determine vehicle values.
If the seller says they based the price on an industry guide, you can counter and say the guide assumes the car is in good condition, not needing repairs, and then explain how much repairs would cost as reasons for lowering the price.
DepositPhotos.com
The seller can’t sign over the title if they don’t have it. And they can’t legally sign over the title if the car doesn’t officially belong to them — they might still owe money on it, or there’s a different person listed on the title. (Good rule of thumb: Check the name on the title against the seller’s driver’s license). If there are two people listed on the title and their names are joined with the word “and,” you need both people to sign the title over to you. If their names are joined with the word “or,” then only one of the two people on the title needs to sign it.
DepositPhotos.com
Trust your instincts. Don’t be afraid to ask “dumb” questions to dig and get to what you want to know. Focus on questions that can get you answers that will reveal how reliable the car will be and how much it will cost in total.
This article originally appeared on LendingTree.com and was syndicated by MediaFeed.org.
DepositPhotos.com
istockphoto / perinjo
Featured Image Credit: martin-dm.
