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Auto loans keep getting cheaper and easier to find

Customer Frank Barba views 2012 Jeep Grand Cherokee

Customer Frank Barba views 2012 Jeep Grand Cherokee vehicles at Arrigo Dodge-Chrysler-Jeep car dealership in West Palm Beach, Florida. (Dec. 1, 2011) Credit: Bloomberg

Financing a new car or truck has never cost less, and qualifying for an auto loan is easier, too, even if your credit has a few dings and dents.

The average interest rate on 36-, 48- and 60-month new-car loans is well below 4.5%, according to our weekly surveys of major lenders.

That’s the lowest those rates have been since the survey began nearly three decades ago.

It’s also more than a percentage point less than we were paying for those loans last summer, which means hundreds of dollars in savings for borrowers.

Let’s say you need to finance $20,000 for 60 months at 5.5%. You'll pay nearly $3,000 in interest over the life of the loan. If you're charged just 4.5%, the total interest cost is a less than $2,400.

That's a savings of more than $600.

If you have average or better than average credit, you won’t even have to pay that much.

Search our database of the best auto loan rates from more lenders in your area to see if you can find a better deal.

Or look for the very best rates in our Tips & Deals box. Over the past few weeks, we’ve featured auto loans that cost between 3% and 4% at U.S. Bank and as little as 1.75% at State Employees' Credit Union, the nation’s second-largest credit union.

About the only way to beat rates like that is with an absolutely free loan from your car dealer.

Finding free financing isn't as easy as it was even six months ago, but it can be done.

In early July, more than 60 models spread across nine brands carried a manufacturer's 0%-financing offer, down from more than 100 models from 17 brands in mid-March.

But nearly 30 additional models are available with loans of less than 1%, so this is still a good option for many buyers.

Cheap financing is usually the best discount you can get on a new car or truck -- better than most cash rebates.

Here's where you'll find all of the discount loans, rebates and lease deals currently offered by the major brands.

Unfortunately, not everyone has the credit history required to qualify for 0% financing.

There are no hard-and-fast rules on how low a credit score can be and still win approval. But if you have below-average credit (a credit score of 670 or less), don't be shocked if you're turned down.

As Honda constantly repeats in all of its ads for discount financing, it's only available "for well-qualified buyers."

Having said that, it's definitely getting easier for buyers with poor credit to get auto loans of all types and at slightly lower interest rates than lenders were charging last year.

When the recession unleashed a torrent of delinquencies and repossessions, lenders limited new financing to well-qualified buyers and practically stopped making bad-credit loans.

Now credit data expert Experian Automotive says declining delinquency and repossession rates have spurred lenders to loosen purse strings and relax their qualifications for borrowing.

The financing market can be divided into prime credit (credit scores above 679) and nonprime/subprime credit (credit scores below 680).

In the first quarter of 2012, nearly 23% of all new-car loans went to nonprime/subprime borrowers, up from 21% in the first three months of 2011.

The average interest rate on a new-car loan also fell to 4.56% during the first three months of the year, down from 4.83% for the first quarter of 2011.

Of course, buyers with poor credit always pay substantially more to finance a car than buyers with good credit. But they still enjoyed a decline in rates.

The average cost of a deep subprime loan (credit scores of 501 to 600) dropped from 13.57% in the first quarter of 2011 to 12.89% in the first quarter of 2012, while the average cost for a subprime loan (scores of 601 to 640) fell from 10.38% to 9.90%.

As you might expect, record-low interest rates are contributing to a surge in auto sales.

Americans bought 18% more new cars and trucks last month than they did in June 2011, and some models were in short supply.

Take the Ford Escape, for example, which broke all sales records in June. The compact sport-utility vehicles spent an average of less than five days on dealer lots before being sold.

Overall, dealers had about 43 days' worth of new vehicles on their lots in June, according to J.D. Power & Associates, well below the normal 60-day supply.

Yet despite the demand, Kelley Blue Book says the average transaction price for new cars was down $500 from June 2011.

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