Buzz
When visiting a dealership, car buyers often focus on negotiating the vehicle price. However, don't overlook the fact that car loans are negotiable as well.
If you plan to finance your car instead of paying upfront, you might assume that the dealership's financing is your only option. However, recent research highlights the importance of shopping around for the best deal.
The study was conducted by professors from the MIT Sloan School of Management and the Marriott School of Business at Brigham Young University. They analyzed data from over 4 million car loans sourced from 326 different financial institutions across the U.S. The findings reveal some surprising insights:
“Search frictions”—including the time and effort involved in finding and applying for other financing options—often make it much harder for consumers to secure the best interest rate based on their credit profile.
Fewer than 20 percent of borrowers in the study's sample successfully secured an auto loan at the lowest available interest rate...
Most borrowers only need to gather three interest-rate quotes to get close to the best possible rate.
As Professor Christopher Palmer from MIT noted, “Consumers often miss the opportunity to shop around for better interest rates. This oversight can be costly — even small differences in monthly payments can add up, and many people discover they can afford a newer car when they find a better rate.”
Next time you're shopping for a car, keep this in mind: take the time to shop around. Compare auto loan terms at local banks and credit unions. It may take a little extra time to gather a few quotes, but the money saved on interest will be well worth it.
