Low Interest Auto Financing Might Not Be The Best Deal If There Are Other Incentives Available

Most "special" auto interest rates are just gimmicks designed to get you into the dealership where you can be convinced to spend more

Low Interest Auto Financing Might Not Be The Best Deal If There Are Other Incentives Available
Image: NCCC
october 17, 2018

Chances are good that you have never been offered a very low interest car loan rate. But those rates do exist! They are usually advertised as specials to move old inventory in order to make room for new arrivals. But even if you are offered a low interest car loan, you can probably save more money by accepting a slightly higher rate and using rebates or other incentives or by getting your own financing and taking the rebates and incentives.

It's Just a Gimmick to get you into the dealership

Don't fall for low interest 'teaser' rates. Most low interest auto loan rates are gimmicks to get you into the dealership, where you get hit with high pressure sales tactics. Dealerships are banking that you want to jump on a low rate, so they advertise it heavily to get you interested.

You Probably Won't Qualify Anyway

Let's face it. The average person probably won't qualify for these ultra low interest rates. Because of the way the credit market has changed in recent years, you need truly outstanding credit to qualify for the absolute best auto loan rates. Most people don't really have that kind of credit. It may be good credit, but it might not be outstanding. So, set your expectations to what your credit looks like.

If you have poor credit, you shouldn't be expecting to get a super low auto loan rate anyway. Most ads gloss over (and sometimes don't disclose) the fact that you need to be able to qualify for the rate in order to get it. And sometimes the sales team will lie to you outright in order to get you to accept a rate that is much higher. They may even show you credit denials and not show you pre-approvals in order to make you think you have to accept a high rate.

Rebates Might Save you More Money

A low interest auto loan might sound appealing. But if you were offered a way to save more money, would you take it? Of course! Most low interest auto loan rates exclude rebates. In order to get the low rate, you need to pass on the rebates. In order to get rebates, you need to accept a higher interest rate. But if you accept a higher rate, you could save money. Let's make an example.

Say you are financing $25,000 at 0% interest for 60 months. You won't pay any interest fees, but you won't get any rebates. If you instead take a 1.9% interest rate and a $1,000 rebate, you'll finance $24,000 and pay $1,177 in interest charges, which will cost you an extra $177 in the long run. But if the rebate is $3,000, you're financing 22,000 with $1,071 in interest charges. But you'll save $1,921 over the life of the loan because of the rebate. It all really depends upon the amount financed and the interest rate.

There Might Be Strict Limitations

There's always fine print to any advertisement, or at least there should be if the dealership is doing what it's supposed to be doing. The next time you see an advertisement, take a look at the fine print. You'll probably see or hear something like "stock number 12345," which means the advertised special applies to one particular vehicle and that vehicle only. So you can show up only to find that vehicle was sold a few days earlier or is on another lot somewhere. But if you find another one you want, you can expect to pay more than you thought.

Some dealerships advertise introductory rates that then swell to a much higher rate after a few months. There might even be a minimum amount to finance.

Be careful about other language you encounter. Does it say "for qualified buyers?" How about "not available in all areas?" "See dealer for details?" All of these statements are warning signs that there is more than meets the eye.

Your Time to Repay Might Be Really Short

With awesome interest rates typical come less than awesome repayment terms. It might be a true 0% car loan, but you might only have 24 or 36 months to pay it off. That translates into a huge monthly payment, something most people don't want. If a monthly payment is really important to you, this might be a deal breaker.

Dealerships Make Money From Your Auto Loan Rate

Dealerships don't make much money from the sale of the car. In fact, they typically lose money on car sales. But they make up for it in other ways. Did you know that dealerships get money for selling you on a high interest rate? They really aren't making any money by selling you a low interest auto loan. But they will make money if they can convince you that you don't qualify for the low auto loan rate and get you to take a higher one. It's because they sell the loan.

Getting a True 'Loan' Can Take Days or weeks

Even if the dealership tells you that you're going to receive a loan for a particular percentage from a particular lender, that's not for certain. In fact, that's just who they anticipate will buy the loan from them and it's what they anticipate the terms will be. When you walk away from the dealership with an interest rate in one hand and your new keys in the other, the dealership is technically your lien holder.

The dealership will then turn around and try to sell your loan to the highest bidder for the rate they promised you. If they can't sell your loan, they might try telling you that the loan fell through and you need to either return the car or accept a higher rate, which is illegal. So when they are telling you a bank won't accept you at a particular rate, they could be bluffing you.

There Might Be Other Fees That Make Up For The Rate

Did you know that most car manufacturers already include a doc fee in the price of the car? The doc fee is a fee the dealership slips in that helps their bottom line. They might try to slip in a delivery fee, extra title and registration fees beyond what the state assesses, extended warranties, tinting fees (even if it came tinted from the factory), etc. While the interest rate may be phenomenal, there might be some surprise fees that make up for their losses. You can decline to pay the added fees.

Dealerships also get a percentage of the MSRP from the manufacturer regardless of the final purchase price. So they might try to make you feel guilty about coming down from their bogus fees.

Get Your Own Financing

It may take a few more steps, but getting your own financing before you step foot on the lot can save you thousands of dollars. It also makes the dealership more likely to negotiate with you on an interest rate. They can essentially offer you any interest rate they want, but as we learned typically keep it high in order to make money and to guarantee they can sell the loan to a finance company. Having a written loan offer in-hand makes things much easier for you and harder for them. If they can't beat your rate, just use the financing you brought with you. If they can beat it, you might save some money.

Don't forget to check out your local credit unions, which offer competitive financing rates and outstanding customer service. Members of the North Carolina Consumers Council qualify for credit union membership at a number of credit unions. Credit unions don't profit from the products and services they offer. Instead, those proceeds are reinvested back into the credit union in the form of lower rates, lower fees, and more offerings.

Don't Rush; You Might Miss Something

Get any offers in writing and then go look things over. We are often rushed into signing the deal on the spot, which increases the odds that you'll be ripped off. Does your offer show a different price for the car than what you discussed? Dealerships often try to raise the price of a car or add new fees after they agree on the price of the car. Then they try to have you quickly sign the paperwork. Once you sign that paperwork, the car and all its fees are yours, even if you previously agreed to something else. 'Typographical errors' sometimes happen when the paperwork is shoved under your face.

You may even be able to take that offer to another dealer, who might be able to beat the price. Keep taking the offer from dealer to dealer until you get a good price. You can even tell the dealer a white lie: "So-and-So Dealership is going to sell me this EXACT car— same color, same exact options— for this much. Can you do better?" Don't bother showing any offers in writing. Just walk away if they give any issues. They are almost guaranteed to chase after you and give you what you want.

How To Buy A car

We offer a info on the ins and outs of buying a car with lots of tips, tricks and advice. You should review the four part series before you even start looking for your next car to make sure you get the best deal possible.