Auto Loan---Don't be Fooled by Low Rates

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A friend of mine currently has an auto loan with an interest rate of 8%. To me, that is insanely high. It is a cruel reality that many of us have similarly crazy auto loan interest rate. Seeing that the loan interest rates are pretty low recently, I advised my friend to refinance his auto loan. I offered to help to find the best refinance deal for him due to his busy work schedule.

I have never done an auto loan, so I did the hard way. I compiled a list of prospective lenders including some well-known banks and online lenders. That included places like Wells Fargo, US Bank, Bank of America, Capital One, Santander, and Carfinance. Most of them have detailed information regarding auto loan on their website, so all I needed to do was visiting their sites. Before doing this, I did visit Bankrate to see rates and prospective lenders, but there were only two to three institutions listed. I needed more than that in order to compare well. That was why I made a list by myself. 

My first step of rate comparing was to find out the lowest rate they could offer. That meant the rate they could offer to someone who had a perfect credit score and a clean loan application. At this step, it was easy to get rid of some of the prospective lenders. For example, if most lenders’ best rate was 3.00%, but one could only offer 4.00% at best, my instinct was simply walking away from the higher one.

The irony of auto loan rate shopping is that, many prospective lenders are not willing to tell shoppers a rouge rate range they can offer until they pull their credit scores. I found that annoying. Not many people are willing to let others pull their credit scores unless they liked what they saw or heard from their preliminary contact. I always tried to explain to these institutions that I needed to have some idea of their rates before going to the next step. Unfortunately, some were too stiff and they lost our business right there.

The second step was to work closely with institutions on my short list. I only had two left. Their lowest rates were around 2.50%. Both were reputable institutions and had local branches (real people to talk to if needed). At this step, I looked into their requirement of credit score in order to get their best rates. It turned out one of them required a much higher credit score in order to get a good rate. Eventually, my friend went with the remaining one, and he got a rate of 4.00% or so.

What I have learned in this process was that, do not be fooled by the low interest rates you see on advertisements. They are often put there to lure people to finance with them. They want you to borrow money from them, and with a much higher interest rate than what you had in mind!

No matter what kind of loan you are looking for, you need to shop around carefully. Ask about their requirement of credit scores and other related information. Do not be intimidated by them. If they refuse to provide information you need, walk away. If their customer service makes you uncomfortable even before you become their customer, think how they might treat you after they already sold you stuff. It is better to end with one that has a higher interest rate but good customer service, as compared to someone with a low rate but bad customer service. Bad customer service might add a lot of trouble to you in a long run.