When Grant Winter walked into a Tenafly, N.J. BMW dealer last month, he felt confident he'd get a good deal.
Armed with a pre-approved loan through Capital One he'd secured through the
Internet, the president of a midtown video news producer told saleswoman Ricki
Shamen he could write a blank check for the full purchase of a new $60,000 X5
sport utility vehicle.
"I heard her on the phone saying 'he's paying cash'," said Winter, who estimated
he'd saved more than $2,000. And so he turned in his red Toyota Celica - for
which he had financed for over 7% six years ago - and drove home in his new
Beemer.
Shamen, for her part, wouldn't concede she gave a price break purely on the
basis of a cash deal. But she said the Internet has made car shoppers like
Winter "a lot more savvy, they know what things cost."
A growing economy has enabled carmakers to gradually wean shoppers off the 0%
financing deals that had spurred sales following an economic slowdown that was
worsened by the Sept.11, 2001 terrorist attacks.
Last year, only 8% of car buyers got a loan close to 0%, down from 16% in 2002,
according to J.D. Power & Associates.
As a result, customers are putting as much effort into shopping for good loan
terms as they are for price.
Leading online lenders like Capital One and are seeing a spike in business
thanks to partnerships forged with web loan brokers like LendingTree and Ditech
that seek out the best offers for applicants.
Winter's efforts scored him a 5.9%, 60-month loan for his BMW, below the 6.3%
metro-area average. The average 60-month rate has jumped from 5.2% a year ago,
according to which translates into an extra $1,800 on a $20,000 car loan.
And with consumers increasing the amount of debt they take on to buy cars,
digging for the lowest possible loan has become more important as a way to save.
The length of the average loan has now climbed to 58 months from 53 months in
2001, according to J.D. Power. At the same time, the average down payment has
dropped to 5% of the car's purchase price, a third of what it was a decade ago.
Now, one in every two potential car buyers said they planned to secure financing
outside a dealership this year, according to Kelly Blue Book, a consumer
resource for car deals. One in four intending to get it directly through the
Internet.
"Everyone's heard so much about great incentive deals that they had become
addicted to them," said Rick Wainschel, a vice president of Marketing Research
at Kelley.
"Some are just finding out that it's good leverage to walk into a dealership
with an all-cash deal in your back pocket."
Shopping the Internet for a lower rate, however, could result in smaller
rebates. Chrysler, for example, often issues a $1,000 financing rebate for those
borrowing through its lending arm.
"When someone comes in with a pre-approved loan, I ask if they wouldn't rather
save $1,000," said John Koufakis, owner of Major Chrysler in Long Island City.
But the growing trend might explain why a recent Scarborough Research finding
showed that the issue of "financing through the dealer" ranked low on a list of
consumer concerns - behind price, convenience and dealer reputation.
"We think it's possible that with more people financing outside, they're just
not thinking of it as an issue," said Alisa Joseph of Scarborough's Advertiser
Marketing Group.
Tips on Financing a new car
Search the Internet: Where competition has created bargains.The Internet has
brought lots of competition to the auto loan market. The more places you look,
the better the deal you may get.
Do the math: A lower rate from an Internet lender may offset a rebate tied to a
dealer's financing.
Check the math: When a salesman calculates monthly payments, make sure you're
not overpaying.
Watch for balloons: A discount off the price in exchange for a long loan with a
"balloon payment" due at the end may add to costs. This could help avoid upfront
fees if you want the car now and expect a better income later.
Originally published on April 3, 2005