Average car loan rate of 6.21% lowest in decades! Courtesy Chevrolet San Diego has over ten, 2011 models at 0% APR.

1/28/2011

Interest rates on auto loans are hitting record lows, a boon to car buyers and a benefit to the nation's recovering auto industry.

The interest rate on a four-year loan for a new car averaged 6.21% in the latest weekly survey of major banks and thrifts, according to Bankrate.com. That's the lowest average rate in more than two decades of tracking. A few lenders are offering rates as low as 2.99%, says Greg McBride, senior financial analyst for Bankrate.com.

Edmunds.com says interest rates on new car purchases overall in December, including automaker-subsidized loans, averaged 4.16%, the lowest since the car-buying research site started keeping track of rates in January 2002.

Rates were a half-percentage point lower than in December 2009. Edmunds recorded the highest average new car loan rate at 8% in January 2006, when sales demand was higher and credit-rating standards looser.

Leading to low rates:

Lender competition. Some of the lowest rates are coming from large national or regional banks, which McBride says is unusual. Now that the dust is settling from the banking crisis, "There is certainly a market-share grab taking place," McBride says.

"What's really driving our market right now are these low interest rates," says Pete Greiner "The national lenders became very competitive."

Auto sales push. Growing but still comparatively weak sales are leading automakers to offer more 0% and other subsidized interest rates to sell cars.

Focus on lower-risk borrowers. Lenders typically offer their lowest rates to lowest-risk borrowers. Fewer loans are being made to higher-risk customers. So well-heeled luxury-car buyers landed the lowest rates in December, Edmunds.com says. "If you have a credit score that's decent, you can definitely take advantage of it now," says Edmunds.com analyst Ivan Drury. Although automakers typically offer great deals at year's end to boost sales, some of the better deals still exist, he says.

Not only are customers benefiting from the low rates, but the value of their trade-in is up. Both factors lead to higher car sales, says Paul Taylor, chief economist for the National Automobile Dealers Association.

Some buyers take advantage of lower rates to buy larger or fancier vehicles. Others just pocket the savings, says Tim Smith, "It goes both ways," he says.

Source: USA Today

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