Auto Loan Rates at Record Lows — But Bring Your Perfect Credit

Financial Goals

photo: Pat Durkin

In the market for a new car? Auto experts say now could be the time, especially if you have good credit. In fact, predicts the last three days of January (Saturday, Sunday, and Monday) will offer the best deals of the month, with average discounts around 8% off the manufacturer’s suggested retail pricing (MSRP).

Data from shows that annual percentage rates (APRs) on auto loans reached an all-time low last month (4.16% compared to 4.71% in December 2009) since the company started recording those numbers in 2004. Ivan Drury, an analyst at Edmunds, says that trend is continuing with plenty of 0% APR offers for those with good credit.

Here are a few of the main driving factors behind low financing offers and other incentives.

Toyota Recalls

After the massive Toyota recalls last year, the automaker rolled out incentives to regain market share. “Toyota sold so many cars, it forced every other automaker to compete with them,” Drury explains, adding that these offers exist across the board, from economy to luxury cars. Though some consumers may have been skeptical about safety, “if you told them ‘you can save yourself 4% or 5% in financing’ that convinced most people” to buy a Toyota, he says.

Jesse Toprak, the vice president of industry trends and insights for, notes that those incentives have continued because “the cost of lending money to the automakers is extremely low. So, from their perspective, it couldn’t get any cheaper to offer these loans due to near non-existent federal interest rates.”

However, that may change later this year, as dealerships sell off excess inventory and automakers adjust production. “Car makers are becoming better at not producing too many cars that will force them to offer extremely high incentives,” adds Toprak. “[In the future,] production will be more in line with demand, so they won’t have to discount cars as heavily.”

Older Models Linger on Lots

With dealerships still trying to sell last year’s models, there are deals to be had if you’re open-minded about model and year. “[Last] week, about a quarter of all cars in inventory were still 2010 model vehicles, so you’ll find some of the best deals for those cars, and those discounts are widespread,” says Toprak. Brand new models or redesigns, meanwhile, come with generally lower discounts. “If you’re looking for a discount on a Chevy Volt, that’s not going to happen. But a Chevy Silverado? You could get a good deal.”

Fewer Trade-ins & Bank Loans

On the other hand, the consumer outlook for used cars and bank loans is less rosy. Over the last 18 to 24 months, consumers have been more conservative about upgrading to a new car, which means there are fewer trade-ins and options for those in the market for a used vehicle.

“Used cars are maintaining their value well but are more expensive to buy than they used to be,” says Jack Nerad, the executive editorial director and market analyst for Kelley Blue Book and He predicts that as the new car market heats up, more trade-ins will help soften the market again.

The outlook for bank loans could also improve later this year, though options are currently slim if you have less than perfect credit. “We expect lending criteria to be relaxed somewhat in 2011,” says Toprak. “The good news is there is credit available for more buyers now. Lenders are a bit more restrictive than they were prior to the market crash, but probably rightly so.”

Susan Johnston is a Boston-based freelance writer who covers business and lifestyle topics.

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