There’s a bright spot for dealerships that do a lot of business with automakers’ captive finance companies and preferred lenders, data on the website Wallet Hub show: Car manufacturers (that is, captives) charge the lowest auto loan rates for new cars, at 40 percent below average.
Credit unions follow, at 24 percent below average. National banks charge rates that are close to average, while regional banks charge the highest rates, 40 percent above average.
Wallet Hub, which calls itself a consumer advice site, says it analyzed offers from “157 different lenders,” large and small, to come up with those results. However, an obvious hole in the analysis is that it quotes rates for 36-month terms exclusively, even though the average term for new-vehicle financing is about 66 months.
The site also reinforces the perception that dealer reserve is the industry’s dirty little secret and that customers ought to be getting loans at lenders’ buy rates.
“Car dealers are infamous for marking up the auto financing rates they pass on to consumers from other financial institutions,” the site says. “According to the latest data from The Center for Responsible Lending, the average dealer markup for new car loans is 1.01 percentage points and the average markup for used car loans is 2.91 percentage points.
“This practice costs consumers roughly $26 billion in additional interest over the life of their loans and has recently been the focus of scrutiny by the Consumer Financial Protection Bureau. As a result, it is important for consumers to always shop around for auto financing and not take car dealers at their word,” the site says.
Shopping around is always good advice. But the idea that dealer reserve is a pure, $26 billion ripoff makes groups such as the National Automobile Dealers Association see red. Even the CFPB agrees dealerships should be compensated for lining up loans.
And what about the savings from those 40 percent below-average rates on manufacturer-supported loans?