Inflated Auto Loans: Dealerships Big Secret
America has an obsession with cars. Per the Federal Reserve Bank of St. Louis, there is currently $1.6 trillion in motor vehicle loans owned and securitized. As a reference, that’s roughly the same size as student loan debt in the U.S.
While I get it, you worked hard and want to buy yourself a nice car, you need to realize the standard buying process of a new car at a dealership is like a casino; the cards aren’t stacked in your favor. And well, why? Dealerships take advantage of the lack of consumer education about auto loans and are known to give customers inflated interest rates, often in the double digits.
At the dealership, most people typically select the recommended loan partner for financing their auto loan out of convenience. They don’t realize that many of these loans are artificially inflated and that you have better options. Just like when you go through the home buying process and shop with different lenders, you can do the same thing with auto loans and get better pricing.
Ok, shop your auto loan when buying a new car, but what if I already bought a new car and selected the dealership financing? Look to refinance.
A 2017 Harris Poll found that 53% of Americans were unaware they could refinance their auto loan, yet, in 2021, customers who refinanced saved an average of $1,158 annually, per Rate Genius. Customers can secure better loan pricing through a multitude of factors, some of which include:
- Improving your credit score
- Paying down the auto loan balance can improve the loan-to-value ratio
- Interest rate drops
Dealerships and auto lenders prioritizing profits is why many financial advisors say that extremely high car payments is one of the leading causes of why more than 60% of Americans live paycheck to paycheck.
