Everyone knows that if you take the time to shop around, you get the best deals whether you're in the hunt for a car, a loan, a computer or just a box of cereal. But this year, consumers could be surprised at how much money they can save. Both lenders and auto manufacturers are out to build traffic big time. Even the option of leasing has returned to dealerships.
"Market share is something that's up for grabs right now," said James Bell, executive market analyst for Kelley Blue Book. Consumers who dig will save some dough.
For the past couple of years, the only thing you've heard about car loans was how hard they were to get. But now, bankers actually want to lend you money to buy some wheels. In fact, they are doing everything they can to drum up car loans -- including offering rates as low as 3 percent for people with good credit and lending to less-than-perfect customers.
"There are some outstanding deals that you're finding at regional and national banks," said Greg McBride, senior financial analyst for Bankrate.com. "We're seeing some of the lowest rates we've ever seen."
Rates can vary by state. Nationwide, the average rate for a five-year car loan through banks and thrifts is 6.26 percent -- down from 6.86 percent a year ago, according to Bankrate.com.
Why are lenders back in the car business?
"There's a pretty strong desire by banks to increase their lending," said Dana Johnson, chief economist for Comerica.
Banks know that many consumers remain reluctant to take out a big mortgage to buy a home, concerned about job security and drops in real estate value.
But cars are a different story.
Lenders are betting that pent-up demand will drive auto sales once again -- and that consumers will feel increasingly confident about buying bigger-ticket items.
"Auto loans are incredibly lucrative," said Art Spinella, president of CNW Research. "People don't give up their cars easily. They'll make a car payment before they make a Visa payment."
As a result, finance companies and banks are trying to regain market share after drastically reducing or even halting auto loans during the credit crunch.
Doug Melton, direct-to-consumer underwriting manager for Bank of America, said the bank is optimistic about car lending in 2011 and is aiming to offer competitive rates for loans on new and used vehicles and lease buyouts.
"There are a lot of great customers out there looking for new cars, used cars and looking for financing," he said.
Before shopping for a car, consumers might want to get preapproved for a loan to see what kind of rate they can get.
But dealerships have access to a wide range of rates, too, Spinella said, and consumers should ask about everything that's available.
It's also smart to use websites such as Bankrate.com to calculate payments. Amortization tables will let you compare the overall cost of loan products.
And after the past few years, you'll probably agree that it's amazing to see the extent to which lenders are willing to go to get your business.
In November, Bank of America introduced the Car Buying Center, www.bankofamerica.com/carbuyingcenter, an online resource for shoppers, powered by Zag, a division of TrueCar.
The site helps you do some research -- including pricing out makes and models. The site can even offer an up-front price that is guaranteed to be honored by a specific dealer.
I played around a little with the service to price a Chrysler minivan and found that one participating dealer was less than 20 miles away, but others would be a drive of 39 or 85 miles. And the site will only list the specific dealers after you provide your contact information, meaning you can expect to be contacted.
My inquiry generated a rush of e-mails and phone calls within an hour or so.
And, yes, consumers can use that site to apply for a car loan through Bank of America. The bank will, of course, be contacting you, too.
>Tips for getting a deal
*Before you apply for any loan, get a copy of your credit report and review it for any mistakes that must be corrected. You have a legal right to get a free report through http://www.annualcreditreport.com or by calling (877) 322-8228. But federal law only provides for free credit reports -- not credit scores.
*Understand that you won't get a bargain-basement rate if you've got poor credit. When shopping, calculate the costs of a higher rate.
*If looking at a lease, pay careful attention to the terms -- such as the mileage limit or how much you'd have to pay for excessive wear and tear.
*If you're trading in, know the value of your old car and how much you owe. This will help you deal.
*Pay your bills on time to keep your credit score high.
*Shop around at a few banks and credit unions for rates. Get preapproved for a car loan before you shop. That way, if someone at the dealership says all you can get is a 12 percent rate, you'll know you can do better.
*Do not get a five-year loan if you know you're going to keep the car only three or four years.
*Do not focus only on the monthly payment. Know the loan rate and any associated fees. If you just look at the payment, you could be on the hook for services or features you don't need.
*Be prepared to make a down payment of 10 percent or 20 percent or even more.
*Compare rates and see auto financing calculators at Bankrate.com. Get more tips at http://www.autofinancing101.org.