Driving Down the Costs of Auto Loans

Fairly acquainted with the stereotype of an automotive dealer, you fought tooth and nail for your new car’s options. “Re-enforced anti-oxidant carburetor gloss; no, I don’t need that,” you said. And after hours of haggling and grappling, push finally came to shove and you drove back the price on, what is now, your fine automobile. A sense of accomplishment overwhelmed you; you won—new wheels at a fair deal. But what about the auto loan? Are dealerships taking advantage of consumers when it comes time to finance cars? You bet your sweet Lexus they are.


The days when families would cut open the mattress and plop down five-hundred dollars for a new car are a fading memory. The high cost of vehicles has wedged consumers into opting for auto loans to finance their desire for a new set of wheels—and auto loans are tricky. Ubiquitous advertisements herald auto loans at, “all time low APRs!” But what, exactly, does this mean?


APR, or Annual Percentage Rate, is the index by which interest for auto loans is calculated. Here is an example: A $25,000/24 month auto loan at an APR of 3.85 would yield a monthly payment of 1,083.95. All tolled a consumer would pay 26,014.91; or 1,014.91 in total interest payments. The lowest APRs occur during the shortest auto loans. Lenders might raise the APR to, say, 4.49 for a 48 month auto loan on $25,000. Monthly payments for an auto loan under these circumstances would be $569.97. All tolled interest expenses would be $2,358.78. This is an important decision to consider: How quickly can you pay off your auto loan?