Labor Day Holiday May Be a Good Time to Shop for a Car

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Labor Day weekend has traditionally been one of the busiest times of the year for car dealers. New models typically arrive from the carmakers in early fall and dealers want to clear out current models to make space for the new ones. To that, car shoppers might want to add that interest rates for car loans are at the lowest they’ll be for some time and may rise soon if the Federal Reserve raises the federal funds rate.

Researchers at WalletHub have put together a report on automobile financing in the third quarter of 2016 that includes where car buyers can find the lowest interest rates, financing offers from 22 different carmakers, and which manufacturers and dealers are the most transparent; that is, how easy they make it to get completed financing and leasing information.

That last is important because leasing can be more costly than buying and it is often difficult to figure that out from an ad in the local paper. We took a look at the real cost of leasing versus buying last month.

According to the new report from WalletHub, interest rates for new cars are at their lowest level in the past three years, and new car loans are currently 17% cheaper than used car loans. If a buyer has excellent credit, however, the average interest rate on a used car is 32% lower than it was in the third quarter of 2016.

The good news is that the average new car loan in the third quarter of this year is 1.45% from the 22 carmakers surveyed by WalletHub. The average lease rate is 4.58%. Depending on the brand, the lowest interest rate could be zero for a new car purchase or 3.06% for a new car lease. Ford Motor Co. (NYSE: F), Toyota Motor Corp. (NYSE: TM) and General Motors Co. (NYSE: GM) are offering zero interest on Ford, Toyota and Cadillac brands. Subaru, Nissan, Hyundai and Mini are also offering zero interest rates for new car buyers. The interest rate on a Fiat branded car from Fiat Chrysler Automobiles N.V. (NYSE: FCAU) is 3.90%, the highest among the brands surveyed, and Honda Motor Co. Ltd. (NYSE: HMC) is offering a 1.90% interest rate on its Honda and Acura brands.

Interest rates are lowest from car manufacturers themselves, but new and used car loans from credit unions are also very low, averaging 2.2%, compared with a 2.92% average rate from national banks. Regional and small banks charge the highest interest rates at 4.0% and 4.2%, respectively.

WalletHub noted that carmakers’ financing is 51% below average and credit union financing is 26% below average, while national bank financing is 1% below average and regional and small banks are about 35% above average. It’s pretty easy to see where the best deals are.

Car buyers who have only fair credit will pay about six times more in finance charges on a five-year car loan of $20,000 than will a buyer with excellent credit.

When it comes to transparency, WalletHub reported that of a possible score of 10 points, 13 of the 22 brands posted scores of 6, the highest any brand received. To see how those scores were given check the methodology section of WalletHub’s report. The least transparent brands were GM’s Buick, Cadillac and Chevrolet, along with Volvo. The average transparency score was 4.68.

Automakers will be reporting August sales totals on Thursday, and year-over-year totals are expected to show a decline. What that may mean going forward is that automakers and dealers may be making even better offers on more vehicles as they try to boost sales numbers.

If you’re in the market for a new car, try to arm yourself with the most and best information you can get. The people trying to sell you the car know a lot more about what that car should cost than you do, but you can reduce the asymmetry with a little effort. And that will save you money.