Captives Charge 40% Below Average Financing Rates, Study Says

Captive finance companies of auto manufacturers charge about 40% below average loan rates for new cars, according to the 2014 Auto Financing Report from the consumer-centric site WalletHub.

The report analyzed auto financing offers from 157 lenders – 27 community banks, 47 regional banks, 10 national banks, 52 credit unions, and 21 captives.

Credit unions loan rates came in 24%below average, according to the report, while national banks charge rates that are closer to average. Meanwhile, regional banks charge the highest rates, at 40% above average.

Mitsubishi, Nissan and Kia offered the lowest financing rates out of the manufacturers WalletHub examined, while Chevrolet, BMW, Mitsubishi and Honda offer the best lease deals.

WalletHub says that consumers will pay 20% less interest on a new car than a used one – the highest spread recorded in the last two years. They advise car shoppers who have been considering buying new car that now is the time to make it happen.

Consumers that have a “fair credit score” should expect to pay 4x more for financing costs alone that what those who have an excellent credit score, according to the report.

Four times more translates into $6,000 in extra interest paid over the lifetime of a $20,000, 5-year loan.

Still, the report notes that interest rates on bank loans have fallen by around 15% since 1Q 2012 for new cars and around 10% for used cars, and appear to have stabilized in recent months

The report criticizes manufacturer captives, saying they are not altogether transparent about leasing plans: “Leasing offers are the most difficult type of car purchasing arrangement for consumers to understand, as they lack the equivalent of an APR that can be used for comparison purposes. As a result, the transparency of manufacturers about these deals is integral to the consumer’s ability to make informed decisions.”

The most transparent among captives, the report says, are Mazda, Infiniti and Mini — and these only received scores of 6 out of 10.  Other manufacturers, such as Hyundai and Subaru, scored  as low as 1 out 10 when it came to transparency about leasing plans.