Interest rate versus FICO

[BGinVA]

I'll be purchasing a new vehicle around spring of 2012, so I've started reading the Auto forum to start getting ideas of things I should or should not do in advance and just get a feel for how the auto finance world is these days since my last new car purchase was in 2003.  What I'm noticing is a HUGE  variance in annual percentage rates among the borrowers of this forum.  Obviously a lot goes into that factor including FICO, auto enhance FICO, new or used vehicle, funding source ect.....What I'm wondering is if there is any place to look on line that would give me a ball park of where my apr should be at a given time depending on what my FICO is at that point in time? 

[pizzadude]

If you are looking for a vehicle from a particular manufacturer, you can look for their rates by Tier, 0, Tier 1, Tier, 2....etc..   Generally these are published and available by doing a little bit of searching.

If you are going to be borrowing from a CU or Bank, you can give them a call and ask what scores they use to evaluate borrowers, and use that to gauge what you can expect.

[StartingOver10]

Part of the reason interest rates vary tremendously from person to person has nothing to do with their scores. It has a lot to do with their negotiating ability. Some people accept what the dealer tells them is the rate without questioning it. That alone accounts for a large variance in payments between people with the same scores.

The F&I department is a huge profit center at all car dealerships.  The F&I persons commission is directly dependent upon how much extra they can charge you in your rate over a longer term. They are trained to start off with a higher rate when negotiating with you. Only many people don't realize it because the F&I person is speaking in terms of monthly payment.  If you switch the conversation over to actual interest rate and terms and the actual cost of the vehicle, you will be able to compare between the loan pre-approval given by your CU/bank and the dealers' deal.  The F&I dept is very, very skilled at manipulating the monthly payments so you are paying a higher rate over a longer term than they tell you. Once you get them speaking in terms of actual rate and term, you can negotiate to either a better deal than your CU/ bank or you take your CU/bank deal or walk out.

IME walking out when they won't drop the rate to a reasonable rate is the most effective way to get the F&I person into reality. If they won't come to reality, there are always other dealers with more vehicles.  You won't know what reality is unless you have done your homework in the beginning (pre-approval with your CU/bank, market rates, etc), But I know you will have done your homework because your started asking questions here early!

One other point: the F&I dept makes large money on gap insurance and selling an auto warranty. They will tell you it is mandatory to get a particular interest rate - its not. Read the actual contract and it says it is optional.  Those two items alone can add thousands to the cost of your vehicle and to the loan cost. Plan what you will do in advance - accept them, reject them or have a third party supply the same service. You will save big.

[Tomoslx2]

As a Finance Manager I have to say that an ethical F&I Manager would never say that GAP or Service contract is required to obtain a certain rate. However some sub-prime lenders will allow a term extension (Say from 60 months to 72 months) at the same rate if a Service contract is included. So while prime banks typically wont offer those deals, sub prime banks do.

As for as interest rate mark up, there is always a cap on the amount of mark up allowed from 1% to 2.5% max depending on term. And again, on sub prime deals there is typically no mark up allowed. So if you are quoted an 18% rate, there is no way the F&I manager can get to 7%.

[StartingOver10]

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@Tomoslx2 wrote:

As a Finance Manager I have to say that an ethical F&I Manager would never say that GAP or Service contract is required to obtain a certain rate. However some sub-prime lenders will allow a term extension (Say from 60 months to 72 months) at the same rate if a Service contract is included. So while prime banks typically wont offer those deals, sub prime banks do.

As for as interest rate mark up, there is always a cap on the amount of mark up allowed from 1% to 2.5% max depending on term. And again, on sub prime deals there is typically no mark up allowed. So if you are quoted an 18% rate, there is no way the F&I manager can get to 7%.

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I hear you. I agree that it is not ethical for the F&I guy to say its mandatory when its not, but it happens and it happens at regular dealerships. It just happened to me last Jan.

Naturally, I had to point out on the actual contact to the F&I guy where it said it was optional and not mandatory. He tried the old "in order to get that rate, you have to include gap and the warranty" trick. That's when I left.  But he did come out after me and gave me the 7.15% rate without gap and extended warranty rather than the 15% rate he originally quoted. I am a higher risk because I had a BK discharged in Jan 09 and my CU needed 3 yrs post BK to finance me. Knowing this information before going in was key. This was at a regular large, well-known Toyota dealership here in S Fl.

There may in fact be a cap where you are located. Here, in Fl, the dealer would start off at the highest rate (much higher than what your credit profile indicates) and if you accept that high rate, they make out like a bandit when selling the loan. If you know what your rate should be before you negotiate (by having your bank pre-approval) you can say no to the high rates. Besides, every lender sets their own rates. If you accept a high interest rate, aren't you guaranteed to end up with a sub-prime lender?

Even with your cap of 1% to 2.5%, that is a large difference. And the amount of interest added to the loan to go from 60 mths to 72 mths is huge.

I appreciate your viewpoint. Not all F&I departments will admit that they add a premium onto the par rate for a given risk profile.