There could be two reasons and either one worked in your favor:
1. The cheaper loan from another lender might have a relatively larger commission margin for the dealer
2. He gave out the first loan rate based on your FICO BEACON score whereas the second deal could be based on your AA FICO score. Do you have a good payment history as far as your installment loan are concerned? Eg: Mortgage, previous car loans, etc.
Or maybe we've been all wrong and car dealers are really on the side of the consumer and are more concerned with treating us fairly than making the best money they can. In any event congratulations. It may be that the dealer is looking for good recommendations or repeat business. It's nice to know that at least one auto dealer in the USA has a heart.
Write them good reviews, yelp ect.
That is awesome!
Your monthly payment @ 16% should have been closer to $400, so you'll be saving around $45 a month with the lower interest rate.
Double check the loan paperwork to make sure there aren't any additional fees / bad terms associated with it. Assuming that there aren't, I'd jump on the lower rate.