Auto Financing Revolution

In those long-ago days (you know, before Eminem and the Internet), most car buyers who financed their new vehicle purchases did so through the dealership. This one-stop shopping was convenient, and, if it cost consumers more than they would have paid if they had obtained financing from another source before walking into the showroom, they either didn't know or didn't care.

Today, though, the Web has changed all that. Not only are car buyers more savvy about researching their upcoming purchases -- everything from vehicle specs, reviews, and "dealer invoice" pricing -- but they are also cannier about the associated costs that accompany a vehicle purchase. As I noted in my book, The Complete Idiot's Guide to Buying or Leasing a Car, a typical vehicle purchase involves at least four transactions. You buy a new car; you sell your old car (perhaps by trading it in); you buy auto insurance (perhaps including an extended warranty, which is, in essence a form of insurance called a service contract); and, finally, you buy financing. While simply taking the dealer's deal was by far the most popular option in the financing game before the web, now consumers' eyes have been opened to the fact they could save hundreds or even thousands of dollars by comparison-shopping financing sources.

According to Kelley Blue Book's latest "New Vehicle Buyer Attitude Study" on vehicle finance options, seven out of 10 new car shoppers now plan to research financing online and 54 percent plan to obtain financing prior to visiting the dealer. The study found that 46 percent of respondents still indicate that they intend to finance their purchase at the dealership, but 10 years ago that figure would have been much, much higher.

Why go to the trouble of doing research? Simple -- there is money to be saved. According to the Kelley Blue Book study, the top reason consumers plan to obtain financing prior to purchasing is because they feel they can secure a lower interest rate than at the dealer (43 percent). Of course, in this era of low-rate financing subsidized by the auto manufacturers, the deal at the showroom might actually be the best deal in town, so consumers who plan to finance through the dealership also say they plan to do so because they feel they can secure a lower interest rate (52 percent). But these consumers would never have known that if they hadn't done prior research, and the fact is the Web makes comparison shopping of auto loan rates, an onerous task in the pre-Net days, extremely easy.

In addition to doing pre-purchase car loan research on the Internet, a substantial number of buyers now plan to obtain financing online. While as recently as a year ago Jupiter Research reported that online financing represented only one percent of the vehicle financing market, that trend appears to be shifting as consumers are researching alternative online options. The Kelley Blue Book study shows that 13 percent of total car buyers anticipate financing their next loan online, eight percent via bank or credit union Web sites, and five percent via online financing companies.

"The results from the Kelley Blue Book survey confirm a consumer trend we are seeing in the marketplace," said Brian Reed, Internet director for Capital One Auto Finance, the nation's largest direct-to-consumer vehicle lender. "Consumers who do their research before going to the dealership are empowered to negotiate the best interest rate possible."

Of course, when you're in buying mode, shifting power your way is exactly what you want. You will likely find that a half hour used to research loan rates and sources before you buy your next vehicle will be time well-spent. Unless you don't care about money, that is.

A noted car-purchase expert,Driving Today Managing Editor Jack R. Nerad has spoken on the subject on NBC's "The Today Show," CBS' "The Early Show, CNN and scores of local newscasts.