"We're at an all-time low," says Melinda Zabritski, director of Automotive Credit for Experian Automotive. "I don't know how much lower it can really go."
Zabritski says car loan rates for most borrowers have hit a floor and will likely remain relatively flat through 2012, thanks to cutthroat competition among lenders. Captive lenders -- the lending arms of automakers -- have seen their share of the market shrink, as banks and credit unions get into the mix.
While captive lender financing dominates in sales of Japanese brands such as Honda and Toyota, the captive share of financing overall has been shrinking. "You do have banks really representing a very considerable portion of the market. In the total market, they're now over 40 percent of financing," Zabritski says.
Cristian deRitis, director of consumer credit analytics at Moody's Analytics, agrees that 2012 will be a great year to get an auto loan.
"Terms are going to remain favorable. Underwriting standards will continue to loosen," he says. "The interest rates themselves should remain flat. We're not anticipating very large movements up or down in rates because of all the factors."
Car loan rates
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"The Fed will keep short interest rates low. The competition in the sector will also keep rates low. So there's not a lot of pressure pushing interest rates up at the moment," he says.
Help from Europe
The bleak situation in Europe actually may help keep car loan rates low in 2012, deRitis says. While the U.S. economy isn't exactly going gangbusters, investors see it as being in much better shape than the eurozone, which is facing a sovereign debt crisis of historical proportions.
"On a relative basis, the U.S. looks pretty good, especially with problems in Europe and some issues in Asia as well, with Japan continuing to struggle and China also showing some signs of disruption," he says.
Because of that, global investors have been clamoring to buy U.S. Treasuries, mortgage-backed securities, and even U.S. auto loans that have been bundled into securities and sold on the secondary market. That demand for U.S. debt will likely help car loan shoppers continue to find low rates, deRitis says.
Credit standards easing
Beyond low rates, the biggest news for car buyers in 2012 may be how much easier it will be to get a loan than it was a few years ago, when the financial crisis led to a collapse in lending to consumers with less-than-perfect credit.
"One thing we certainly are seeing is a loosening ... of credit standards," Zabritski says. "We are seeing more subprime financing being written."
Ironically, easier lending standards may actually cause average car loan rates to go up because subprime loans tend to carry higher interest rates than their prime counterparts, she says.
Thanks to that easing of lending standards, we'll also likely see a continuation of the march toward longer-term loans for autos, Zabritski says.
"It used to be a few years ago that 60-month terms were considered aggressive, and then we started to see some of those 82s come out. Now we're starting to see more and more of the 84-month loans coming onto the books," Zabritski says.
That's not always a good thing for consumers, who will pay much more in interest over the life of an 84-month car loan than a 60-month loan.
Online auto lending still rare
While consumers look to the Internet for many other financial products, auto lending will continue to be done predominantly by lenders, Zabritski says. She says dealers' wide selection of financing options can yield better rates for consumers than they could find on their own.
But that doesn't mean arranging your financing in advance is a waste of time, she says. It can give consumers leverage to get better car loan terms.
"How often do you hear at the dealership, 'Hey, if I can beat that rate, will you take it?'" Zabritski says. "If the dealer, through its financing sources, can save the consumer money, what consumer is going to say no?"