Question of the Day: What's the cost (in $s) of not shopping around for an auto loan?
Answer: About $1,300.
- Does it surprise you that two people with the same credit score might have loans with different interest rates?
- Why do you think that most people don't comparison shop for auto loans or mortgages?
- Give an example of a time that you compared prices on an item you wanted to purchase.
- Did you save money?
- Describe the process of comparing prices. Was it easy or difficult? Explain.
Behind the numbers (from WSJ):
Without comparison shopping, consumers don’t know the difference. And in the absence of that competitive pressure, lenders have no incentive to offer similar borrowers comparable rates. As a result, one borrower may pay thousands more than another, even when the two have virtually identical credit scores, commensurate debt and are buying the same thing at the same time in the same place.
“Most people think prices are roughly the same,” said Sergei Koulayev, an economist with the Consumer Financial Protection Bureau. “The differences are large.”
...The average difference in car loans is 1.3 percentage points, according to researchers at MIT and Brigham Young University. For the typical car loan, the difference would be like paying $1,300 more on the purchase price.
About the Author
Tim's saving habits started at seven when a neighbor with a broken hip gave him a dog walking job. Her recovery, which took almost a year, resulted in Tim getting to know the bank tellers quite well (and accumulating a savings account balance of over $300!). His recent entrepreneurial adventures have included driving a shredding truck, analyzing executive compensation packages for Fortune 500 companies and helping families make better college financing decisions. After volunteering in 2010 to create and teach a personal finance program at Eastside College Prep in East Palo Alto, Tim saw firsthand the impact of an engaging and activity-based curriculum, which inspired him to start a new non-profit, Next Gen Personal Finance.
To get access to NGPF answer keys, assessments, and teacher-only resources: create a FREE Teacher Account