Most people don't realize how much of the total cost of their vehicle is accounted for by the interest rates that they pay. The difference between 3% to 5% to 7% can seem minor in and of itself. However, interest is applied to every payment made. With most car dealers switching to lower monthly payments and longer terms, there is even more time for interest to accumulate, increasing the total cost of your vehicle.
To see how this works in practice, let us demonstrate. Let's say the average car cost is roughly $36,000 and the average auto loan length is 72 months. At 3% interest rate, the average vehicle would cost approximately $39,382. At 7%, that very same vehicle would cost $44,191. Four points adds up to over $4,000 in savings throughout the course of the loan.
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