Study shows how unaware consumers are of interest rate impact
According to a national survey commissioned by Carvana, consumers still are uninformed about the total costs associated with the interest rate connected to their vehicle installment contract.
Carvana — a completely online vehicle retailer backed by DriveTime and launched two years ago — found that 71 percent of consumers who have ever taken out an auto loan are not aware of the total dollar amount of interest spent on their last loan.
The survey also revealed 69 percent of individuals included in the research do not understand what a 1 percentage point reduction in their rate would save them.
The survey was conducted online from April 9-13 on Carvana's behalf by Harris Poll of more than 2,000 U.S. adults. A closer look at the results indicated that among those who have ever taken out an auto loan, knowledge of the total amount paid on their last loan, or the potential for savings, varies slightly across age, gender and income levels.
However, the majority of these consumers are still in the dark when it comes to the importance of shopping around for the lowest possible rate. A few examples:
• 68 percent of those with a college degree or higher do not know the total amount of interest they will owe/owed on their most recent auto loan.
• Amongst those households earning less than $50,000 a year, 77 percent are also in the dark on the total cost of their loan.
• 81 percent of millennial females (ages 18-34) could not answer how much money they could have saved if they were able to reduce their current/previous auto loan interest rate by one percentage point.
"It is clear that car buyers have a lack of understanding surrounding interest rates. We are solving that by bringing transparency to another step in the car buying process. Whether a consumer is purchasing a vehicle from Carvana or through another channel, we want them to feel confident they are getting the best possible deal available,” Carvana founder and chief executive officer Ernie Garcia said.
“Interest rates can add thousands of dollars to the final price of a car, and every percentage point matters,” Garcia continued.
To enhance its services in light of the survey results, Carvana introduced what it has dubbed its Fair Compare Interest Rate tool.
The latest product from Carvana can allow consumers to determine the average interest rate they should pay for a loan based on their personal credit score, the vehicle price and the state in which they live. The tool’s data is driven by Experian and is derived from millions of actual consumer interest rates for loans.
In addition to informing consumers on a fair interest rate, Garcia noted the product also can compare it to the average interest rate available from Carvana. This comparison is designed to enable users to see how different interest rates directly affect both the monthly payment and overall dollar savings over the life of the vehicle installment contract.
“This new tool shows users one-on-one comparisons of which financing source can offer the best rate as well as the total savings, even if the Carvana rate isn't the lowest option available,” Garcia said.
Similar to the company's vehicle price comparison tool, which compares Carvana’s prices to the Kelley Blue Book Suggested Retail Price, the new Fair Compare interest rate product leverages technology to put information and full control “back into the consumer’s hands.”
For more information and to access Carvana's Fair Compare Interest Rate tool, visit www.Carvana.com/rates.