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TheStreet Open House

How to Get the Lowest Auto Loan Rates Even During 5-Year Lows

NEW YORK (TheStreet) -- Auto buyers are getting a big break these days, as the average interest rate for a new car loan has fallen to 4.27% -- the lowest level in five years, according to Experian Automotive.

Maybe auto consumers have noticed and adopted something of a swagger; more and more are cruising dealer lots looking for brand-new sets of wheels. Money seems to be less of an object, with the average total car loan rising to $26,719 in the third quarter of 2013, up from $25,963 a year ago.

That's the highest since 2008, and an indication a healthier economy and lower auto loan rates are driving stronger auto sales.

"The third quarter of 2013 proved to be a good time to purchase a new vehicle, particularly for consumers who buy based on their monthly payments," says Melinda Zabritski, a senior director at Experian Automotive. "With loan rates at historic lows, car shoppers were able to take advantage and get a little more vehicle for their monthly payment. It's a win for everyone, as shoppers perceive they are getting better deals and manufacturers and dealers are boosting sales.

Lower rates are really contributing to stronger sales, Experian says, while the average monthly car payment in the third quarter of 2013 was $458  only $6 higher than the same period last year, when rates were higher.

Expect more tire kicking in dealer lots next year as a result.

According to Zacks Equity Research, U.S. auto sales rose by 9% on a year-to-year basis in November.

"This strong sales trend is expected to continue in December, which generally witnesses high luxury car sales," Zacks reports. "In the long term, sales are expected to rise on the back of strong pent-up demand, easier car financing and low gas prices. Additionally, improving macroeconomic conditions such as low interest rates, reduced unemployment rates and recovery of the housing market are likely to boost sales. These catalysts are expected to drive U.S. auto sales to pre-recession levels."

If you're in the market for a new car or truck, how can you grab the best rate deal? Put a little time and effort into your search, and start with these tips:

Bargain with your dealer. Auto consumers can get financing through three sources: banks, credit unions and the automaker. Try your dealer first, as they offer competitive rates and may be open to negotiating to get you to sign on the bottom line.

New vehicle = lower rates. If you want the best rates possible, aim for a new car or truck and not a used one. Here's a good rule of thumb: The newer the vehicle, the lower the interest rate.

Go low. When negotiating an auto loan's term length, target a shorter loan (48 months or less). Invariably, the longer the term of your loan, the higher your interest rate, and the more you'll pay for taking full ownership of your vehicle.

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