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No, when buying on credit, you will not be shopping wisely if you merely compare APRs. For example, your car dealer may be pushing "incentive financing" by offering an APR that is
way below the rate being offered by, say, your credit union. Alternatively, the auto dealer may also be advertising a cash rebate if you buy the car for cash. To see which is the best deal, you need to find out which arrangement would yield the lowest monthly payment. You can do this if you do not change the down payment and the length of the loan from the dealer or credit union. In essence, you make all the terms of the two credit arrangements the same, except the monthly payment. Then take the deal that gives you the lowest monthly payment to buy the car.
For example, a major car maker once offered a choice of a $l,500 cash rebate or 5.8-percent financing for four years on certain models. Assume that the car you would like to buy costs $16,000. If you have $2,000 for a down payment, you have the following choices:
1. Finance through the dealer's finance company. A $2,000 down payment would leave $14,000 to be financed over four years at 5.8 percent. Monthly payments disclosed under the TILA would be $327.51.
2. Finance directly from a bank, credit union, or another credit grantor. With the $l,500 cash rebate from the dealer and your $2,000, you have $3,500 to apply to the purchase price of $16,000. This leaves $12,500 to borrow ($16,000-$3,500 = $12,500). If you borrow $12,500 for four years at 11.17 percent, you will find from the TILA disclosures that your monthly payments would be $324.10. Take it.