Nearly 80 percent of Americans consider themselves bargain hunters, with the majority saying they search prices online before purchasing an item. However, when consumers are asked how often they search for better prices on big-ticket items, like a mortgage, they fail to shop around, according to a new LendingTree survey of more than 1,000 American customers.
Less than one-third – or 30 percent – of consumers say they always shop around for the best rates on major financial loans, such as a mortgage or auto loan, the survey found. About 18 percent say they never looked for better rates or prices on loans.
“It’s an interesting phenomenon,” says Andrea Woroch, LendingTree’s consumer savings expert. “Consumers are generally very savvy with their shopping behavior when it comes to day-to-day purchases and material goods. But, once it comes to a major financial investment, we see a collapse of the normally rational pattern of behavior and mentality for saving. Consumers sometimes may be too focused on price and fail to consider the lifetime cost of interest, which is really where banks and lenders make their money. Over a five-year auto loan, or thirty-year mortgage, a one percent difference between interest rates can easily translate to thousands of dollars.”
The survey found more than 80 percent of consumers say they would drive out of their way to save 10 cents per gallon on gas. However, only 17 percent of car owners negotiated the interest rate when financing their new car.
“There could be a number of causes for this irrational behavior and it may vary among types of consumers,” Woroch says. “One is simply that many Americans don’t understand the long-term costs associated with compounding interest and the time-value of money. Another possibility is that consumers are uneducated about loan shopping and the importance of comparing interest rates before financing a purchase. It’s easy to become emotionally involved with the purchase itself or to find the loan process so frustrating that you would rather finalize the purchase instead of shopping around.”