Rates on car loans tumbling

NEW YORK -- It's easy to overlook the cost of auto loans with mortgage rates grabbing all the attention.

Yet rates on auto loans have edged lower as the cost of lending has gone down for banks. And car buyers who didn't get the best terms in the past year or so can capitalize by refinancing their loans.

The option should be of particular interest to anyone who obtained a loan from a car dealership. That's because dealers are a middleman in the transaction. They typically mark up the interest rates they get from lenders to make money.

Another reason to check how much you're paying? Dealers are leaning more heavily on auto loans for profits as shoppers get savvier about researching car prices online.

The result is that refinancing could bring significant savings.

Some credit unions refinance car loans.

"We have been able to save our members lots of money," said Brad Beal, chief executive officer of Nevada Federal Credit Union.

Nevada Federal, in fact, is promoting car refinancing deals.

The credit union typically refinances loans made by other lenders, Beal said, because members already have low rates on loans from Nevada Federal.

Boulder Dam Credit Union refinances loans, but manager Bill Ferrence said demand for auto loan refinancing is slack.

"We get one here, one there, but there is certainly no movement to refi car loans," Ferrence said. The interest rate is 12 percent, but the credit union rebates a large portion of the loan so that the net interest rate is 6.2 percent.

Daniel Penrod, senior industry analyst with the California and Nevada Credit Union Leagues, said many credit unions in the region offer auto loan refinancing.

Members often can save from 0.5 percent to 1 or 2 points, particularly if the motorist has a loan from another lender, he said.

Credit unions typically offer refi deals and other car loans for 3.9 percent to 4.9 percent, compared to 6.9 percent at the beginning of the decade, Penrod said.

"You definitely have to have good credit" to refinance a car loan, he said.

Let's say a borrower is paying 10 percent on a $20,000 loan. The average rate to refinance a three-year-old car right now is about 8 percent, according to Bankrate.com.

So refinancing on average would save around $250 a year. That adds up to nearly $1,000 over the life of a typical four-year loan.

Here's a rundown on auto refinancing.

How Does It Work?

Refinancing an auto loan is far easier and cheaper than refinancing a mortgage. There's no need for an appraisal and borrowers can usually find out if they've been approved within an hour of applying online.

If you decide to accept an offer, the lender will need some paperwork to complete the process.

This will include copies of the car's title and registration. You'll also need to provide documentation of the amount of the loan, outstanding balance and interest rate.

There's no universal term for this document but try asking your lender for a "payoff quote" so that you can refinance.

Once the paperwork is in hand, the new loan can typically be refinanced in a day or so.

As with any financial matter, you'll want to be mindful of fees.

There will be charges to transfer the title of the loan and re-register your car. These fees vary depending on the lender and the state where you live, but the total cost shouldn't exceed $25 in most states, said Chatter of MoneyAisle.com.

Who Can Refinance?

Lending standards remain tighter than before the economic downturn. But if you qualified for a new-car loan in the past year or so, refinancing shouldn't be a problem.

Don't be discouraged if you've been late on a few payments. Your chances of refinancing should be good as long as your overall credit profile hasn't deteriorated.

The standards vary but lenders will have certain requirements on the car's age, mileage and other terms.

At Bank of America, for example, cars can't be more than seven years old or have more than 100,000 miles. The bank also requires that there's at least $7,500 left to be paid on the loan.

It's usually required that there's at least one year of payments left on a loan, said Mukesh Chatter, CEO of MoneyAisle.com, a site that lets borrowers search for competing rates.

The specific rates you're offered will depend on your credit score.

Average rates right now range from 5.7 percent for those with the best credit scores (720 and above) to 18.5 percent for those with poor scores (below 590), according to Yahoo's Auto Finance Center.

To start scouting what terms are available, go to comparison sites such as Bankrate.com or MoneyAisle.com.

Review-Journal writer John G. Edwards contributed to this report.