Record-low interest rates have propped up a slow-to-recover housing industry. Even lower rates are helping the auto finance industry explode, with many firms seeing exponential growth – and consumers getting great deals.
Many drivers who have been riding out the recession in older vehicles are now racing out to get cheap loans.
“People have held on to their cars for a long time, and there’s pent-up demand,” said Mark Sheinbaum, CEO of Chase Auto Finance, part of JPMorgan Chase & Co. Chase has been offering auto loans for as little as 2.53 percent in some areas.
Consumers who aren’t ready to buy have been refinancing their cars, trucks or SUVs, saving hundreds of dollars a month.
The low rates on auto loans have been a boon to Florida-based Tropical Financial Credit Union, said Helen McGiffin, chief operating officer. Tropical Financial was offering loans as low as 1.49 percent this week for a new or used vehicle, and refinancing rates were as low as 2.5 percent.
“We’re up over 46 percent in consumer loans in a year, thanks to the auto loans,” she said. “That’s a pretty hefty increase.”
Lenders are finding they have to offer the cheap loans to stay competitive with the automakers that are subsidizing low-interest loans at dealerships – some of them charging no interest, McGiffin said. “Consumers are now used to zero percent loans,” she added.
“It’s common sense. People are going to refinance if there’s a good opportunity,” said Mel Campbell, a spokesman for Regions Bank.
Earlier this year, before interest rates declined even further, applications to refinance U.S. car loans had jumped nearly 30 percent in a year and were outpacing the number of people applying to buy a car, according to a LendingTree.com survey of lenders in its network. About 70 percent of vehicle buyers need a loan to purchase, the website reported.
About half of U.S. consumers are eligible for the cheapest auto loans because they have a credit score of 700 or above, estimated Jim Landy, president and CEO of CarFinance.com. Those with lower credit scores pay a higher interest rate, but still enjoy cheaper rates than even a year ago, Landy said.
Boca Raton, Fla., financial planner Mari Adam, who said she has good credit, found she could save $1,200 by refinancing the loan on her daughter’s Scion.
“In my case, it took all of 15 minutes. It involved no money changing hands and, lo and behold, I saved $1,200,” Adam said.
But consumers should be careful in refinancing: Don’t get a longer car loan than your existing one to further lower your monthly payments without considering the age and value of the vehicle.
“That’s not a good idea, because your car depreciates faster than you can pay it off,” said Adam.