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.
Jeff Burto, of Oakland Park, Fla., said refinancing his Toyota Highlander put an extra $325 a month in his pocket. It cut his interest rate by more than half, to 3.25 percent. “My (old) interest rate was rather high,” said Burto, president and chief operating officer of Fort Lauderdale, Fla.-based Sunbound, a company that specializes in coordinating meetings, conferences and incentive travel.
Still, he was surprised when he got a new interest rate barely above 3 percent at Miramar, Fla.-based Tropical Financial Credit Union. That’s cheaper than the current all-time record low of 3.31 percent for a fixed 30-year home loan, according to secondary lender Freddie Mac, which monitors mortgage rates.
The low rates on auto loans have been a boon to the credit union, according to Helen McGiffin, chief operating officer for the credit union. 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 0 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.
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. “That’s not small change.”