Car loan online refinancing

Refinancing isn't just for homes _ take a 2nd look at your car loan

COPLEY NEWS SERVICE

If you took out a loan to buy a car in the past two to three years, you might qualify to refinance it at today's sharply lower rates and save hundreds of dollars.

The savings can run from $700 to more than $1,000. It only takes minutes to refinance and costs less than $50. But only a fraction of those eligible for this essentially free money are seizing the opportunity.

"Most people when they hear about refinancing think about mortgage refinancing," said Joe Kenney, president of E-Loan Inc., an online lender that offers auto refinancing loans at www.eloan.com. "The total time is 20 minutes. The only cost is to re-register the car, typically $25. That's the total effort and the total cost. It really does pay to do this."

Barbara Wilson, product manager of financial services for the Automobile Club of Southern California, agreed that the time expended is minimal, about 20 minutes, whether online or with a credit union.

"It's so easy. I almost hate to link it with the thought of refinancing your mortgage," Wilson said.

Like mortgage refinancing, auto refinancing is enjoying a banner year thanks to the rapid descent of interest rates since the start of 2001. Where car loans were once pegged above 8 percent, they're below 5 percent today.

Borrowers can get a used-car rate today that is lower than the new- car rate they took out just two or three years ago. Instead of worrying about used cars as depreciating assets, lenders now see opportunity.

The number of auto refinancings has swelled from 297,000 in 2001 to 450,000 in 2002, according to CNW Research, and is estimated to hit 525,000 by December.

"It's just been kind of a cascade," Wilson said.

"It's not typical," Kennedy said. "This magnitude of the auto refinancing opportunity has never existed before."

A typical customer, he said, bought a car 18 months to two years ago, such as a Ford Explorer or Toyota Camry, with a loan rate of 7 percent to 7.5 percent, and has 36 months left to pay. The original cost was about $30,000 and the remaining balance is about $20,000.

With good credit, the car owner could qualify for 4.39 percent refinancing and save about $1,000 over the remainder of the loan. The rate for a 60-month refinance is 4.75 percent and for a 72-month loan is 5.49 percent, with good credit.

The rates are the same whether you bought the car new or used, as long as you and the car qualify. For example, E-Loan generally requires that cars and trucks be year 1997 or newer with fewer than 75,000 miles, and the loan must be a refinance of an existing auto loan.

Kennedy acknowledged that automakers' recent and highly popular zero percent financing programs for new cars prevented lenders from refinancing. However, about 60 percent of new cars are not bought with such financing.

Some auto companies have offered rebates of up to $3,000. Customers who chose the rebate and then opt to refinance can find themselves in a win-win situation.

Refinancing a car loan can make sense even when interest rates aren't plummeting. Often, those who finance with a dealer pay higher rates than they need to and would do well to shop around. And for someone whose credit has improved since 2001, refinancing could be worthwhile.

Auto loans historically have been offered by car companies through institutions such as GMAC and Ford Motor Credit Co. Traditional lending institutions such as banks have not been as active, although credit unions are a popular financing choice for consumers. In recent years, online services have tried to woo customers with ease of use and low rates.

The drop in the Federal Reserve rate to its lowest level in 45 years most likely will not further lower auto refinance loan rates, Kennedy said. That's because auto-loan rates are tied to fixed-rate instruments that anticipate fed rates, and therefore the rate cut is already built in.

If you're interested in refinancing your auto loan, the experts offer these tips:

[] Call your current lender for a balance. Make sure that your existing loan has no prepayment penalties.

[] Find a lender, such as a credit union or an online lender, that can offer you an interest rate at least one point below your current loan rate.

[] Check for minimum loan levels. Many companies will not refinance unless your current loan is more than $7,500.

[] Don't extend the term of your loan. While it will lower your monthly payments, this will either reduce your overall refinance savings or actually cause you to pay out more than your original loan.

[] Gather needed information. All lenders will require you to provide the vehicle's 17-digit Vehicle Identification Number or VIN, usually found on the dashboard and also on the vehicle registration. Also, provide your name exactly as it appears on the current loan.

[] When the new loan is approved, your lender will advise you how to pay off the current loan.

[] Consider accelerating your savings. "If you want to save even more money after you refinance your auto loan, try to send in a little more each month with your new payment, said Mike Johnson, Auto Club vice president of marketing and product management.

"By adding a few dollars to your monthly payment, you'll pay off the loan earlier and maximize the benefits of refinancing."