Refinancing auto loans: Did you know you could?
Refinancing auto loans is not only possible, it's easier and cheaper than mortgage refinancing.
Home mortgage refinancing has boomed during the recession, but most people don’t realize that they can do the same with their auto loans – and it’s both easier and cheaper than refinancing a mortgage.
“I ask people, ‘Do you know that every month you leave 100 bucks on your driveway for other people to pick up?” says Mukesh Chatter, creator of an auto loan refinance website. “They’re shocked. They’ve been doing it for 20 years, for some people, religiously putting 100 bucks out on their driveway.”
He's referring to the savings customers have found through his website MoneyAisle.com, which provides a quick and transparent mechanism for checking out refinance options. “On average, people are saving $1,412 dollars per year,” says Mr. Chatter.
When refinancing a home loan, you want to look to decrease “at least two points,” says John Siracuse, a California real estate broker and the creator of reviewmyfees.com. The title, costs, escrow fees, etc typically add up to about a percent of your mortgage, so if you can’t shave off more than that, you’re better off leaving your mortgage alone.
Refinancing car loans is simpler and easier.
When dealerships publish bargain-basement rates, they don’t always mention that those rates go to buyers with credit scores over 800. The rates for everyone else can easily run 5 to 10 percent for a new car, or 10 to 15 percent for a used one.
“You’ll always be hit with a higher interest rate on an older car,” confirms Mr. Siracuse.
On MoneyAisle.com, consumers with one of these high-interest car loans can refinance quickly and easily. Chatter’s reverse auction lets banks and credit unions bid for your loan in a transparent system that shows you exactly how much you’ll save over your current loan.
Instead of wandering from bank to bank to seek out the best rate, filling out pages of personal information and risking dings to your credit score with each loan request, consumers can now enter just seven pieces of information and check to see if they can save money. No commitment, no credit checks.
What are the seven facts you need to know? Your credit score (or range), the make and year of your car, the balance on your loan, your current interest rate, your zip code, and your mileage. That’s it.
Chatter is passionate about saving consumers money. There’s little in it for him: his company gets a flat fee for each loan that gets negotiated through his website. Other than that, all the benefit is for the borrower.
Word is spreading: every month, his website’s traffic doubles, Chatter says. He started it in 2007 with CDs and savings accounts, but launched the auto loan program about four months ago. Already, they’re getting a few thousand visitors per week for auto financing.
The secret to securing a good loan: pay attention to the interest rate. “Don’t look at the monthly payment or anything else,” says Siracuse. “If you can get a lower interest rate, great. Uneducated borrowers keep getting hurt on their interest rates.” The higher your rates, the more you’ll pay over time, and the longer it will take to pay it off.
So far, 133 banks and credit unions have signed up on MoneyAisle.com. Coverage is far from even, nationwide, but Chatter is working to improve that, with another 102 lenders “in the pipeline.” If you live in an area with heavy coverage, dozens of lenders might bid for your loan. If not, you might see the same one or two banks.
Still, it takes less than a minute to enter the information and check, so it’s worth a pop over to see how much you can save. You’ll be shown a list of loan terms – 6-year, 5-year, 4-year, etc – and the three cheapest loan rates for each term. “If you don’t save, there’s no loss. And if you do save, it’s money in your pocket,” says Chatter. “In a minute, to save a thousand bucks a year? That’s a minute well spent.”