Auto Club: Lower Rates Create Growing Interest in Refinancing Auto Loans

    LOS ANGELES--June 19, 2003--Record low interest rates have created a surge in the number of car owners seeking to refinance auto loans, according to the Automobile Club of Southern California. Industry data shows that the number of auto loans that have been refinanced has increased nationally by 75 percent in two years.
    Nationwide, about 450,000 auto loans were refinanced in 2002, up from more than 297,000 in 2001, according to CNW Research. That number is expected to grow to 525,000 refinanced loans by the end of 2003.
    "Refinancing presents a solid opportunity to save money, particularly if you've owned your car for a year or more," said Mike Johnson, Auto Club vice president of marketing and product management. "Lowering the interest rate on your auto loan by even a percentage point or two can make a big difference. It will lower your monthly payments and save hundreds of dollars in interest over the life of the loan."
    Refinancing your vehicle can be accomplished without the trunk-load of fees typically associated with a home mortgage refinance -- there are no application fees, no down payments, and no closing costs. Typically, refinance applicants pay only a $15-$25 fee to transfer the lien. However, car owners need to make certain that the existing loan has no prepayment penalties. Vehicle refinancing gives consumers the greatest benefit when a simple-interest loan with no prepayment penalties is refinanced into a simple-interest loan with a lower rate.
    Here are examples of how vehicle refinancing works. A consumer who bought a new car last year and financed $30,000 for five years at 8 percent would have a monthly payment of $608. If, after one year, that loan was refinanced at 5 percent, the payment would drop to $574 a month -- a savings of more than $1,600 over the life of the loan. Even refinancing a 60 month $16,000 loan after one year -- dropping from an 8 percent APR to 5 percent APR -- will save $882 over the life of the loan. The bottom line is, if interest rates are lower, then car owners can save money by refinancing.
    "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," added Johnson. "By adding a few dollars to your monthly payment, you'll pay off the loan earlier and maximize the benefits of refinancing."
    Refinancing an auto loan works best for someone who is in the first couple of years of a loan rather than near the end, or who might have had a higher interest rate due to a prior poor credit rating. Car owners should be cautious about getting a lower rate only to extend the life of the loan. While the monthly payment may be dramatically reduced, the loan might generate more payments to interest over the life of the loan, compared to the original loan.
    Most major banks and financial institutions will refinance loans. But as with mortgages, some of the most competitive rates can be found on the Internet. According to Forrester Research, two-thirds of those who have applied for auto loans online say it's more convenient than on the phone or in person. The Auto Club's financial services program provides competitive auto loan refinancing rates for members through its Web site at www.aaa-calif.com/finance.
    The following are tips to help ensure a simple refinancing process:

--	Call the current lender to ask for the car loan payoff amount and to see if there are any pre-payment penalties.
--	Visit your lender of choice either online, in person, or by phone. Apply to refinance your car if they offer a loan that is at least one percent less than the current loan. To really save money, don't extend your loan payoff.
--	Be sure to have all the necessary information including the vehicle's 17-digit Vehicle Identification Number (VIN). This number can be found on the dashboard or on the vehicle registration. Be sure to provide your name exactly as it appears on the current loan. Also, check for any minimum loan levels. Many finance companies won't refinance an auto loan if it's less than $7,500.
--	Once the loan is approved (in some cases, that could be as little as 15 minutes after the application is submitted), the new lender will send instructions on how to pay off the current auto loan.

    The Automobile Club of Southern California, the largest affiliate of the AAA, has been serving members since 1900. Today, the Auto Club's members benefit by roadside assistance, insurance products and services, travel agency, financial products, automotive pricing, buying and financing programs, automotive testing and analysis, trip planning services, highway and transportation safety. Information about these products and services is available on the Auto Club's Web site at www.aaa-calif.com.