- The Washington Times - Monday, May 26, 2003

Robert A. Walls knew interest rates were falling fast, but it never occurred to him that he could take advantage of the record lows by refinancing his car loan.

Then a few weeks ago, Mr. Walls, a McLean behavioral therapist, discovered PeopleFirst Inc., the nation’s largest Internet automobile lender. The San Diego company refinanced Mr. Walls’ 2000 Corvette and 2001 Cadillac STS, shaving roughly $2,000 off his loans.

“It was a pretty simple process, and it’s not an insignificant amount of money,” Mr. Walls said.

Record-low interest rates have encouraged millions of Americans to refinance their mortgages. But few consumers seem to realize they can refinance their car loans, too.

An estimated 525,000 automobile loans with a total balance of $10 billion will be refinanced in 2003, up from 297,000 loans with a balance of $4.5 billion in 2001, according to forecasting company CNW Marketing Research.

“That’s really a drop in the bucket. I don’t think consumers understand what a great opportunity it is,” said Joseph J. Kennedy, president and chief operating officer of E-Loan Inc., another major online lender.

Financial advisers say the benefits of refinancing a car loan can be substantial. In most cases, the process is easy, costs are minimal and the savings kick in immediately.

“I love it. We recommend it to everybody,” said Steve Rhode, president and co-founder of MyVesta.org Inc., a Rockville credit-counseling service.

“It is something that can help if you need a little bit of breathing room financially. If you’re in a real jam, it’s not going to help that much,” Mr. Rhode said.

If a car owner financed a five-year loan one year ago for $25,000 at a rate of 7 percent, he would save $457 during the remaining four years by refinancing the loan at 6 percent, according to PeopleFirst estimates.

If the original interest rate was 8 percent, refinancing the remaining balance for four years at 6 percent would save $925 during the life of the loan, according to the company.

Car owners should consider refinancing only if they can significantly reduce their interest rate and avoid stretching the term of the loan beyond their original repayment schedule, said Greg McBride, senior analyst for personal-finance Web site Bankrate.com.

“If someone takes out a five-year loan and has already paid off two years, they shouldn’t refinance for anything beyond three years,” he said.

For example, on a four-year, $22,000 loan, a difference of 1 percent reduces the monthly payment just $10, Mr. McBride said. Refinancing the same four-year loan into a five-year term and reducing the interest 1 percent can save $100 a month, but extending the number of months to reach the lower payment eliminates any real savings, he said.

Car owners should consider their credit history before refinancing.

“Customers who have a lot of credit problems, we probably can’t help. Customers who have cleaned up their problem, we can help,” said Brian Reed, president of PeopleFirst.

Analysts say banks are more interested in the mortgage business than car loans, which has paved the way for online lenders such as PeopleFirst and E-Loan.

Executives at both companies said they have tried to make the process efficient and inexpensive.

PeopleFirst, a subsidiary of McLean credit card giant Capital One Financial Corp., said it usually lets its customers know whether they have been approved for a loan within 15 minutes of receiving an online application.

If the applicant is approved, the company sends him a check for the approved loan amount. The applicant then uses the check to pay off the existing lender, allowing the lien to be transferred to PeopleFirst.

The only fee the applicant pays is to retitle the automobile, which varies from state to state, but is usually less than $25.

Refinancing isn’t just for owners of older cars, either. Some of PeopleFirst’s customers have purchased their cars within the past three months, Mr. Reed said.

“There are a lot of people who realize they paid too much once they drive their car off the lot. That’s when they turn to us,” he said.


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