Many consumers may now be able to free themselves of high interest rates on their automobile loans, according to a spokesperson for the American Automobile Association (AAA) Auto Club South.
The economy is recovering, and credit markets are stabilizing, therefore, interest rates have declined to record lows, said Angie LaPlant, of AAA. Consumers should take advantage of this opportunity now, she said, adding that refinancing an auto loan with a high interest rate will most likely provide significant annual savings.
"A recent AAA Consumer Pulse survey showed the majority — 61 percent — of respondents are unaware [that] refinancing an auto loan can typically be done without extra fees or charges," said LaPlant.
She said the survey shows that 42 percent of drivers, which is a high percentage, financed their auto loan through a dealership. In addition, 37 percent of respondents shared that they have an interest rate of five percent or higher, she said.
"Many interest rates provided dealers are marked up two, to three points," added Jill Perry, director of AAA Financial Services. "Much of this mark up is additional profit the financial institution allows the dealership to keep. This encourages the dealer to send the loan through the financial institution that makes it most profitable for them."
LaPlant recommends refinancing auto loans to lower monthly payments, and, thereby, saving thousands of dollars on the total interest paid.
For example, a consumer had an auto loan with an interest rate of 7.99 percent and a monthly payment of $438.20, according to LaPlant. The interest paid over the life of the loan will amount to $6,550.40. Once it was refinanced with AAA Financial Services, the interest rate was lowered to 3.49 percent, with a monthly payment of $385.35. The interest paid over the life of the loan dropped to $2,744.98, she said.
The consumer saved $3,805.41 in interest, over 72 months, and $52.85, on monthly payments, she said.
"As of July 2010, AAA Financial Services saved members an average of $1,139 over the life of their refinanced auto loans as compared to other refinance lending platforms, with a 2.75 percent Annual Percentage Rate (APR) based on a 48-month term, on 2008 and newer vehicles," said LaPlant.
In the survey, 55 percent of respondents had another 13 months to three years of payments on their auto loans, and 92 percent of motorists have not refinanced their vehicles since 2008, she said.
"Now is a key time for consumers, in this situation, to refinance their vehicle and save," said LaPlant. LaPlant said an auto loan is the easiest type of loan to refinance. It is recommended that consumers begin the process before their monthly payment is due, she said.
The application process could be done online, and the entire transaction could be completed in one day, she explained. In most cases, no appraisal is required, she said. "There is no cost to apply for an auto loan refinance," she added.
The AAA Consumer Pulse survey was conducted online among 653 residents living in AAA Auto Club South territory, from Oct. 20, 2010, to Oct. 24, 2010, said LaPlant. These residents were 18 years of age and older, from the states of Georgia, Florida and Tennessee, she said.