ALEXANDRIA, Va. — Auto loan rates have sunk to the lowestfigures in almost two years, according to Bankrate.com, but $11billion Pentagon Federal Credit Union has taken the business to anew low, offering 4.25% APR on any auto loan if the application issubmitted online.

The rate applies to all terms up to 60 months for used and 72months for new auto and to all members, as the credit union doesnot assign risk-based pricing.

It's a good 50 basis points lower than the closest competition,according to an April 14 online survey of D.C.-area banks andcredit unions. Bankrate.com's April 14 overnight average rate for48-month new car loans in Virginia was 7.20%.

“Competitively, [it] really stands out, and that's by design,”said Ben Scandlen, director of marketing. “We like to go for thoseeye-popping numbers, and I think we've got it, especially forused.”

Scandlen said the rate fits in with Pentagon's current brandingslogan, “if you can find a better deal, take it.”

“We just always aim to be the best rate in town,” he said. “Thisisn't in response to anything the dealers are doing, we're justdelivering the best possible value for our members.”

Pentagon's loan rates are consistently low across the board; forexample, a 4.99% home equity loan and five-year ARM rates of 5.25%.The credit union also rebates 5% of gas purchases and 2% ofsupermarket purchases, in addition to an overall 1.25% rebate, onits platinum rewards Visa credit card.

How can they afford it? For one, Pentagon's operating expenseratios are as eye-popping as its loan rates. According to NCUAfinancial

performance reports from December 2007, Pentagon spends only17.29% of its gross income on operating expenses, killing theindustry average of 44.13%. Year-end return on assets was1.15%,

again, almost impossibly better than the industry average of0.68%.

“I can't say we're the best for sure, but if you compare ouroperating expense ratios, we're definitely among the best in theindustry,” Scandlen said. “It sounds clich?(C), but everyone in thecredit union arrives at work each morning and asks, 'what can I doto reduce costs today?'”

Shifting business toward low-cost electronic access points likethe Internet helps keep costs down. Pentagon FCU charges 40 basispoints more to members who don't apply online.

“The reason we offer that incentive is because we have a prettyaggressive goal to conduct 80% of our business online,” Scandlensaid.

The marketing director said a large majority of Pentagon FCU'sapps are processed online, using Strata decisioning software onCSC's Hogan core processing system. The credit union's military–andtherefore mobile–membership prefers remote access anyway, hesaid.

Those military-minded members must also apply boot-campdiscipline to their household budgeting. The December 2007 NCUAreport also turned up a jaw-dropping 0.26% delinquency ratio andonly 0.23% net charge offs. Industrywide, credit unions average0.78% delinquencies and 0.46% net charge offs.

“We look for members with strong credit, as it helps keeps ourcosts down,” Scandlen said.

–[email protected]