WASHINGTON – Think refinancing is only for mortgage loans, think again. Consumers and credit union members are not only refinancing their auto loans, lending institutions are actively promoting them to borrowers.
CUNA Senior Vice President and Chief Economist Bill Hampel admitted even he was surprised to learn just how actively some financials are promoting auto refinancings. "You just have to go on the Internet and do a search under `auto refinancing' to see how much comes up," said Hampel.
CUNA doesn't track credit union refinancings – auto or mortgage – so there's no way to statistically measure whether there's been an increase or decrease in auto refinancings in recent months. But Hampel said based on conversations he's had with some credit unions, "it's safe to assume they are already involved with auto refinancing or are actively seeking opportunities to do so."
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With 36 and 48-month auto loans being a thing of the past, and 60 and sometimes even 72 month terms now being fairly standard for auto loans, there's a large window of time when an auto loan is outstanding that makes refinancing sound like good sense for the member.
"The borrower can realize significant gains from refinancing an auto loan, especially within the first two years of a five-year loan," said Hampel.
Credit unions can also leverage the opportunity. Unlike credit unions' first mortgage loan rates which are fairly on par with banks, credit unions typically charge 50 to 100 basis points lower on auto loans than banks.
But what may seem like a golden opportunity for members is still worth approaching cautiously, advised NAFCU Staff Economist Jeff Taylor.
"Unlike refinancings of first mortgages where there usually are no prepayment penalties for the borrower, this is not always the case with auto loans. They often carry prepayment penalties to discourage borrowers from paying back the auto loan before the full term," Taylor said.
Even so, said Taylor, some members may decide it's worth the money they stand to save on the loan in the long run to pay the prepayment penalty.
"So much of auto buying is impulse buying," said Hampel. "When a consumer goes to a dealership to buy a vehicle, they're there to purchase the car, not to pick a relationship with a lender. If a dealer says `I can give you a loan right away or you can wait a day or two to find out if you're approved by your credit union,' the majority of the times the member is going to go with the dealer for the loan. A credit union's refinancing marketing program gives a credit union a second chance at car loans that are frequently lost at the dealership site."
"Credit unions have a natural disadvantage in the auto lending market because they're not present at the dealer site. Auto refinancing is a good way for credit unions to make up and capitalize on that disadvantage," said Hampel.
NAFCU's Taylor agreed. "Auto refinancing by credit unions is as way for credit unions to keep the loan and keep the members happy," he said. [email protected]
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