By Candice Choi, AP Personal Finance Writer
NEW YORK (AP) — It's easy to overlook the cost of auto loans with mortgage rates grabbing all the attention.
Yet rates on auto loans have edged lower as the cost of lending has gone down for banks. And car buyers who didn't get the best terms in the past year or so can capitalize by refinancing their loans.
The option should be of particular interest to anyone who obtained a loan from a car dealership. That's because dealers are a middleman in the transaction. They typically mark up the interest rates they get from lenders to make money. Another reason to check how much you're paying? Dealers are leaning more heavily on auto loans for profits as shoppers get savvier about researching car prices online.
The result is that refinancing could bring significant savings.
Let's say a borrower is paying 10% on a $20,000 loan. The average rate to refinance a three-year old car right now is about 8%, according to Bankrate.com. So refinancing on average would save around $250 a year. That adds up nearly $1,000 over the life of a typical four-year loan.Here's a rundown on auto refinancing.
How Does It Work?
Refinancing an auto loan is far easier and cheaper than refinancing a mortgage. There's no need for an appraisal and borrowers can usually find out if they've been approved within an hour of applying online.
If you decide to accept an offer, the lender will need some paperwork to complete the process. This will include copies of the car's title and registration. You'll also need to provide documentation of the amount of the loan, outstanding balance and interest rate.
There's no universal term for this document but try asking your lender for a "payoff quote" so that you can refinance.