November 4th, 2010

The Next Consumer Credit Education Crisis: Auto Loans & Refinancing

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**Today’s guest post is contributed by MoneyAisle, an online resource where consumers find great rates on auto loans and refinancing. MoneyAisle runs live, reverse auctions (like a reverse eBay) to get exclusive rates and instant one-stop shopping for financial products.**

auto loan

In recent years, the media and federal government have lavished much attention on consumer crises over credit card debt. But get this: according to the Federal Reserve Bank, the collective outstanding debt on auto loans in the U.S.—which totals about $850 billion—heavily outweighs the amount of outstanding debt on credit cards.

While credit cardholders are protected by federal legislation such as The CARD Act of 2009 and exposed to informative journalism and documentaries such as PBS/NYTimes’ “The Card Game”, only about 1 in 20 consumers are aware that they can save significant money from a car loan refinance.

What Consumers Don’t Know, Hurts Them

The issues surrounding auto loans and car financing stem from, and are sustained by, a clear gap in public education. For example, many consumers end up getting auto loans directly from the dealer, which often ends up being detrimental to the consumer. While some car dealerships have their own auto financing departments, many dealerships essentially resell auto loans. They take the current going rate for auto loan APRs—currently about 6 to 8 percent—and tack on about 2 to 4 percent in “dealer markup.” That money goes right into the dealer’s pocket. Meanwhile, the consumer is saddled with an artificially inflated car loan interest rate for the entire life of the loan.

It’s Not Too Late To Save Money

If you financed your car at the dealer or got a rate higher than you deserve, you have some options. While you can’t recover the origination fees and other one-time finance charges, you can refinance your auto loan to avoid paying these higher interest rates in the coming months or years. There are helpful, online companies that can figure out how much money you can save by refinancing.

MoneyAisle, for instance, helps customers get an average savings of $1,412 a year by refinancing their auto loans. These car loans are arranged directly with the lender, so you can get an APR that is much more realistic and cost-effective based on your region, car type, and credit score. Lowering your loan’s interest rate by even a few percentage points can really add up over the years—imagine $1,412 savings per year on your auto loan over a two to five year period.

The Bottom-line

It pays to comparison shop—especially when it comes to consumer credit. Car dealers have an advantage because they have a presumably captive audience. In reality, there are no regulations that require car buyers to finance through the dealership or stay with an exorbitant car loan.

As a consumer, you have the right to explore direct financing options. Many banks, credit unions, and lending institutions are catering to this growing trend by making it easy to get quotes on car purchase loans and auto refinances. You can easily get multiple quotes without submitting any personal information—and because it’s free, it makes even more sense to investigate competing offers before committing to an auto loan.

Disclaimer: All information posted to this site was accurate at the time of its initial publication. Efforts have been made to keep the content up to date and accurate. However, Credit Karma does not make any guarantees about the accuracy or completeness of the information provided. For complete details of any products mentioned, visit bank or issuer website.

One Comment

  1. I bought a car and was taken advantage of in the APR.I have the ability to refinance at a much lower rate but bank says (boa)that they get additional fees.Do not understand.I was told no prepayment penalties.

    Keith Magan at 3:09 pm on August 20, 2013

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