Record-low interest rates have propped up a slow-to-recover housing industry. Even lower rates are helping the auto finance industry explode, with many firms seeing exponential growth -- and consumers getting great deals.
Many South Floridians who have been riding out the recession in older vehicles are now racing out to get cheap loans. "People have held on to their cars for a long time and there's pent-up demand," said Mark Sheinbaum, CEO of Chase Auto Finance. Chase has been offering auto loans for as little as 2.53 percent in South Florida.
Consumers who aren't ready to buy have been refinancing their cars, trucks or SUVs, saving hundreds of dollars a month.
Jeff Burto of Oakland Park said refinancing his Toyota Highlander put an extra $325 a month in his pocket. It cut his interest rate by more than half, to 3.25 percent. "My [old] interest rate was rather high," said Burto, president and chief operating officer of Fort Lauderdale-based Sunbound, a company that specializes in coordinating meetings, conferences and incentive travel in Florida and the Bahamas.
Still, he was surprised when he got a new interest rate barely above 3 percent at Miramar-based Tropical Financial Credit Union. That's cheaper than the current all-time record low of 3.34 percent for a fixed 30-year home loan, according to secondary lender Freddie Mac, which monitors mortgage rates.
The low rates on auto loans have been a boon to the credit union, according to Helen McGiffin, chief operating officer for the credit union. Tropical Financial was offering loans as low as 1.49 percent Monday for a new or used vehicle, and refinancing rates were as low as 2.5 percent.
"We're up over 46 percent in consumer loans in a year, thanks to the auto loans," she said. "That's a pretty hefty increase."
Lenders are finding they have to offer the cheap loans to stay competitive with the automakers that are subsidizing low-interest loans at dealerships -- some of them charging no interest, McGiffin said. "Consumers are now used to 0 percent loans," she added.
Plus, with the Sunshine State a leader in home refinancing applications, many South Floridians also are looking to snag a cheaper auto loan at the same time, McGiffin said.
"It's common sense. People are going to refinance if there's a good opportunity," said Mel Campbell, a spokesman for Regions Bank.
Earlier this year, before interest rates declined even further, applications to refinance U.S. car loans had jumped nearly 30 percent in a year and were outpacing the number of people applying to buy a car, according to a LendingTree.com survey of lenders in its network. About 70 percent of vehicle buyers need a loan to purchase, the website reported.
Perhaps because the low interest rates allow South Floridians to buy more expensive cars, the average car loan balance in the Miami-Fort Lauderdale metro area jumped almost $900 in October compared with a year ago, CreditKarma.com reported. The balance went from $15,477 in October 2011 to $16,375 last month in Broward and Miami-Dade counties.
People aren't paying more in monthly payments, instead opting for a longer term on their loan if the lower interest rates don't cut the payments enough. "What we can tell from a broader industry perspective is that in terms of monthly payments, the average car payment has remained relatively flat for the past few years," said TD Bank spokesman Mohammed Nakhooda.
About half of U.S. consumers are eligible for the cheapest auto loans because they have a credit score of 700 or above, estimated Jim Landy, president and CEO of CarFinance.com. Those with lower credit scores pay a higher interest rate, but still enjoy cheaper rates than even a year ago, Landy said.
Boca Raton financial planner Mari Adam, who said she has good credit, found she could save $1,200 by refinancing the loan on her daughter's Scion.
"In my case, it took all of 15 minutes. It involved no money changing hands and, lo and behold, I saved $1,200," Adam said. "That's not small change."
What helped is that car loans do not have closing costs like mortgages do, she said. "It's free to apply and get a new auto loan," she said.
But consumers should be careful in refinancing: Don't get a longer car loan than your existing one to further lower your monthly payments without considering the age and value of the vehichle, Adam recommended.
"That's not a good idea, because your car depreciates faster than you can pay it off," said Adam.
One of her clients couldn't get a new loan because he owed more on his car than what it was worth, she added.
South Florida lenders are aggressively seeking out customers -- and providing extra services to attract auto loan applicants.
Howard Humeston, of Pembroke Pines, said BrightStar Credit Union had a staffer who tracked down the best prices for the Kia Sol that Humeston's wife wanted and then negotiated a price. Humeston said the credit union worker saved him about $1,500 from what he would have paid.
"He even got the right color," Humeston said.
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