As the average vehicle loan increases in size and stretches to seven years and beyond, borrowers in some cases can lower their monthly payments significantly by refinancing and save hundreds of dollars over the course of the loan, according to interviews with auto finance industry experts.
What’s in it for lenders? A new source of loan volume, as “refis” can take customers away from competitors, experts said. Conversely, refis can also a good portfolio retention strategy: Refinance your own customers before they go elsewhere.
Refis can also lower portfolio risk, according to interviews. A borrower with a high-mileage vehicle is better able to stay in a loan at a lower monthly payment.
Some lenders actively solicit borrowers for lower rate loans, like Bank of America. John Schleck, senior vice president, centralized and online sales executive at BofA, says the bank gets “quite a bit of organic volume” in auto loan refis from customers doing other banking business online, as well as in-person at a branch.
“We do a fairly good business with that,” he says. “We are always looking for signals and clues when people are in our financial centers. Auto loans come up frequently. Somebody walks into a financial center to make a payment on a car loan. Personal bankers then start a conversation with them about how to save money and make their financial lives better.”
BofA also sends out emails to existing customers. The bank doesn’t necessarily solicit customers who already have a BofA car loan for refis, but it will refinance those, too, he says. Most of the bank’s refis are from other lenders.
By contrast, LightStream, a division of SunTrust Bank, says it won’t refinance its own loans. However, it does offer rates as low as 1.99% on refis for borrowers with excellent credit.
“Customers can use their funds to refinance any car regardless of make, model, mileage, condition or LTV. There are no fees or appraisals. And, should a customer decide to pay back their loan early, there are no pre-payment penalties,” a spokeswoman said.
Meanwhile lenders also differ on what types of loans they won’t finance.
State Farm, for example, won’t refi loans on vehicles with over 150,000 miles or that are driven more than 35,000 miles per year, the company said. BofA won’t finance cars that are over 10 years old or have more than 125,000 miles on them. It also won’t refi commercial vehicles or those used for business purposes.
BofA also won’t finance motorcycles. State Farm, however, will finance those as well as boats, RVs, jet skis and snowmobiles.
Generally speaking, lenders ask refi borrowers the same qualifying questions they ask customers financing new cars, plus some questions specific to the vehicle. BofA, for example, wants specific vehicle information, such as make, model, year, mileage and vehicle identification number.
USAA Bank, which has refi loan rates as low as 1.49%, asks for the current loan payment and the payoff amount on the current loan, says Gloria Manzano, senior communications partner at the bank. USAA is willing to lend as far out as 84 months but only on loans of $25,000 or more.
Only military members and their families are eligible for USAA auto loans and insurance, although other financial products are open to the general public.