Most Consumers Do Not Know the APR on Their Auto Loans
NEW YORK — A recent study by Capital One Financial Corp. discovered that the majority of consumers with auto loans do not know the interest rate they are paying.
More specifically, this number came in at 61 percent of Americans who are uninformed.
Given this finding, Capital One indicated that many consumers may be paying more than necessary and could benefit from a lower interest rate and a lower monthly loan payment by refinancing.
"Simply put, a lower interest rate means lower monthly payments and long-term savings," explained Sanjiv Yajnik, president of Capital One Auto Finance.
"By reducing the interest rate on an auto loan by a percentage point or two, consumers can save money on their monthly bills that can add up to a significant amount, hundreds or even thousands over the life of the loan. Knowing your current interest rate is the first step in determining if refinancing is a good option for you," he stressed.
The survey showed that Americans are starting to look for some minor ways to save money due to the challenging environment, such as reducing latte intake (9 percent), quitting smoking (9 percent), or even limiting themselves to just window shopping (12 percent).
Interestingly enough, however, most consumers have not considered refinancing their auto loan, which would likely make a bigger impact on their bank account, Capital One officials pointed out.
In fact, nearly two-thirds (62 percent) of consumers surveyed said they did not know refinancing their auto loan may save money.
"Finding ways to cut back on monthly spending is tough when the price of necessities keeps going up. For many consumers, refinancing their auto loan could free up enough money to buy an extra tank of gas, or a week of groceries," added Yajnik.
Actual Savings from Refinancing?
The amount of money consumers can save by refinancing their auto loan depends on many factors, including the current interest rate, loan balance and the individual's credit rating.
Including a plug, Capital One Auto Finance indicated that it currently offers auto refinancing rates for as little as 6.95 percent, which "may be substantially lower than the interest rate many car owners currently pay."
For many consumers, even a small reduction in their interest rate results in significant savings over the loan term. Consider a consumer who originally financed a 5-year, $25,000 auto loan one year ago at 9.95 percent APR.
If the APR was reduced by 3 percentage points today that same consumer would save $1,423 over the remaining four years of the loan (or about $30 per month) simply by refinancing online at 6.95 percent APR if approved at www.capitalone.com/autoloans, officials indicated..
Continuing on, the company reported that if the APR was reduced by 2 percentage points today that same consumer would save $954 over the remaining four years of the loan (or about $20 per month) by refinancing online at 7.95 percent APR.
If the APR was reduced by 1 percentage point the consumer would save $480 over the remaining four years of the loan (or about $10 per month) by refinancing online at 8.95 percent APR.
Is Refinancing the Right Thing to Do?
Capital One Auto Finance recommended that consumers consider the following criteria before deciding to refinance their auto loan.
—Look out for prepayment penalties: Determine if your current auto loan has any penalties for paying off the loan early. This will impact how much you can save from refinancing.
—Check your credit score: Your interest rate will depend on your credit score. Get a free copy of your credit report at www.annualcreditreport.com and opt to see your credit score. Make sure your credit report is accurate and report any inaccuracies to one of the major credit bureaus.
—Beware of lender fees: Capital One Auto Finance charges no application, origination or early termination fees. If your lender charges any fees to process your loan, consider applying with a different lender.