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It pays to surf for auto loans online

Looking for a no-fuss auto loan with a rock-bottom interest rate? Hop online.

Thanks to a new wave of online offerings, you could land the auto loan you want without setting foot in a bank or credit union or squaring off with the finance manager down at the dealership.

And you've got quite a selection of online loans to choose from. Like E-Loan and Capital One Auto Finance (Formerly PeopleFirst), many banks and credit unions now offer auto loans over the Web. Major banks that allow customers to apply for auto loans online include Chase Manhattan, Wachovia, Wells Fargo, SunTrust, PNC Bank and Union Bank of California.

But the auto loans popping up on the Web are far from equal. Online applications, rates and customer service all vary widely. You'll need to shop carefully. Let's get started.

Better rates, quicker results
The biggest things online loans have going for them are low interest rates.

The national average, during the first week of January, for 48-month new-car loans is 7.54 percent and 8.04 percent for 36-month used-car loans, according to Bankrate.com.

Hop online and you'll find auto loan rates far lower than that. Some of the lowest can be found at Capital One Auto Finance, with new-car rates as low as 4.05 percent and used-car rates as low as 4.59 percent.

To nab these rock-bottom rates, the customer must apply for the loan online and agree to automatic, electronic loan payments. If you apply for a loan by phone, fax or mail, your interest rate edges up a quarter percent. Pass on the automated loan payments and your rate jumps up another half percent.

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It's no surprise that 90 percent of Capital One Auto Finance customers opt for automatic payments.

Wherever you finance your auto loan, it's a good idea to ask about interest rate reductions for automatic payments. Here's another tip. When shopping for auto financing, don't overlook the financial institution that handles your mortgage or checking account. Some banks and credit unions offer interest rate discounts to auto loan customers with additional accounts.

While surfing the Web for auto loans, it's important to realize that not all online lenders offer rock-bottom rates. Some banks offer the same interest rates offered in the branch to customers that apply online. So being Web-savvy may not make much of a difference to your auto loan rate.

Watch out for fees. Application fees, paperwork fees, administrative fees, all kinds of fees can turn up on an auto loan contract. Be sure to ask about fees before you apply for an auto loan over the Web.

Another thing that people like about online auto loans is the quick response time. Filling out a five-line application and getting an approval within minutes feels great.

The speed of an online application may be nice, but it's far from everything.

If you end up paying an extra $2,000 in interest costs, does it really matter that your financing was approved online in less than 15 minutes?

Shopping around the Web
Why not take a couple days to comparison shop and scope out the best possible rate available for someone with your credit record?

"Who cares in the real world if it take two days longer to save $2,000?" says Remar Sutton, founder of the Consumer Task Force for Automotive Issues.

And not all online auto loans give you an answer within minutes anyway. Some online responses may take hours, even days. And not all online applications are quickies, either. Some applications are quite thorough and will take more than a couple minutes to complete.

So do yourself a favor and give yourself plenty of time to shop around for financing on the Web.

And shop early. Beat the bushes for an auto loan on your own and then ask what a dealer can do for you.

Dealing with dealers
These days, dealers are able to offer financing to just about everyone, even folks with bruises on their credit reports.

More than anything, dealers want you to buy the car, and they have relationships with so many lenders that they'll be able to find financing for most car shoppers, even those with less-than-stellar credit.

The only way you'll really know if the financing offer from the dealer is the best deal for you is by shopping around for a loan ahead of time. "You know what you're paying for financing and if the dealer can give you a better rate, more power to the consumer," says Brian Reed, director of the Internet channel at Capital One Auto Finance.

Not enough car shoppers enter the dealership with the power of pre-approved financing in their back pockets.

Lots of folks fall in love with a car or are so wiped out from shopping that they let the dealer dictate their financing.

"It's amazing how many people allow themselves to be told how to finance," says James Walsh, author of Smart Wheels, Hot Deals: Buying, Leasing and Insuring the Best Car for the Least Money.

That's not a good idea. Let's face it. Dealers are in business to make money. And they will make a nice chunk of change off your financing if you let them. For more on the ins and outs of dealer financing, check out this Bankrate.com article.

That's not to say that dealer financing is all bad. Far from it.

Dealers are privy to zero-percent financing, which from an interest rate standpoint is impossible to beat. All those folks who snapped up zero-percent financing offers got quite a deal.

But was it the absolute best deal available to them? Maybe not. Many may have been better off scooping up a hefty cash rebate and landing a low-rate financing deal off the Web. Use Bankrate's rebate vs. interest rate calculator to decide which is the better way to go.

Now if you signed on for an auto loan with a dealer in the past year or so and you're unhappy with the rate you agreed to, you may want to consider refinancing.

Use the Web to check out used car rates in your area. Bankrate.com's auto loan search engine is a good place to start.

And don't overlook credit unions in your area. Digital Credit Union in Marlborough, Mass. has been offering online auto loans since 1995. As with many credit unions, you won't pay extra interest for financing a used car. Used car loans are available at new car rates.

"We typically save people $1,800 to $2,000 on interest over the length of their loans," says Tim Garner, vice president of marketing and strategic planning at Digital Credit Union.

There's a good chance you prowled the Net for auto pricing and reliability studies before you bought your car. Why not use the Web to knock down the interest rate on your loan?

"Some of the rates being offered by companies are extremely competitive, extremely good," says Ted Brown, auto finance practice manager at BenchMark Consulting International. "Why not take advantage of it, especially on used cars?"

-- Posted: Feb. 15, 2005

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NATIONAL OVERNIGHT AVERAGES
48 month new car loan 3.18%
60 month new car loan 3.18%
48 month used car loan 2.92%
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Auto loan calculator (includes amortization schedule)
How much car can you afford?
Buy or lease your next car: Which is right for you?
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