Teaser rates, long the popular come-ons for mortgages and credit cards, are beginning to pop up on auto loans.

Nevada State Bank. Tired of being beaten by financing deals from auto dealerships and manufacturers, the $1 billion-asset bank rolled out some eye-popping auto loan teaser rates in March.

“It’s a good way to get attention,” said George Hofmann, president of Nevada State Bank.

Nevada State is offering an annual percentage rate of 4.99 percent for the first three months of any loan for any 1995 or newer car. The rate is then bumped to 8.35 percent for the rest of the loan, which can range from two years to five years.

The bank also is offering a 5.99 teaser rate on four-year loans for 1990 to 1994 model used cars. A rate of 9.35 percent then applies for the rest of the loan’s term.

There’s lots of interest
Thanks to the teaser rates, the bank has received 2,000 car loan applications in less than a month.

Karen Joline, marketing director of $473 million-asset
Pioneer Savings Bank in Troy N.Y., said she began noticing car loan ads with teaser rates earlier this year.

“It’s unusual to do it with car loans. You see it more with mortgages and home equity loans,” Joline said. “But we’re beginning to see them with car loans.”

She added Pioneer, a heavy advertiser of its car loans, opposes teaser rates.

“We’d rather be more upfront with customers on how much their payments will be,” Joline said.

Bob Ferber, president of
CarFinance.com, an online lender, agreed.

“We’ve looked at it,” said Ferber of teaser rates. “And we haven’t done it because it’s a little misleading.”

But Hofmann said Nevada State’s print and television ads for the loan rates feature the teaser and the rate for the remainder of the loan side by side. He also pointed out that the 8.35 percent rate is competitive on its own.

Savings are modest
At Nevada State, for example, a customer with a $10,000, five-year auto loan would pay about $24 less in each of the first three months under the 4.99 percent teaser rate.

Many in the auto loan industry see the stiffest competition coming not from other financial institutions but from car dealerships and auto manufacturers that entice customers with cash-back offers and very low loan rates. And Hofmann pointed out that many of the low-rate car loans offered by dealerships are only for two-year terms, which may be out of reach for many consumers.

Ferber said it is important that consumers keep in mind that it is much more difficult to refinance a car loan than it is to jump from credit card to credit card, capitalizing on low introductory rates. Cash-back and teaser rates should be carefully studied.

“It’s not like a credit card. You can’t just switch offers after three months,” Ferber said. “You can’t skip around with an auto loan.

“You’re basically stuck.”