Auto Refinance Lowest Rate

What are "Low as" rates?

Overview
The “rates as low as” that are prominently displayed on websites like up2drive, rate genius, and myautoloan do look tempting.  Right now the lowest auto refinance rates are hovering around 4-5%, which are very good from an historical perspective.

Teaser rates: also know as "Low as" rates
The lending institutions who advertise these rates, do in fact, offer them to consumers.  But here is the rub - will you qualify for these rates?  In my experience at an auto refinance lender, a prominent nationwide bank, we advertised “low as” rates for all those who applied. 

Banks with lowest rates may not give you the lowest rate
The reality is that very few people qualify for those rates.  The lowest rates will be made available to those who have a sterling credit history and whose Beacon scores (FICO) are 730+.  Only the “super-prime” customers will be eligible for a great rate.

What if you aren’t a prime credit customer?  Don’t fret.  You should be buoyed by the fact that auto refinancing banks can lend at historically very low rates now.  This is a byproduct of the bank’s ability to borrow short-term money at very low interest rates.  The bank’s cost of funds (COF), the interest that they pay on short-term borrowings, is quite nominal.  When the bank’s COF is low, then they have the ability to make loans at better rates than when their cost of funding is higher. This means that a bad credit auto refinance customer could get a better rate.

Loan term plays a role too
Also realize that the lowest rate for auto refinance is offered usually for shorter loan terms. Maximum auto refinance loan terms for the low as rate is usually 60 months or less. Bet on paying at least 1% higher interest rate for 72 months or longer term.

Determining lowest rates
At a high level the bank lends the short-term borrowed money to make longer-term loans, at a higher interest rate, to consumers.  Essentially the bank will make a credit “spread” on lending out their short-term borrowings to consumers for longer-term loans at a higher rate than compared to their short-term borrowing rate.  When the COF is low, consumers can likely expect lower rates to follow.
So while you may not qualify for the “low as” rate, you should be tracking where this rate is currently because it will be an indicator of where your rate will fall, based on your credit history. 

Rule of thumb
If you have decent credit, then you should a premium tacked on to the low rate in the neighborhood of 0.50%-1.5%.  If you have non-prime credit, then expect to add on 2%-5%.  If you have sub-prime credit, then hike the low as rate up 6%-15%.