ALEXANDRIA, Va.-With manufacturer incentives driving auto loan rates down, down, down, one CU is offering 0% this month, turning to a unique arrangement not unlike that between automakers and their dealers.

Pentagon FCU is partnering with Enterprise Car Sales to offer 0% APRs for up to 60 months on any used car purchased from the company's fleet. In return for access to more than one-million Pentagon Federal members, Enterprise is buying down PenFed's promotional rate of 1.49% APR to 0%.

The 0% deal is good through August and accompanies the credit union's 50-baisis-point rate drop this month off its everyday low rate of 1.99%. PenFed, too, is charging just .49% on new and used cars purchased through its online car-buying site.

The consistent low rates have been bringing in loan business all year, and the specials have added a boost, said Scott McCleary, direct response product manager. "Zero percent really drew a lot of attention, and we got some media coverage too. We experienced a lot of Internet and phone traffic starting the first day of August when we dropped the rates. Our call centers were feeling it."


Good Deal, Great Value

McCleary would not share the amount of sales generated from the 0% offer nor the $15-billion CU's auto loan volume for the year, simply stating that the credit union is doing very well with lending and that auto is playing a major role in that success. McCleary admitted it does take a low rate today to get members' attention. "We have been consistently offering a low rate, and our members know that. However, what is just as important is giving members good service. They know they get a good deal, are treated well at the credit union, and get great value."

But with the automakers still applying a lot of pressure on FI rates, Pentagon realizes the impact of specials. The CU partners with TrueCar to run its online car-buying website. Like Enterprise, TrueCar this month bought down the CU's 1.49% rate, chopping off 100 basis points to offer members .49% for up to 48 months on any new or used car purchased through the website.

McCleary explained that TrueCar made the deal in exchange for what it expects will be increased business. "From what I can tell TrueCar has been very pleased with the offer."


Avoiding The 'Abstract'

McCleary offered hope for lenders that may be frustrated with the lowball deals carmakers are supporting, saying what many lenders have noted in the past-that the manufacturer deals are largely for short terms.

"Our everyday rate of 1.99% competes favorably with the automaker deals," said McCleary. "Rate and term tend to be a little abstract for borrowers, but not payment. When you tell them they will be paying 346 dollars and 11 cents monthly, they know what that means to their cash flow. The offers we have offer much more flexibility, especially with term, and in the end don't take as big of a bite out of the monthly budget."

With its standard rate at 1.99%, McCleary said that keeping rates low still offers acceptable margins due to the increase in the total number of loans. "The low rates drive up volume, but there is a curve."

McCleary would not say if Pentagon had any more specials lined up for the remainder of the year.

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