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Variable-Rate Auto Loans Not Always Worth the Risk

Simone Baribeau

Variable-rate auto loans, formerly rarely seen, are popping up at a few credit unions.

Rather than being subject to fluctuations in monthly payments, many drivers with variable term auto-loans may have their loan term lengthen should interest rates rise, and shortened should they fall.

Variable-rate auto loans may make sense for some consumers if the spread between the fixed and variable rate is above 1%, says Jesse Toprak, executive director of Edmunds.com. Otherwise the discount might not be worth the risk. And, he says, many institutions may limit variable-rate auto loans to customers with excellent credit.

So if your current banking institution doesn't offer variable-rate loans, don't expect to find them at a dealership or a large bank any time soon.

"The appeal of this product is quite limited," Toprak says.

Here are some fixed-rate auto loan highlights from BankingMyWay.com. Rates are based on $25,000 new car financing with a 36-month loan. Other terms and conditions, including geographic, apply. Loans may be based on less than 100% financing. Be sure to check with the institution.

• Bank of America,(BAC - Cramer's Take - Stockpickr) National Association offers a 4.89% loan.

• In New York, State Farm Bank offers a loan at 5.39%.

• Armed Forces Bank, National Association offers a loan at 4.7%.

• In Texas, Extraco Banks, National Association offers a loan at 4.95%.

• In California, US Bank National Association offers a loan at 4.83%.

• In Illinois, Midland States Bank offers a loan at 4.5%.

• In Illinois, First Financial Bank, National Association offers a loan at 4.99%.

• In Florida, Bank of Pensacola offers a loan at 4.2%.

• In Florida, Citrus Bank, National Association offers an auto loan at 5.33%.

Here are national averages for auto-loan rates:

To search for local rates on auto loans, click here.