A new Internet service is marketing home equity loans to car buyers through auto dealers.
The company, iauto mortgage Corp. of Baltimore, intends to start offering the indirect auto loan program on its Web site this month. American Bank of Rockville, Md., has agreed to underwrite the loans.
Within months, iauto expects the program to be available in 20 states.
In a home equity loan, the car buyer's house, rather than the vehicle, is the collateral. And interest on a home equity loan is deductible, while interest on a car loan is not.
The tax deduction gives dealers an additional sales pitch in the F&I office - particularly for customers who shy away from financing through a dealer. A tax break also may appeal to customers who otherwise would lease or pay cash for a car.
Also, home mortgage interest rates are relatively low. Homeowners paying a higher rate may be able to refinance with a significant amount of cash left over.
It can take a couple of weeks to get a home equity loan, compared with a couple of minutes for blue-chip customers to get a typical auto loan approved. But iauto says customers can get financed in less than 30 minutes because the iauto application is online and approval is automated.
To participate, dealers register on the iautomortgage.com site. Participation is free if the dealership already has Internet access. And iauto will send representatives to train dealership employees to use the loan program.
The dealership gets an identification number and password that lets employees log on to the site and complete loan applications.
The dealership gets an average fee of $200 per loan - typical for home equity financing but a few hundred dollars less than the profit dealers can make on a typical car loan.
Scott Steele, CEO of iauto, said dealers find the speedy turnaround appealing.
But Brian Tripp, a sales manager for Jay Kilheeney Ford-Lincoln-Mercury in Lock Haven, Pa., said his dealership can make more money on traditional car loans. Dealerships can mark up the interest rate on a car loan, but they are paid a flat fee for participating in home equity finance programs.
While the improved turnaround would make home equity financing more attractive, he said, 'We get few people interested in financing their cars with home equity loans.'