ALEXANDRIA, Va. — Auto loan rates have sunk to the lowest figures in almost two years, according to Bankrate.com, but $11 billion Pentagon Federal Credit Union has taken the business to a new low, offering 4.25% APR on any auto loan if the application is submitted online.

The rate applies to all terms up to 60 months for used and 72 months for new auto and to all members, as the credit union does not assign risk-based pricing.

It's a good 50 basis points lower than the closest competition, according to an April 14 online survey of D.C.-area banks and credit unions. Bankrate.com's April 14 overnight average rate for 48-month new car loans in Virginia was 7.20%.

“Competitively, [it] really stands out, and that's by design,” said Ben Scandlen, director of marketing. “We like to go for those eye-popping numbers, and I think we've got it, especially for used.”

Scandlen said the rate fits in with Pentagon's current branding slogan, “if you can find a better deal, take it.”

“We just always aim to be the best rate in town,” he said. “This isn't in response to anything the dealers are doing, we're just delivering the best possible value for our members.”

Pentagon's loan rates are consistently low across the board; for example, a 4.99% home equity loan and five-year ARM rates of 5.25%. The credit union also rebates 5% of gas purchases and 2% of supermarket purchases, in addition to an overall 1.25% rebate, on its platinum rewards Visa credit card.

How can they afford it? For one, Pentagon's operating expense ratios are as eye-popping as its loan rates. According to NCUA financial

performance reports from December 2007, Pentagon spends only 17.29% of its gross income on operating expenses, killing the industry average of 44.13%. Year-end return on assets was 1.15%,

again, almost impossibly better than the industry average of 0.68%.

“I can't say we're the best for sure, but if you compare our operating expense ratios, we're definitely among the best in the industry,” Scandlen said. “It sounds clich?(C), but everyone in the credit union arrives at work each morning and asks, 'what can I do to reduce costs today?'”

Shifting business toward low-cost electronic access points like the Internet helps keep costs down. Pentagon FCU charges 40 basis points more to members who don't apply online.

“The reason we offer that incentive is because we have a pretty aggressive goal to conduct 80% of our business online,” Scandlen said.

The marketing director said a large majority of Pentagon FCU's apps are processed online, using Strata decisioning software on CSC's Hogan core processing system. The credit union's military–and therefore mobile–membership prefers remote access anyway, he said.

Those military-minded members must also apply boot-camp discipline to their household budgeting. The December 2007 NCUA report also turned up a jaw-dropping 0.26% delinquency ratio and only 0.23% net charge offs. Industrywide, credit unions average 0.78% delinquencies and 0.46% net charge offs.

“We look for members with strong credit, as it helps keeps our costs down,” Scandlen said.

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