Understanding the consumer dynamics of auto refinance

Vehicle sales will continue to decline as inventory shortages impact retail and wholesale supply chains. As such, auto lenders are exploring growth options and even traditionally non-auto lenders are entering a largely untapped space — auto refinance. While beneficial to lenders, auto refinance continues to be a powerful proposition for consumers as well. It provides them an opportunity to reduce their interest rates and/or monthly payments — which in turn promotes trust and loyalty.

In addition to the above, auto refinance is appealing for other reasons. For instance, most auto delinquency occurs within the first few months of purchase, which means auto refinance loans typically have a better risk profile and performance than purchase auto loans. Additionally, direct-to-consumer loans generally perform better than dealer-originated loans. Lenders also eliminate the challenges associated with identifying or predicting consumers in the market for an auto loan.

To understand the market opportunity, we analyzed auto refinance originations in 2018 through 2020. Affordability continued to drive the behavior of consumers — who had more exposure to auto refinance products than ever before. Even so, in a survey TransUnion conducted, we found awareness of auto refinancing lags greatly behind that of mortgage.