Auto Loan Borrowers Turn to Refinancing for Savings
Aug 29th, 2018 @ 1:54 PM by Amber Nelson
New data from credit reporting bureau TransUnion shows that millions of U.S. car loan borrowers have turned to auto refinancing over the past several years to save money, with many refinancing even just a day or two after obtaining their original loan.
A recent TransUnion study reported that 1.5 million borrowers have since refinanced their car loans that were originated between 2013 and 2014. And there is a significant segment of those who refinanced within just a few days.
“We found that some consumers, especially those interested in taking advantage of loyalty programs and bundled options, will refinance their loans a day or two after the original purchase,” said Brian Landau, senior vice president and automotive business leader at TransUnion.
And it looks like refinancing paid off for those borrowers. TransUnion found that on average those who refinanced saved $52 a month on their auto loan payments. On average, they were also able to bring their APR down by 2.4%.
“In an increasingly competitive auto finance market, there is a lot of potential for auto lenders to tap into refinancing as a way to grow their business,” added Landau. “But market education is key. Nearly two-thirds of auto finance companies offer refinancing, but according to a recent Harris poll, less than half of consumers are aware they may use this option as part of their overall financing strategy.”
Now is a particularly good time for consumers to learn about refinancing options as auto originations have jumped 5.5% during the past three months compared to last year. With all those new borrowers, many could benefit from lower interest rate, lower payments or possibly longer terms.
As Landau explained, “Consumers who might be paying a somewhat higher interest rate on the loans they obtained through the dealership may find that refinancing can lower those interest rates or extend the loan term – in other words, help those same consumers manage their monthly cash flows.”
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.