In a financial ecosystem where every dollar counts, a new analysis from TransUnion (NYSE: TRU) offers a bit of hope for American auto loan borrowers.
According to the study, approximately 18 million of the nearly 80 million open auto loans in the U.S. are “in-the-money” for refinancing, meaning borrowers could significantly reduce their monthly payments by securing a lower annual percentage rate (APR).
As inflation continues to squeeze household budgets, this opportunity could provide much-needed relief for consumers and a strategic advantage for lenders.
The term “in-the-money” refers to loans where the current APR exceeds the prevailing market average, making refinancing a financially viable option.
TransUnion’s data shows that while the average monthly savings from auto loan refinancing has dropped from $107 in 2021 to $90 in 2024 due to rising interest rates, these savings remain significant.
A survey conducted by TransUnion found that more than half of consumers would be motivated to refinance for monthly savings between $50 and $149, underscoring the appeal of even modest reductions.
The potential for refinancing grows even more promising if the Federal Reserve lowers interest rates. Currently, 18 million borrowers qualify for a lower APR, but a modest 25-basis-point rate cut could expand this pool to nearly 20 million.
A full percentage point reduction could add another 6.5 million eligible borrowers.
Notably, over half of the current 18 million “in-the-money” borrowers have APRs exceeding 10%, highlighting the urgency for these consumers to explore refinancing options.
For lenders, the refinancing market presents a dual opportunity: attracting financially savvy borrowers and improving portfolio performance.
TransUnion’s analysis reveals that refinanced auto loans consistently outperform original purchase loans across credit tiers.
Satyan Merchant, senior vice president and auto and mortgage business leader at TransUnion:
“Many auto loan borrowers may not realize that refinancing is an option. Those who do refinance tend to be more proactive about managing their credit, which translates to stronger repayment behavior.”
Lenders can further enhance their strategies by using tools like TransUnion’s TruVision LTV prescreens to target borrowers with favorable equity positions.
Despite the clear benefits, awareness of auto loan refinancing lags behind that of mortgage refinancing.
TransUnion’s findings suggest that educating consumers could unlock significant demand.
For borrowers, the process involves comparing current loan terms with market rates, assessing potential savings, and ensuring their credit profile supports a competitive offer.
Those with APRs above 10% or loans originated during high-interest-rate periods are prime candidates.
The broader auto market context adds urgency to this opportunity.
TransUnion reports that auto loan delinquencies rose to 1.47% in Q4 2024, surpassing Great Recession peaks, driven by high vehicle prices and borrowing costs.
Meanwhile, average monthly debt payments for auto borrowers climbed 20% from Q1 2022 to Q1 2024, nearly double the consumer price index growth.
Refinancing could ease these pressures, helping borrowers avoid delinquency while preserving vehicle equity.
As the Federal Reserve eyes a potential “soft landing” with gradual rate cuts, both consumers and lenders stand to benefit from a proactive approach to refinancing.
For the 18 million borrowers poised to save, the message is clear: now is the time to act.
By seizing this opportunity, consumers can potentially reduce financial stress and strain, and lenders can build stronger, more resilient portfolios in an evolving market.