BANDON, Ore. — CNW Research said in its monthly newsletter it expects the percentage of refinanced auto loans to top 14 percent this year, up from 12.6 percent in 2012.
Last year, the percentage topped 2006 levels, when 11.2 percent of auto finance contracts were refinanced. CNW’s Art Spinella wrote in his newsletter that the return of refinancing could bring relief to consumers who purchased a vehicle during the Great Recession.
“Many new- and used-car buyers who needed to make a vehicle acquisition during the recession were hit with loans carrying high interest of as much as 24 percent,” Spinella wrote. “They accepted the premium because they had little, if any, choice. And those who were in such loans had few places to turn.”
Spinella noted that in 2009, only 4.3 percent of auto contracts were refinanced. The low percentage wasn’t the result of a small pool of willing consumers, but a reflection of lender appetite for risk at the time, Spinella wrote.
“And of those who were able to get a refinanced loan, most were at the top end of the FICO range,” Spinella explained.
But by 2012, as lending institutions began loosening up their credit criteria, the rate of refinance applications jumped to its highest level in nearly a decade.
“Auto loans are reasonably safe bets for financial institutions,” Spinella wrote. “Repossession rates are low because consumers need transportation and will pay an auto loan before other debts, includes home mortgages.
“The pool of existing loans that are held by consumers who would be considered moderate risks is growing dramatically, and the industry should see the rate of ‘refi’ expand to nearly 18 percent by 2015.”