Rates continue to pressure refinance savings

High interest rates are leading to lower savings for consumers when they refinance their vehicle, but consumer interest remains mixed as some are still looking for payment relief. Refinance application volume at online refinance marketplace Gravity Lending remains high, signaling steady consumer interest in its lender partners’ refinance offerings, Chief Executive Brian Jones told Auto Finance News . Gravity Lending receives about 20,000 refinance applications per month, he said. “Consumer interest is still extremely high and that never waned,” Jones said. “The problem is that the rate spread shrunk a little bit.” Before the increase in interest rates, consumers were able to reduce their rate by an average of more than 3%, but now it’s 2% or less when they refinance, Jones said. Prime consumers can get an interest rate ranging from mid-5% to low-6%, and rates increase by about 2 percentage points further down the credit spectrum, he said. Although rates are high, some consumers are still turning to refinancing for budget relief, Jones said. “A lot of consumer budgets are more strapped than they've ever been, so they're looking for savings all over the place,” he said. “We have no problem gathering applications for interested consumers.” USAA refinance volume falls 50% However, not all lenders are receiving strong demand for refinancing. USAA has seen tepid consumer demand as the financial institution’s refinance volume fell by about 50% from when interest rates were low, Mark Pregmon , vice president of consumer lending at USAA, told AFN . “In 2019, 2020 and 2021, rates were going down, so we were averaging about 60,000 refinances per year,” Pregmon said. “In 2022, rates started going up a little bit, and in 2023 we did 30,000 refinances.” Many consumers in the refinance market are looking for short-term monthly payment relief, but extending the term would cause them to pay more interest over time, Pregmon said. USAA also offers equity cash-out on auto loans as many of the lender’s customers are serving in the military and their only asset is their vehicle, he said. “We have members that come to us and say, ‘I got my car with you, I paid $40,000 for the vehicle and have paid down $25,000. I want to take an additional $5,000 because I have an emergency,’” Pregmon said. “That's their only asset, so it’s like getting a home equity.” Meanwhile, continued elevated rates give the refinance market room to grow once rates come down, Gravity Lending’s Jones said. “The longer the rates stay higher, the larger the refi market grows in the time ahead of us,” he said. “The market is refilling. The rates overall stabilized towards the end of last year. ... We've seen some recent rate reductions by a lot of our lenders.” Jones did not provide lender specifics. Lenders reenter refinance Refinance is gaining attraction from lenders, even with consumer demand mixed, in anticipation of lower benchmark interest rates. Gravity Lending has had at least eight “large lenders” rejoin its platform to originate refinance contracts, Jones said. Some of the lenders that are rejoining are “multibillion-dollar credit unions,” he said, without naming specific financiers. Gravity Lending has about 75 lenders on its platform, Jones said. “A lot of the lenders are becoming liquid again and are coming back as active participants in the program,” he said. Refinance application conversions and approval rates from lenders are ticking up, he said. Early-bird registration is now available for the second annual Auto Finance Summit East 2024 , May 1-3 in Nashville, Tenn., which gathers lenders, dealers and fintech innovators in an event designed to bring the power of technology to a cross section of industry players. Early-bird pricing ends March 15. Visit AutoFinance.Live to learn more.

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