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BANDON, Ore. — CNW Research spotted another upbeat element
about the lending landscape for this year: another rise in the number of
automotive finance contracts that will be refinanced.

The firm determined in its analysis as part of its Purchase
Path Study that the amount of current contracts that could be refinanced may
top 14 percent this year.

CNW said 12.6 percent of finance contracts were refinanced
last year. In 2009, just 4.3 percent of deals were refinanced as the recession
tightened credit availability significantly.

"Many new and used-car buyers during the recession who
needed to make a vehicle acquisition were hit with loans carrying high-interest
– as much as 24 percent," CNW president Art Spinella said in the firm's January
Retail Automotive Summary. "They accepted the premium because they had little
if any choice.

"Banks and other financial institutions were chary about
taking on low FICO borrowers and applications for the subprime and low near-prime
applicant were turned down," he continued.   

"Those who were in such loans had few places to turn. They
were in a contract that couldn't be refinanced because there were few
alternative lenders willing to take the risk," Spinella went on to say.

CNW pointed out that while only 4.3 percent of auto
contracts were refinanced in 2009, that situation didn't arise because "there
wasn't a pool of potential customers."

Spinella said, "There were only a few lenders willing to
perform the refi. And of those who were able to get a refinanced loan, most
were at the top-end of the FICO range either through improved employment or
coming out of a poor credit rating through systematic home-finance debt
reductions on the part of the consumer."

By 2012 as lending institutions began loosening credit
criteria and reconsidering the automotive refinance market, CNW discovered the
rate of refinancing applications approved jumped dramatically, surpassing the 2006
level of 11.2 percent, which at that time was the highest in nearly a decade.

"Auto loans are reasonably safe bets for financial
institutions," Spinella said. "Repossession rates are low because consumers
need transportation and will pay an auto loan before other debts including home
mortgages.

"The pool of existing loans that are held by consumers who
now would be considered ‘moderate' risks is growing dramatically," he added.

So where could the rate of refinanced contracts go if
current conditions remain in place beyond this year.

"The industry should see the rate of refi expand to nearly
18 percent by 2015," Spinella said.

Continue the conversation with SubPrime Auto Finance News on LinkedIn and Twitter.


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