Squeezed from multiple angles, automotive consumers could release the pressure with loan refinancing, a TransUnion report suggests.

It said about 23% of the almost 80 million open U.S. automotive loans are candidates for refinancing, known in the industry as “in-the-money,” because their loan rates surpass the prevailing average annual percentage rate.

Refinancing such loans could save auto borrowers on their monthly payments and cumulative borrowing costs over the lifetime of the loan.

Though higher interest rates today have cut into refinancing savings, the move can still make a big difference in borrowers’ costs, TransUnion said. Average monthly savings from auto loan refinancing was $90 last year, down from $107 in 2021 but nevertheless significant.

The consumer credit reporting agency found that over half of auto consumers would pursue refinancing for between $50 and $149 in monthly savings.

Savings would grow further if the Federal Reserve cuts interest rates, which seemed more likely after the U.S. Bureau of Labor Statistics' dismal July jobs report Friday.

Just a 25 basis-point rate cut would increase in-the-money borrowers by nearly two million, while a full percentage point cut would make another 6.5 million eligible for meaningful savings with a refinancing, TransUnion said.

“Many auto loan borrowers may not realize that refinancing is an option,” said Satyan Merchant, the agency’s senior vice president and auto and mortgage business leader. 

“As a result, those who do refinance tend to be more financially savvy and proactive about managing their credit. At a time when other segments of the auto loan market are facing performance challenges, lenders should consider targeting qualified borrowers for refinance opportunities, which have historically shown stronger repayment behavior.”

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