Consumers and the lending industry have been negatively impacted by the pandemic in a number of ways. However, that trend does not hold true for auto refinancing. What we're seeing is an unprecedented need for consumers who have current loans to refinance in order to better serve their changing budget. The frugal-minded may not need to refinance but also are seeing great opportunity to take advantage of the lower interest rates available through refinance.
COVID-19 unleashed a myriad of changes to society, but for financing, it meant a complete shift. According to a recent article in Auto Finance News, prime lenders in 2020 had their deferral rates increase fivefold, and subprime lenders saw those deferrals go as high as 20%. No one anticipated the economic fallout of a pandemic before it began. American consumers took on record-high auto loans in the first quarter of the year before the pandemic shuttered businesses and sent so many into furlough and unemployed status.
Lenders responded by granting extensions and deferrals, but that could only prove to be a temporary solution. With so many consumers losing employment and unsure when the economy will be able to fully recover, the loans that they had outstanding prior to the pandemic became more difficult to budget. Consumer spending changed as a reaction to the new economic reality and future uncertainty.
So what does that mean for the auto refinancing industry?
Auto refinancing to see record-breaking growth
The refinancing industry is seeing record-breaking growth. Consumers who entered into loan agreements prior to March 2020 are finding that their budgetary constraints have notably shifted. We're seeing a wide range of changes. Unemployment rates are up, but that's not the only marked change. Consumers are also taking advantage of improved interest rates to propel their own personal savings goals.
This presents an excellent opportunity for lenders to attract new borrowers. Consumers are looking for lower interest rates. Those who haven't been actively looking can be enticed once they realize the savings, so a bit of marketing outreach can really benefit those refinance lenders. Refinance service companies are available to support and enable growth in the auto refinance industry so that lenders can pivot to take advantage of the changing dynamics for rapid growth.
Consumer savings patterns are increasing. Consumers who are still steadily employed are concerned about job security in an unsure market. Consumers who have lost their income or seen it decrease have made changes to their usual spending habits. The average personal savings rate for U.S. citizens in April 2020 was at around 32% of their monthly income. The average savings rate for the same time frame in the last decade was under 8%. While this is an excellent personal finance strategy in uncertain times, the decreased spending also impacts the overall economy in a negative way.
For the auto refinancing industry, it means growth. Those same consumers are looking for ways to refinance existing loans in order to decrease payments. The current trends have meant a rapid increase, with some fintech companies that serve the auto refinance industry seeing a growth rate as high as 400%.
Auto refinancing services to meet consumer needs
As the economy pivots, your business model needs to move to meet the changing demands. For lenders moving to offer refinancing options or increasing their loans in this sector, this means that there is a heightened need for auto titling speed and absolute accuracy. Auto refinancing has specific challenges that often differ from auto financing. This can include titling for refinanced assets and jurisdictional issues. The pandemic itself and the current economy have added another layer to the complexity in finalizing auto loans, with instances of delays in titling and closures of local Secretary of State offices and Department of Motor Vehicle locations.
With the increase in auto refinancing, lenders and service providers are struggling to keep up. Some still work remotely or were not able to scale their teams to support the vast growth we're seeing. They may not have the expertise to keep up with the jurisdictional requirements. Adding to this dynamic, new regulations and obstacles imposed by the COVID pandemic have proven difficult to navigate. Many lenders lack the process automation they need to handle the larger volumes of new work, as well.
At Wolters Kluwer Lien Solutions, we offer auto refinance lien solutions to meet your needs with speed and unparalleled accuracy, improving your titling ability and delivering the highest level of support for your continual ability to meet the challenges of a changing market. Contact us today to see how Lien Solutions can improve your auto refinancing process.