For the first time this year, interest rates have dropped, leading to speculation about a possible surge in refinancing activity. Early indicators suggest that the trend toward refinancing was already building before the recent rate cut.
According to Experian’s Q2 2025 State of Auto Finance Market, prime and near-prime borrowers now make up 71% of refinancing volume. More than half of prime and super prime borrowers have either refinanced their auto loans or plan to do so. These patterns point to a likely increase in refinancing, especially among borrowers with higher credit scores. As credit risk declines, competition among lenders is expected to intensify, with credit unions anticipated to lead in refinancing volume. Auto and consumer lenders are advised to monitor these developments closely to both seize opportunities and manage the risk of quicker loan prepayments.
However, there are concerns that refinancing may not always provide real savings for borrowers. “Resetting the interest clock isn’t always in the best interest of the borrower. Borrowers seeking refinance may not realize that they may not save money in the long run – or that they could lose valuable perks, such as closing incentives. More vulnerable groups, including youth or seniors, are particularly at risk of not fully understanding the terms.”
Experian data shows that borrowers who refinanced saved an average of 2% on their loans (https://www.experian.com/content/dam/noindex/na/us/automotive/finance-trends/experian-safm-q2-2025.pdf?SP_MID=49190-g&SP_RID=21997126-g&cmpid=Auto-US-26-100%20SAFM%20Q2%202025%20Report_49190). However, this reduction may not be as beneficial as it seems, potentially creating an “illusion of affordability.” For lenders, this could result in greater portfolio risk if short-term relief for borrowers leads to problems down the line.
As more borrowers refinance and shorten their loan terms, lenders face increased product refund liability when loans are paid off early. This triggers obligations to refund ancillary products like GAP insurance and Tire and Wheel coverage. Regulators at both federal and state levels are closely examining how these refunds are calculated and processed. Many financial institutions still rely on outdated manual systems, which increases their exposure to errors and regulatory scrutiny.
The report notes: “Refinancing opportunity isn’t without risk for both borrowers and lenders. While this risk hasn’t materialized on balance sheets yet, idling can lead to silent accumulation of additional risk.”
To address these challenges, lenders are encouraged to implement automated solutions and robust risk mitigation strategies suited to changing economic conditions.
Allied Solutions is one company offering such services. Headquartered in Carmel, Indiana, Allied Solutions provides insurance, lending, risk management, and data-driven solutions for auto finance companies and financial institutions across the United States. The company serves over 6,000 organizations with technology-based services tailored to client needs. Allied Solutions operates independently as a subsidiary of Securian Financial Group.
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