Auto Refinance Opportunities - NAFCU

Auto Refinance Opportunities

April 2022

Recent trends in auto lending have created a good environment for refinance

Used auto values up

Used Auto APRs spread up

Auto loan balances up

Auto pricing have increased from $19K to $22K from April 2020 to

April 2021

9.0%

8.5%

8.0%

7.5% 0.0%

Q1 2019

Q1 2020

+1%

Q1 2021

Spread between average used auto loan APRs vs. 2yr UST rate

has increased ~1.5% from Q1 2019 to Q1 2021

The total balances have increased by a percent from Q1

2019 to Q1 2021

Sources: 1. Cox Automotive

2. AutoCreditInsight by S&P Global Mobility and TransUnion 3. St. Louis FRED Research

? 2022 TransUnion LLC All Rights Reserved | 2

However, our consumer survey indicated that many borrowers are not aware or misinformed about auto refi opportunities

Both aided and unaided awareness of auto refinancing are lower vs. mortgage refinance

Mortgage Auto

71%

50%

Aided Awareness

25% 12%

Unaided Awareness

Top reasons why consumers with an auto loan who considered refinancing but decided not to

Not allowed to refinance or did not know how

Process was too difficult

Lack of credit worthiness or eligibility

Price too high or not enough savings

Other reason or alternate funding source

7% 13% 14% 19%

8%

Source: TransUnion Consumer Survey Q2 2021

? 2022 TransUnion LLC All Rights Reserved | 3

To understand the consumer dynamics of auto refinance, we looked at auto loan refinances

originated between 2019-2021

? 2022 TransUnion LLC All Rights Reserved | 4

Auto loan refinances are a small but growing segment of the auto finance market

Percent of Auto Loan Originations Used for Refi 2019 to 2021

Refinance origination volume YoY growth (%)

+12.7%

+2.6%

4.5%

5.1%

5.2%

Identifying Auto Refinance Loans

? Opened within a short period of time of the reported closure of another auto loan held by the same consumer

-and-

? Original loan amount approximately the same as the last remaining balance of the prepaid auto loan

-and-

? New loan amount of at least $5,000

2019

2020

2021

Source: TransUnion US consumer credit database

? 2022 TransUnion LLC All Rights Reserved | 5

The majority of consumers who refinance their auto loans do so to reduce their monthly payments

% of Total Auto Loans Refinanced in 2021

Definition

Payment shopper

Decrease in payment:

76

>$10 per month

Paydown shopper

24

Nominal change or increased payment: Less than $10 per month

Source: TransUnion US consumer credit database

? 2022 TransUnion LLC All Rights Reserved | 6

Refinance activity happens throughout the course of the original loan term, but the majority occur in ~ the first 24 months

Timing of Auto Loan Refinancing

Below Prime

Prime and Above

100%

Cumulative share of Refinanced Loans

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47

Months on Book

Note: Score bands are defined using VantageScore? 3.0. Non-Prime: 300-660 or Unscoreable; Prime or Better: 661-850.

Source: TransUnion Consumer Credit Database, Auto Refinance Study Data Set

? 2022 TransUnion LLC All Rights Reserved | 7

The average monthly savings in 2021 was $62 with 29% of refinances resulting in $100 monthly payment savings

Distribution of Monthly Payment Savings from Auto Refinance Loans in 2021

16.9%

17.2%

15.2%

Average Monthly Payment Savings: $62

12.3%

9.8%

7.6%

5.7%

29%

4.1%

3.0%

8.1%

Less than $0 $0-24

$25-49

$50-74

Note: Percentages don't sum to 100 due to rounding.

$75-99 $100-124 $125-149 $150-174 $175-199 $200+

Source: TransUnion US consumer credit database

? 2022 TransUnion LLC All Rights Reserved | 8

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