How Inflation Affects Auto Loan Interest Rates | Celent Bank Rates

Unfortunately, inflation and its effects won’t go away anytime soon. According to Bankrate’s third quarter economic indicator survey, 43% of economists agreed that inflation will become more pronounced over the next 12 to 18 months. Given that inflation has likely not yet peaked, now is an important time to prepare for its impact. One of which he said is rising interest rates.

Fed Impact on Auto Loan Rates

The Federal Reserve doesn’t directly affect interest rates on auto loans, but it does affect the cost of borrowing money for lenders. Fed rate hikes usually mean lenders can catch up quickly.

Selection by the Federal Reserve benchmark rate This has a domino effect on vehicle financing costs. A driver’s interest rate depends on several factors, including the borrower’s credit history, length of term, and type of vehicle, but higher inflation drives higher interest rates for drivers, even with perfect credit.

“One of the Fed’s main mandates is to contain purchasing power, and it does so by raising interest rates,” explains Sarah Foster, Bankrate’s senior US economics correspondent. To reach this target, the Fed raised rates again in November, setting the benchmark rate at her 3.75-4%. The increase meets an already tight auto market as supply chain issues have kept vehicle prices high, with the average August price above her $48,300. kelly blue book.

These rising interest rates make it more expensive to borrow money, explains Foster. This makes the vehicle financing cost dramatically higher than before. Since early 2022, average vehicle interest rates have trended upwards, with Bankrate’s National Interest Rate Survey showing 1.77% for a 60-month new car loan and 1.78% for a 48-month used car loan.

Rising interest rates are just one consequence of the Fed’s goal of keeping inflation down. “Rising borrowing costs not only discourage spending, but also make it less affordable to buy big-ticket items, slowing the economy,” Foster said.

“Eventually, we expect higher interest rates to significantly squelch demand, ultimately lowering inflation,” Foster said. However, this wish does not come with risks. “A consumption-hungry economy often means a recession. It’s not fun for anyone.”

With all this in mind, motorists will face higher interest rates as the Federal Reserve continues to keep high inflation in check. Now is the time to prepare for cost increases.

Aug 10, 2022 60 month new car loan interest rate 4.94%
Oct 12, 2022 60 month new car loan interest rate 5.56%

As shown above, interest rates have risen significantly since August, coinciding with the Fed’s meeting. This increase can be attributed to higher benchmark rates along with more expensive vehicles.Stay up to date on changing news and how it affects your finances Bankrate’s Federal Reserve Hub.

The interest rate you receive will depend on many factors, including the uncontrollable ones like inflation, but there are still moves you can make. save money regardless of interest rate hikes Made by the Federal Reserve Board.

to shop

Most lenders are now setting higher interest rates, but that doesn’t negate the benefits of shopping. compare prices Terms from at least three lenders to decide which quote best suits your needs. Pay close attention to the available APR along with the repayment period.

Calculate the true cost of ownership

With vehicle prices hitting record highs, it’s important to keep an eye on your budget when shopping. I don’t have much room to move, so calculate How much money you can really afford before going to the dealer. This way you will know how much you need to borrow to drive your new car.

bank rate tips

Check the total amount of the loan, not just the monthly payment. Although it is tempting to take out long term loan Even if the monthly cost is low, it can be expensive in the long run.

think electric car

advance payment EV cost It tends to be more expensive, but it has additional benefits beyond the gas pump. green auto loan and received EV tax credit You can get back the money that could be lost due to rising interest rates.

Finalize expected funding

One of the surest ways to get a good deal is to apply for a loan. Pre-approval This will give you a solid idea of ​​what your expected rate will be. Not all lenders offer this step, so be careful when shopping.

buy used car

Unfortunately, both new and used cars now have higher than normal rates, while used cars are slightly lower. If the vehicle you want is available, buy used car You can save monthly costs.

One of the most effective times to consider refinancing Your auto loan is when interest rates drop and your credit score improves. process The process is pretty similar to when you apply for your first loan.

  1. Evaluate your current loan. Before starting the refinancing process, it is important to first verify your current loan, both the terms and the exact interest rate.use the auto refinance calculator With these numbers in mind, understand your potential monthly savings.
  2. Please check the credits. By understanding you credit score You can decide where to land in terms of available lenders. When it comes to refinancing, like any other loan, the better your credit, the more competitive the interest rate.
  3. Find the value of your vehicle. Depending on the value of your car, refinancing may not always be the best financial move. If you have almost paid off your car loan, refinancing is not wise.
  4. to shop. compare At least three different lenders are the key to getting a good deal. A good starting point is the bank or lender you originally signed off with. Discounts may be available for current customers. However, not all lenders allow refinancing of existing loans.
  5. Receive new terms. After submitting the required documents and possibly paying an up-front penalty, you will receive your new terms. Make sure you have paid back your previous lenders before closing this process chapter.

Now may not be the time to buy

Many people can’t afford to wait to buy a car, but patience may be on your side when it comes to saving money now. degree of interestlikely to rise further following the next Fed meeting, and coupled with the high cost of cars, now is a tough time to buy.

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