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4 min read published March 22 2023
Writen by Rebecca Betterton Written by Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers in navigating the ins and outs of securely using loans to buy the car they want.
Editor: Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since late 2021. They are passionate about helping readers gain confidence to manage their finances through providing clear, well-researched information that breaks down complicated topics into digestible chunks.
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However, inflation and its impacts are likely not to go away any time soon. According to Bankrate’s Third-Quarter, 43 % of the economists agreed that inflation will become more significant over the next 12 to 18 months. Since it’s likely that inflation isn’t yet at its hit its peak, now is a good time to be prepared for its effects — one being the higher interest rates. How the Fed affects auto loan rates
The Federal Reserve doesn’t directly influence auto loan rates, however it affects the costs for lenders to borrow funds. An increase within the Fed rate usually means lenders are quick to follow.
How is inflation affecting interest rates? Choices made from the Federal Reserve affect the which will have an impact in the price of vehicle financing. While a driver’s rate is contingent on several factors — including a credit history of the borrower and length of term, the vehicle model and morerising inflation will mean higher interest rates for drivers even with perfect credit. “One part of Fed’s primary obligations is to maintain purchasing power in check, and they do it through raising interest rates” explains Sarah Foster, senior U.S. economy reporter at Bankrate. To achieve this goal, the Fed increased rates once again in March, setting the benchmark rate at 4.75-5 percent. This increase meets an already tight car market as supply chain issues continue to keep car prices at a high, with an average of $48,300 as of August, according to . The rising rates of interest make it more expensive to lend money, explains Foster. Which makes costs for financing automobiles dramatically more expensive than it was in years prior. Since the start of 2022 the average rates for car loans have been rising: 1.77 percentage points for 60-month new vehicle loan as well as 1.78 percentage points to get a used 48-month loan in accordance with the Bankrate survey on national rates. Increased interest rates are only one result of the Feds aim to curb inflation. “Higher borrowing costs don’t just hinder spending but also rob people out of the ability to afford big-ticket items, causing the economy to slow down,” Foster says. “The expectation is that eventually, those higher rates will crush demand so much that inflation eventually drops,” Foster says. But this wish does not come with risk “An economy that isn’t able to consume typically means a recession which isn’t fun for anybody.” With all the above in mind consumers are likely to be greeted with higher rates because the Fed continues to control high inflation. Now is the time to get ready for the increase in costs. Data from Bankrate
Rate for a 60-month new car loan
4.94%
10/12/2022 rate for a 30-month new car loan
5.56%
As you can see, rates have jumped significantly since August, which is in accordance with Fed meeting. The increase could be due to the increased benchmark rate along with higher-priced vehicles. Stay up to date with new developments and the impact it has on your finances on . How to negotiate a bargain with high interest rates Although the rate you pay is contingent on a variety of factors, including uncontrollable ones like inflation however, there are some moves that you can take in response to the decisions made through the Fed. Compare lenders Most will offer higher rates at the moment, but that doesn’t negate the benefits of looking around. and terms from at minimum three lenders in order to determine which one is best for your needs. Pay close attention to the available APR along with the repayment term. Calculate the actual cost of ownership. car prices rise to record levels it is vital to focus on your budget when you shop. Without much wiggle room, it is best to figure out how much you are able to afford before setting out to the dealership. So you can determine the amount you will need to borrow in order to purchase your new automobile. Tip from the Bankrate
Make sure you look at for the entire loan amount that is not only the monthly payment. Although it may be tempting to get a loan with cheaper monthly costs however, it may be more expensive in the long run.
Consider an electric car The upfront tends to be higher, but they do offer additional benefits beyond the cost of gas. When you apply for a loan and receiving you can make the money back that could be lost due to the higher interest rates. Make sure you lock in the expected financing one of the most reliable methods of getting a good deal is to make an application for a loan which will give you an understanding of what the expected costs will likely be. Not all lenders offer this step and you should look for it while shopping around. Buy a used car Unfortunately new and used cars are both priced higher than normal rates at the moment, however the used ones are less expensive. If you are flexible in the kind of vehicle you’re interested in, it can reduce your monthly cost. How to refinance once rates drop One of the best time to look into your car loan will be when the rates are lower and your credit score improved. It’s pretty similar to the steps taken in applying for your first loan. Evaluate current loan. Before beginning your refinancing process it is essential to review the current loan including the terms and exact interest rates. Utilize this information to determine your savings potential each month after you have these figures in your mind. Examine your credit. With a thorough understanding of your credit, you will be able to identify where you stand in relation to the lenders you can choose from. If you are looking to refinance similar to any other loan the higher your credit, the more competitive rate you’ll be. Determine the value of your vehicle. Based on the value of your vehicle, refinancing might not always be the best financial move. If you have almost paid off your vehicle but are not sure if it’s a good idea to refinance. Look around. At least three lenders is crucial to finding a bargain. An excellent place to start is the bank or lender which you approved with — there may be specials for existing customers. However, not all lenders will let modify an existing loan. You will be offered new conditions. After submitting the necessary documentation and, in certain cases, paying a prepayment penalty, you’ll receive the new conditions. When you close the chapter, the process, ensure that you pay off your prior lender. Now might not be the best time to buy although many don’t want to wait to purchase a vehicle and patience might be your best option when it comes to saving money right now. It is likely that rates will increase further in the wake of the next Fed meeting. This, along with the high vehicle costs make now an uneasy time to purchase. It is better to wait until rates cool down. Learn more
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Written by Auto Loans Reporter
Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in navigating the ins and outs of securely using loans to buy a car.
Edited by Rhys Subitch Edited by Auto loans editor
Rhys has been writing and editing for Bankrate since the end of 2021. They are dedicated to helping readers gain confidence to control their finances through providing concise, well-studied data that cuts complicated topics into bite-sized pieces.
Auto loans editor
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