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4 minutes read. Published March 22 2023
Writen by Rebecca Betterton 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 borrowing money to purchase an automobile.







The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to take control of their finances with concise, well-researched and well-researched content that breaks down otherwise complex subjects into bite-sized pieces.









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Unfortunately, inflation and its effects are to remain for a while. According to Bankrate's Third Quarterly , 43 % of the economists believe that inflation will become more significant over the next 12-to-18 months. As inflation will not yet reach its reach its peak, now is a good time to be prepared for its effects including higher interest rates. What does the Fed impacts auto loan rates
The Federal Reserve doesn't directly influence auto loan rates -- however it affects the costs for lenders to lend money. An increase within the Fed rate usually means lenders will follow suit.


How inflation is affecting interest rates Choices of the Federal Reserve affect the which has a domino effect to the costs of vehicle financing. Although a driver's rates depend on a variety of aspects -- including the borrower's credit history duration, length of the term, vehicle type and more -an increase in inflation can mean higher interest rates for drivers even with impeccable credit. "One part of Fed's main tasks is to keep their the purchasing power of its customers in check and do this through raising interest rates" explains Sarah Foster, senior U.S. economic journalist at Bankrate. To achieve this goal, the Fed increased rates once again in March, setting the benchmark rate to 4.75-5 percent. This is a step in the direction of a tight car market as supply chain issues are keeping vehicle prices at a high, with an average of $48,300 according to . This rise in interest rates makes it more expensive to borrow money, explains Foster. The result is that it more expensive to finance for automobiles dramatically more expensive than it was in years prior. Since 2022's start the average rates for car loans have been on the rise: 1.77 percentage points for a 60-month new car loan and 1.78 percentage points to get a used 48-month loan, according to a national Bankrate survey of rates. The higher interest rates are one outcome of the Feds aim to curb inflation. "Higher borrowing costs don't just hinder spending but also rob people out of the ability to purchase expensive items, which causes an economic slowdown down," Foster says. "The expectation is that eventually, those more expensive rates will stifle the demand to such an extent that inflation eventually drops," Foster says. But that isn't a risk "An economy that isn't able to consume often means a recession, which isn't a good thing for anyone." With all that in mind drivers will be faced with increased rates in the meantime as the Fed continues to manage high inflation. Now is the time to prepare for raising costs. Data taken from Bankrate
Rate for a 60-month new car loan
4.94%
Rate for a 60-month new car loan
5.56%
As displayed above as shown above, rates have increased dramatically since August, in accordance with Fed meeting. This increase can be attributed to the increased benchmark rate along with higher-priced vehicles. Keep abreast of changing news and how it affects your finances on . How to negotiate a bargain when interest rates are high Although the rate you pay is contingent on a variety of factors, including the uncontrollable inflation rate, there are still moves that you can take in response to the decisions made to the Fed. Compare lenders Most will have higher rates currently, but that doesn't negate the benefits of looking around. and terms from at minimum three lenders to choose which offer is best for your needs. Take note of the available APR along with the repayment term. Calculate the actual cost of ownership. vehicle prices hit record highs it is crucial to keep an eye on your budget when you shop. There isn't much room for error, it is best to what you can manage before heading to the dealer. This will help you understand how much you need to borrow in order to drive your new automobile. Bankrate tip
It is important to look over for the entire loan amount that is not only the monthly payments. While it can be enticing to borrow a loan that has less expensive monthly payment however, it may be more costly over the long term.


Think about an electric car price of the initial payment is typically more expensive, however they have additional advantages beyond the cost of gas. By applying for a and receiving it, you could earn back any money that may be lost due to higher interest rates. Secure your expected financing One of the best ways to get a good deal is to apply for loan that can give you an estimate of what your anticipated rate will cost. Some lenders do not offer this step, so look out for it when shopping around. Purchase a used car Sadly new and used cars have higher rates right now, but the used ones are less expensive. If you're flexible in the kind of vehicle you're looking for, it could reduce your monthly cost. How to refinance once rates fall One of the best times to consider your car loan can be at a time when interest rates have dropped as well as your credit rating has improved. It's pretty similar to the procedures you follow when you first applied for the loan. Evaluate current loan. Before you begin refinancing, it is first important to review the current loan, both the terms and rates. Use an to understand your savings potential each month once you have those numbers in your head. Examine your credit. With a thorough understanding of your credit, you will be able to find out where you are in terms of available lenders. Refinancing is a possibility similar to any other loan the higher your credit rating, the more competitive your rates will be. Find the value of your car. Based on the value of your vehicle refinancing may not be the best financial move. If you've almost finished paying off your vehicle and are looking to refinance, it's not a good idea to refinance. Look around. At least three lenders is the key to finding a bargain. The best place to start would be the institution or lender that you initially signed off with. There could be discounts for current customers. Although not all lenders allow you modify an existing loan. Receive new conditions. After providing the documentation required and in some instances paying a prepayment penalty, you will be able to receive new conditions. When you close the chapter, the process, ensure that you pay off your prior lender. Now might not be the ideal time to purchase a car. Although many do not have the luxury of waiting to purchase a vehicle but patience could be your friend when it comes to saving money right now. The likelihood of rising even more following the next Fed meeting. This, along with the rising costs for vehicles make this an uneasy time to purchase. Instead, consider holding off until rates drop. Learn more


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Authored by Auto Loans Reporter

Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers to navigate the details of taking out loans to purchase an automobile.



Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate since the end of 2021. They are passionate about helping readers gain the confidence to control their finances by providing clear, well-researched facts that break down complex topics into manageable bites.






Auto loans editor




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