How Inflation Affects Car Loan Rates Bankrate Caret RightMain Menu Mortgage Mortgages Financing a home purchase Refinancing your existing loan Finding the right lender Additional Resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Bank Banking Compare Accounts Use calculators Get advice Bank reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Credit Card Credit cards Compare by category Compare by credit needed Compare by issuer Get advice Looking for the perfect credit card? Narrow your search with CardMatch Caret RightMain Menu Loan Loans Personal Loans Student Loans Auto Loans Loan calculators Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Invest Investing Best of Brokerages and robo-advisors Learn the basics Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Home Equity Home equity Get the best rates Lender reviews Use calculators Knowledge base Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Loan Home Improvement Real estate Selling a home Buying a home Finding the right agent Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Insurance Insurance Car insurance Homeowners insurance Other insurance Company reviews Elevate your Bankrate experience Get insider access to our best financial tools and content Caret RightMain Menu Retirement Retirement Retirement plans & accounts Learn the basics Retirement calculators Additional resources Elevate your Bankrate experience Get insider access to our best financial tools and content Advertiser Disclosure
Advertiser Disclosure
We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. SHARE: On This Page
Maskot/Getty Images November 05, 2022 Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our loans reporters and editors focus on the points consumers care about most — the different types of lending options, the best rates, the best lenders, how to pay off debt and more — so you can feel confident when investing your money. Bankrate logo Editorial integrity
Bankrate follows a strict , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. Key Principles
We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers. Editorial Independence
Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information. Bankrate logo How we make money
You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Unfortunately, inflation and its impacts are likely not going away anytime soon. According to Bankrate’s Third-Quarter , 43 percent of economists agreed that inflation will be more significant over the next 12 to 18 months. Given that it’s likely inflation has yet to peak, it is an important time to prepare for its impacts — one being higher interest rates. Lightbulb How the Fed affects auto loan rates The Federal Reserve doesn’t directly influence auto loan rates — but it does affect the cost for lenders to borrow money. An increase in the Fed rate usually means lenders are quick to follow. How inflation is affecting interest rates
Choices by the Federal Reserve affect the which has a domino effect on the cost of vehicle financing. Although a driver’s rates depend on several factors — including a borrower’s credit history, term length, vehicle type and more — increased inflation means higher interest rates for drivers even with perfect credit. “One of the Fed’s core duties is to keep purchasing power in check, and they do it by raising interest rates,” explains Sarah Foster, senior U.S. economy reporter at Bankrate. To achieve this goal, the Fed increased rates once again in November, setting the benchmark rate to 3.75-4 percent. This increase meets an already tight car market as supply chain issues keep vehicle prices high, averaging over $48,300 in August according to . These rising interest rates make it more expensive to borrow money, explains Foster. Which makes the cost of financing for vehicles dramatically higher than years prior. Since the start of 2022, average vehicle interest rates have been on the rise: 1.77 percentage points for a 60-month new car loan and 1.78 percentage points for a 48-month used loan, according to a national Bankrate survey of rates. Higher interest rates are just one result of the Feds’ goal to quell inflation. “Higher borrowing costs don’t just disincentivize spending but squeeze people out of being able to afford big-ticket items, causing the economy to slow,” Foster says. “The hope is that eventually, those higher rates will crush demand so much that inflation eventually drops,” Foster says. But this wish doesn’t come with risk, “An economy starved of consumption often means a recession, which isn’t fun for anybody.” With all of this in mind, drivers will be met with higher rates as the Fed continues to control high inflation. Now is the time to prepare for raising costs. Data from Bankrate 8/10/2022 rate for a 60-month new car loan 4.94% 10/12/2022 rate for a 60-month new car loan 5.56% As displayed above, rates have jumped significantly since August, in line with the Fed meetings. This increase can be attributed to the higher benchmark rate along with more expensive vehicles. Stay up to date with changing news and how it affects your finances on . How to get a deal when interest rates are high
While the interest rate you receive is dependent on many factors, including uncontrollable ones like inflation, there are still moves you can make to made by the Fed. Shop around
Most lenders will have higher rates right now, but that doesn’t negate the benefit of shopping around. and terms from at least three lenders in order to decide which quote is best for your needs. Pay close attention to the available APR along with the repayment term. Calculate true ownership cost
As vehicle prices hit record highs it is vital to focus on your budget when shopping. Without much wiggle room, it is best to how much you can truly afford before setting out to the dealership. This way you will understand how much you need to borrow in order to drive your new car. Lightbulb Bankrate tip Be sure to shop the total loan amount, not just the monthly payment. While it can be enticing to take out a and cheaper monthly costs, it can be more expensive in the long run. Consider an electric car
The upfront tends to be higher, but they do carry added benefits outside of the gas pump. By applying for a and receiving you can make back any money that may be lost due to higher interest rates. Lock in expected financing
One of the most sure-fire ways to get a good deal is to apply for loan which will give you a firm idea of what your expected rates will be. Not all lenders offer this step, so look out for it when shopping around. Buy a used car
Unfortunately, new and used vehicles both carry higher than usual rates right now, but used are slightly lower. If you have any flexibility in the type of vehicle you want, can save you money on your monthly cost. How to refinance once rates drop
One of the most effective times to consider your auto loan is when rates have lowered and your credit score has improved. The is fairly similar to the steps taken when applying for your initial loan. Evaluate current loan. Before beginning your refinancing process it is first important to look at your current loan, both the terms and exact interest rates. Use an to understand potential monthly savings once you have those numbers in mind. Check your credit. By understanding your you can determine where you land in terms of available lenders. When it comes to refinancing — just like with any loan — the better your credit, the more competitive your rates will be. Find vehicle value. Depending on the value of your vehicle, refinancing might not always be the best financial move. If you have almost paid off your vehicle, it is not wise to refinance. Shop around. at least three different lenders is the key to getting a good deal. A great starting point is the bank or lender that you initially signed off with — there may be discounts for current customers. Though not all lenders let you refinance an existing loan. Receive new terms. After submitting the necessary documentation and in some cases paying a prepayment penalty, you will receive your new terms. Before closing the chapter on this process be sure that you pay off your previous lender. Now might not be the best time to buy
Although many do not have the luxury of waiting to buy a car, patience may be on your side when it comes to saving money right now. , which likely will rise even more following the next Fed meeting combined with high vehicle costs make now a challenging time to buy. Instead, consider holding off until rates cool down. Learn more
SHARE: Rhys has been editing and writing for Bankrate since late 2021. They are passionate about helping readers gain the confidence to take control of their finances by providing clear, well-researched information that breaks down otherwise complex topics into manageable bites. Related Articles