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4 min read published March 22, 2023
Written by Rebecca Betterton Written by Auto Loans Reporter

Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers with the ways and pitfalls of taking out loans to purchase a car.







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

Rhys has been editing and writing for Bankrate since late 2021. They are committed to helping readers gain the confidence to manage their finances through providing concise, well-researched and well-researched content that breaks down complicated subjects into bite-sized pieces.









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Unfortunately, inflation and its repercussions are not going away anytime soon. According to Bankrate's Third-Quarter, 43 % of the economists agree that inflation will become greater in the coming 12 to 18 months. As inflation will not yet reach its peak, it is an important time to plan for its impact including the higher interest rates. How the Fed influences auto loan rates
The Federal Reserve doesn't directly influence auto loan rates however it affects the costs for lenders to borrow funds. A rise within the Fed rate is usually a sign that lenders will follow suit.


How inflation is affecting interest rates? The choices made from the Federal Reserve affect the which will have an impact on the cost of vehicle financing. Although a driver's rates depend on a variety of variables -- such as a borrower's credit history and length of term, the car type, and so on -- increased inflation means higher interest rates for drivers even with impeccable credit. "One of the Fed's primary obligations is to maintain the purchasing power of its customers in check and they accomplish this by 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 at 4.75-5 percent. This increase meets an already constrained car market, where supply chain issues keep vehicle costs high. They averaged over $48,300 according to . The rising rates of interest make it more expensive to lend money, explains Foster. This makes the cost of financing vehicles dramatically higher than previous years. Since the start of 2022 the average interest rate for vehicles have been on the rise: 1.77 percentage points for a 60-month new car loan as well as 1.78 percent points on a used 48-month loan as per an analysis by Bankrate of national rates. Increased interest rates are only one of the outcomes of the Feds' goal to quell inflation. "Higher cost of borrowing doesn't simply discourage spending, but also squeeze people out of being able to pay for big-ticket items, causing the economy to slow down," Foster says. "The hopes are that, in the end, these higher rates will crush demand so much that inflation will eventually fall," Foster says. But that doesn't come with risk "An economy devoid of consumption often means a recession, which isn't fun for anybody." With all of the above in mind consumers will be met with increased rates as the Fed continues to manage high inflation. This is the perfect time to prepare for raising costs. Information from Bankrate
Rate for a 60-month new car loan
4.94%
10/12/2022 rate for a 60-month new car loan
5.56%
As you can see as shown above, rates have increased dramatically since August, in keeping with Fed meeting. This increase can be attributed to the increase in the benchmark rate and more expensive vehicles. Stay up to date with changing news and the impact it has on your finances on . How to negotiate a bargain with high interest rates The interest rate you receive is dependent on a myriad of factors, which includes the uncontrollable inflation rate but there are some adjustments you can make to made by the Fed. Compare lenders Most will have higher rates currently, but that doesn't negate the advantages of comparing. and terms from at minimum three lenders to decide which quote is most suitable for your requirements. Take note of the APR available and the repayment period. Calculate the actual cost of ownership. the prices of vehicles reach record levels, it is vital to focus on your budget while shopping. There isn't much room for error It is important to know what you can be able to afford prior to going to the dealership. This way you will understand the amount you will need to borrow in order to purchase your new vehicle. Bankrate tip
Make sure you look at the total loan amount that is not only the monthly payment. Although it may be tempting to borrow a loan that has cheaper monthly costs, it can be more costly over the long term.


Take a look at electric cars. The initial cost is usually higher, but they do have additional advantages beyond the gas pump. When you apply for a loan and receiving you can make back any funds that might be lost due to higher interest rates. Lock in 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 a firm idea of what your expected costs will likely be. Not all lenders offer this option, so look out for it when shopping around. Buy a used car Unfortunately new and used vehicles are both priced higher than normal rates, but the used ones are less expensive. If you are flexible regarding the kind of car you're interested in, it can lower the cost of your monthly payments. Refinancing after rates drop One of the most efficient occasions to think about the possibility of refinancing your car loan is when rates have dropped as well as your credit rating improved. This is a lot like the steps taken when you first applied for the loan. Evaluate current loan. Before starting your refinancing journey, it is essential to look at the current loan and the terms and rates. Use an to understand the potential savings per month when you have the figures in your mind. Review your credit. Through understanding your credit score, you will determine where you land with regard to lenders that are available. If you are looking to refinance -- just like with any other loan the higher your credit score, the more affordable your rates will be. Determine the value of your vehicle. Based on the value of your car refinancing may not be the best financial move. If you have almost completed the payment on your car but are not sure if it's a good idea to refinance. Shop around. at least three different lenders is essential to finding a bargain. An excellent place to start could be the financial institution, or lender that you initially agreed to with -- there may be specials for existing customers. However, not all lenders will let refinance an existing loan. Receive new conditions. After you have submitted the required documentation and in some cases paying a prepayment penalty you will be able to receive new terms. Prior to closing the chapter this procedure, make sure you settle the previous lender. This isn't the right time to buy even though many people don't want to wait around to buy a car but patience could be your best option when it comes to making money now. The likelihood of rising further following the next Fed meeting combined with cost of vehicles that are high make this a challenging time to buy. Consider holding off until rates fall. 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 a car.



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

Rhys has been editing and writing for Bankrate since late 2021. They are dedicated to helping readers gain the confidence to manage their finances with clear, well-researched information that breaks down complicated topics into bite-sized pieces.






Auto loans editor




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