The Federal Reserve declined to raise interest rates this week but signaled that rates could stay high longer than expected.
The Federal Open Market Committee of the U.S. Federal Reserve, commonly called “the Fed,”sets the interest rate for overnight loans between banks. That rate then governs the calculations banks use to make every other loan.
The Fed raised rates steadily early this year to rein in inflation – one factor contributing to cars becoming historically challenging to afford. But the Fed has kept rates paused since late July.
“The Fed has now hiked rates by 5.25% since tightening began last year to leave the Fed Funds Rate at 5.25-5.5%. That level of rate policy is more than twice the widely believed neutral rate and is the highest the policy has been since 2000,” says Cox Automotive Chief Economist Jonathan Smoke.
Cox Automotive is the parent company of Kelley Blue Book.
Loan Rates at 20-Year Highs
“Those increases are being felt in all types of consumer loans, including auto,” Smoke says. The average new car loan rate now sits at 9.58% — “the highest we’ve seen for more than 20 years.” The average used car loan rate sits higher at 13.98%.
High interest rates have contributed to automakers shifting their focus. They’re building more expensive cars for wealthier, good-credit buyers and trimming inexpensive models from their lineups because the Americans who would otherwise buy those cars are priced out of the loan market.
Fed Signals a Long Wait
While the Fed made no move this week, it hinted that it might keep rates high longer than most analysts had expected. The Fed released charts suggesting “rates will remain at this level for longer than initially telegraphed,” Smoke says.
Chairman of the Board of Governors of the Federal Reserve System Jerome Powell told reporters, “We want to see convincing evidence really that we have reached the appropriate level, and we’re seeing progress, and we welcome that. But, you know, we need to see more progress before we’ll be willing to reach that conclusion.”
The Fed’s charts, Smoke says, show that rates could reach 3.875% at the end of 2025 – “higher than any policy level since 2007.”
Cars have grown easier to afford in recent months. But, Smoke warns, “the progress made this summer on affordability could reverse course.” A lengthy autoworker strike, which could restrict the number of new cars reaching the market, could add to the effect.
FAQs
Auto loan rates for new and used vehicle purchases fell in the first quarter of 2024 to 6.73% and 11.91%, respectively, down slightly from the 15-year highs we saw at the end of 2023, according to Experian.
Will APR go down in 2024? ›
Mortgage rate predictions 2024
NAR believes rates will average 7.1% this quarter and fall to 6.5% by the end of 2024. While there's some dispute on exactly how much rates will decrease, the general consensus is that mortgage rates will go down later in 2024 and end up in the mid-to-low 6% range.
What will the auto loan rates be in 2025? ›
But, you know, we need to see more progress before we'll be willing to reach that conclusion.” The Fed's charts, Smoke says, show that rates could reach 3.875% at the end of 2025 – “higher than any policy level since 2007.”
Are auto loan rates projected to go down? ›
While market predictions are bullish on the funds rate — and by extension, auto loan rates — finally coming back down in 2024, it's still not a guarantee. Powell and others at the Fed remain committed to their target of 2% inflation.
Should I wait until 2024 to buy a car? ›
"2024 is probably the best year since the pandemic to buy a new car," Mark Schirmer, director of industry insights at Cox Automotive, told ABC News. "2021 and 2022 were really difficult years. Dealers are talking about discounts again ... this was not happening 18 months ago.
What is the interest rate forecast for 2024 2025? ›
MBA: Rates Will Decline to 6.4% In its April Mortgage Finance Forecast, the Mortgage Bankers Association predicts that mortgage rates will fall from 6.8% in the first quarter of 2024 to 6.4% by the fourth quarter. The industry group expects rates will fall below the 6% threshold in the fourth quarter of 2025.
What is the interest rate projection for 2026? ›
For the end of 2026, the median dot now shows a target range of 3% to 3.25%, versus 2.75% to 3% three months ago. And officials' median longer-run estimate was for a target range of 2.5% to 2.75%, also a quarter of a percentage point higher than in December.
What is the interest rate forecast for the next 5 years? ›
Trading Economics offers a more optimistic outlook, predicting a rise to 5% in 2023 before falling to 4.25% in 2024 and 3.25% in 2025. This forecast is supported by Morningstar's analysis, which projects rates between 3.75% and 4%.
Will the Fed cut rates in May 2024? ›
The Federal Reserve announced at its May 2024 Federal Open Market Committee (FOMC) meeting that it would maintain the overnight federal funds rate at the current range of 5.25% to 5.5%.
What is the outlook for auto loans? ›
The lowest auto loan rate in 2023 was 6.15 percent for a four-year used car loan in mid-January. Bankrate's expert predicts five-year new car loan rates will reach an average of 7.0 percent and four-year used car loans, 7.5 percent by the end of 2024.
Average car loan interest rates by credit score
| Credit score | Average APR, new car | Average APR, used car |
|---|
| Superprime: 781-850. | 5.38%. | 6.80%. |
| Prime: 661-780. | 6.89%. | 9.04%. |
| Nonprime: 601-660. | 9.62%. | 13.72%. |
| Subprime: 501-600. | 12.85%. | 18.97%. |
2 more rowsCompare Car Loan Rates
| Top Auto Loan Lender | Lowest APR | Term Length |
|---|
| AutoPay | 4.67%** | 24 to 96 months |
| PenFed Credit Union | 5.24% | 36 to 84 months |
| Auto Approve | 5.24%** | 12 to 84 months |
| Consumers Credit Union | 6.54% | Up to 84 months |
3 more rowsSummary: Best Car Loan Rates Of June 2024
| Company | Forbes Advisor Rating | Minimum rate |
|---|
| USAA | 3.7 | Starting at 5.59% (with autopay) |
| LightStream | 3.6 | Starting at 7.24% (with autopay) |
| Alliant Credit Union | 3.6 | Starting at 6.75% (with autopay) |
| Navy Federal Credit Union | 3.5 | Starting at 4.54% |
3 more rows5 days ago
Experts say that 2024 will be the best year to purchase a new car since 2019. As interest rates slowly drop throughout the remainder of the year, payments will become more manageable. Don't overlook manufacturer rate promotions, as they can save you thousands of dollars.
What is a good interest rate on a 72 month car loan? ›
An interest rate under 5% is a great rate for a 72-month auto loan. However, the best loan offers are only available to borrowers who have the best credit scores and payment histories.
Are car prices going down in 2024? ›
At the end of 2023, most experts predicted that car prices would continue to fall slightly in 20242. They also expected new car production to increase in 2024, leading to lower prices for new and used vehicles.
What is a good car payment in 2024? ›
The average monthly car loan payment in the U.S. is $735 for new vehicles and $523 for used ones originated in the first quarter of 2024, according to credit reporting agency Experian.
Will repo rate decrease in 2024? ›
The Reserve Bank of India (RBI) kept the repo rate steady at 6.50% for the seventh consecutive time. Crisil forecasts rate cuts starting from mid-2024, contingent upon weather and crude prices. RBI is monitoring inflation, expected to ease to 4.5% in 2024-25, supported by a normal monsoon and asset-focused budget.
BySean Tucker09/22/2023 7:21am