Rising interest rates mean higher car loan costs

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In addition to higher prices for new and used cars, financing the purchase of one of them is about to rise in price.

With the Federal Reserve raising its key interest rate by half a percentage point on Wednesday, the cost of borrowing on a range of consumer loans, including auto loans, could rise. This is the Fed’s biggest rise in more than two decades.

“In the past, higher interest rates have not had a significant impact on the new car market because automakers have subsidized many loans,” said Jessica Caldwell, executive director of analytics at Edmunds.

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“However, this is the biggest rate increase we have seen in over 20 years, so the impact may be small, but it will likely only strengthen the new car buyer base among higher income buyers,” Caldwell said.

The bigger effect is likely to be felt in the used car market, she said.

“With used car prices already at an all-time high, this increase will only make this market more expensive and buyers will be forced to hole up due to affordability or buy an older car to keep payments within an acceptable range.”

As the auto industry continues to struggle with limited inventory due to ongoing shortages of computer chips, consumers have largely been forced to deal with new car prices, which are up 12.5% ​​year-on-year, according to the latest data from the US Bureau of Labor. Statistics. The average price of used cars increased by 35.3% compared to last year.

JD Power and LMC Automotive estimate that the average amount paid for a new car has reached $45,232. According to, the average monthly payment is around $650 for 70.2 months (just under six years). The average dealer financing rate is 4.7% and the term is 70.2 months.

According to a study by Edmunds, the median earnings for used cars are over $30,000. The average monthly payment is $544 for 70.7 months at an 8% rate.

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