Auto Loans & Rising Interest Rates

Interest rates are rising which will impact car buyers that plan to finance. The good news is that it will not affect existing loan holders. The bad news is that the Federal Reserve predicts as many as seven rate increases in 2022. Such increases will affect both new and used vehicles.

In truth, vehicle loan rates are only up 1% in 2022. The average new car loan interest rate is just over 5% and used vehicle loans are about 8 ½%.  Auto loan rates have been historically low for the past few years, but that is unlikely to hold through the remainder of the year. The Fed is expected to issue additional rate increases to hedge inflation. The benchmark rate set by the Fed established the baseline for a loan.

Rate increases are also being impacted by global inventory shortages which are unlikely to end in 2022. Lower supply and increased demand make finding a deal more difficult.

Lenders base auto loan rates on several factors

• The amount of the loan
• Amount of down payment
• Loan term
• A buyer’s credit score
• Income
• Income to debt ratio

If you plan to buy a vehicle this year, there are several things that you can do to secure a good rate and manageable monthly payment.

• A down payment of 20% or more shows good faith that you will repay the loan. With used car values at record highs, it is an excellent time to trade your vehicle and put that money towards a down payment.
• Know your credit score and take steps to improve it if needed
• Get pre-approved
• Know how much you can afford and stick to a budget

Although purchasing a vehicle may be somewhat more challenging in the current environment, it is not that difficult.  If you need a new vehicle, do not be put off by headlines. Our team can help you find a vehicle and a loan that works for you. Contact us at 843.573.2300 or complete the form below.