For only the second time in a decade, the Federal Reserve is raising interest rates. If you have a major purchase coming up like a home, it’s likely you will be paying more for that loan. How the increase will affect your car loan depends on how the manufacturers react.
USA Today spoke with various financial analysts regarding how the increased rates and the proposed fiscal policy for the next administration will impact the lending markets. As of now, the base rate is set to increase a quarter of a point, with further gradual increases anticipated over the next few years.
The story says that the average new car loan is about 4.25 percent, while the average new car transaction price is around $34,000. If you financed $34,000 at 4.25 over 60 months your payment would be $630 a month. A quarter-point increase to 4.50 percent will bring that payment to $633 a month, which is not a dramatic difference.
However, next year the rate is set to increase in three separate increments which could total to a whole percentage point. That means if you wait another year to buy that $34,000 car, you could be paying $649 a month on a five-year loan, or an additional $1,140 over the course of the loan.
Does that mean you should run out and buy a car before the rates jump even further? Not really. With auto sales predicted to slow down from the record sales in 2015, automakers will likely increase incentives and offer subsidized financing like zero percent APR loans to move inventory off the lot.