Shifting Economy Sends Auto Loan Rates Up

Greater economic trends led to higher auto loan rates in January as the Federal Reserve keeps its interest rate adjustments in neutral for now.

The increase followed a rise in bond yields resulting from the combination of eased inflation and a slowed yet still strong economy, Cox Automotive’s chief economist said.

The Fed announced Wednesday that it would leave interest rates unchanged but said it’s not ready to cut rates, either, until inflation falls toward its 2% target. It had earlier hinted of cuts this year after a long series of hikes in 2023 to dampen inflation.

Auto loan rates spiked last year due to the increases, compounding already high auto consumer costs from inflated vehicle prices brought on by pandemic conditions.

Late last month, the average new-vehicle loan rate rose more than 50 basis points to 9.7% and up 130 basis points year-over-year, according to Cox, which said it peaked in October at just under 10%.

Meanwhile, the average used-vehicle loan rate rose more than 30 basis points to just over 14%, up 120 basis points year-over-year, Cox said. It peaked in November at 14.35%.

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Originally posted on Auto Dealer Today