Drivers who're seeking to finance a brand new or second hand vehicle in the coming year can get a gradual rise in interest rates, but average minute rates are still expected to remain below 5 percent.
“Rates for auto loans haven•t been very rate sensitive recently, which was especially true within the 2022-2022 cycle of Fed rate hikes,” says Bankrate Chief Financial Analyst Greg McBride, CFA. “Competition among lenders means very similar will have out this time around. Rates will move up, although not quite as almost as much ast the Fed hikes rates.”
What happened to auto loan rates in 2022
The past year saw lots of volatility within the auto market because of low inventory and international supply chain issues, but auto loan rates followed a fairly steady decline. The national average rate for any 60-month new car loan started the entire year at 4.24 percent and dropped to three.92 percent by Dec. 15, according to Bankrate data. Drivers looking to purchase used were also met with a decrease. Rates on a 36-month used vehicle loan began at 4.53 percent and closed the year at 4.39 percent, while 48-month used vehicle loans dropped from 4.79 percent to 4.54 percent.
These low rates were largely due to the Fed•s push to help keep rates down within a recovering economy. With that said, increased consumer demand meant record-high vehicle prices, so although the cost to gain access to money saw home loan business 2022, many drivers were and still are can not even look for a vehicle to invest in.
Rates are required to gradually increase in 2022 amid continuing logistics issues
McBride warns that rates are likely to drift higher within the next year, predicting that after 2022 the average interest rate on the five-year new car loan is going to be 4.4 % and the average rate for a four-year car or truck loan will be 4.85 %.
He explains the main catalyst for driving up interest rates over 2022 is the Fed raising benchmark rates. Following the stimulus the economy needed during the early stages from the pandemic, the Fed is going to be raising benchmark rates to reduce inflation incurred during that time. These benchmark rates directly change up the cost that drivers pay to borrow money for his or her loans.
While McBride•s predictions signal a comparatively small rate increase, ongoing supply chain issues may offset any savings you•ll find in a low-rate environment. The worldwide chip shortage continues to impact vehicle availability, and U.S. inventory is down dramatically • as much as 65 % when compared to beginning of the year, according to the National Automobile Dealers Association. This translates to more expensive vehicles and fewer deals in the dealership.
“An average rate increase is minor when compared to supply issue,” McBride says. “And when it continues to persist throughout 2022, many drivers is going to be met with frustration.”
Next steps for consumers
The truth is, there is no perfect time for you to purchase a car, along with a lack of vehicle inventory makes it difficult to find a good deal even if minute rates are low. However, you may still prepare by looking around and reversing your credit damage.
To find the best deal in your car purchase:
- Stay current on credit card and loan payments • past timely payments boosts your credit rating, which will qualify you for lower rates of interest.
- Shop around with some auto loan lenders to determine what provides you with the best deal.
- Time your car purchase to align with any seasonal deals dealerships can always offer.
- Be flexible; with less inventory, you may want to come prepared with backup car colors or models.
- Expand your search to several dealerships and research MSRPs prior to you heading set for an evaluation drive.