Auto loan interest rates are rising. For most of us, when buying a new or used car, agreeing on a price is only half the job (or if you have a car for sale/trade-in, a third of the work). Are you ready to fight for the second round? This would negotiate a fair car loan interest rate.
Auto loan APRs are higher than they have been in the last decade, and they are going higher. How important is rising interest rates for today’s new and used car buyers? We did the math to find out.
Average car loan interest rate highest since 2009
What do you get when you combine interest rate increases with the probability of a economic recession? It becomes much more expensive to borrow money. Whether you’re looking for a new car or a new home, lenders seem to be raising loan rates every other day in 2022.
According to new data from Edmunds, the average car loan interest rate (APR) on a New auto credit rose to 5.9% in September. That’s up 44% since December 2021. The last time auto loan rates were this high was just before the crash of 2009-2010.
What’s different this time around? Cars are 71% more expensive in 2022. In 2009, the average price for a new car transaction was $28,201. Today it’s just over $48,000. Buyers are paying MUCH more interest in 2022, and monthly car payments are more like second mortgages.
In September 2022, the average amount financed by new car buyers was $41,347. Thinking of extending the term of your loan as much as possible? This represents a total of $7,849 in interest paid over 72 months. Ouch!
Used car loan rates rise the most
The average used car loan interest rate jumped to 9.2%, adding thousands to the total cost of borrowing to buy a car.
In September 2022, the average amount financed by used car buyers was $31,366. This represents a total of $9,566 in interest paid over a loan term of 72 months.
What if you shopped and Get pre-approved for an APR of 7.0% instead of the average of 9.2%? Over 72 months, you SAVE a grand total of $2,429 in interest, just by shopping around and getting other loan rate offers.
The Federal Reserve is about to raise rates again
When “the Fed” meets again in early November, it will almost certainly announce another rate hike. Whether it’s 75 basis points or less doesn’t matter. What is certain is that auto loan rates will continue to rise in November.
Based on our own analysis at YAA, we expect the average auto loan interest rate to climb between 6.5% (for new cars) and 10.5% (for used cars) in November.
Remember, these are expected averages, so there will be better (and worse) auto loan deals. Don’t settle for your first auto loan rate offer. Compare the prices!
How to save money on car loan interest, even if rates go up
There are still ways to save big on car loan interest. Here are the best ways to keep more money in your pocket:
- Shop around for the lowest interest rate. Pre-approval impacts your credit score, so it’s best to get all of your pre-approvals at the same time (or at least the same week) right before you plan to buy the car.
- Opt for a shorter loan term! At the current average interest rate on new auto loans of 5.9%, the difference between financing $35,000 with a 48 month loan and a 72 month loan is $2,267 in interest paid. It’s not pocket change!
- Spend less and/or spend more. It’s easier said than done, but consider borrowing less if you want to pay as little interest as possible. You could buy a cheaper car, put in more money for your down payment, or both.
- Refinance your loan. Yes, even if interest rates go up, if you end up with a bad loan, or if your credit improves over time, you should consider refinancing your auto loan. Go to a local credit union so you don’t get hit with fees from online websites.
Save time and money with real tips from automotive experts
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