Fed to the Rescue? Will Operation Twist Enhance Your Car Loan?

Although remarks by Fed Chairman Ben Bernanke earlier in this month did not provide a lot of foreshadowing about what the Federal Reserve would do to handle today’s economic problems, we now know that the central bank has initiated an oddly named program to lower interest rates for long-term bonds: Operation Twist, as it’s known in much of the financial world, aims to promote some kinds of lending by using $400 billion to supply long term loans, in hopes that various kinds of spending on credit will become more attractive to borrowers.

There are really two main schools of thought on this. The first one is that Operation Twist might actually help a little bit with new and used car loans, since the Fed’s action may make already low interest rates just a little bit lower, to the tune of a couple of tenths of a percent. On the other hand, a whole lot of experts and analysts are saying that the changes are not really going to affect consumers visiting dealer’s lots, mainly because the change in interest rates will be so negligible. A lot of the effect of this change is meant to be psychological, and some of those with an ear to the ground are saying it will take a lot more to jump-start the new American economy.

Regardless of whether new Federal Reserve activity has any effect on car loans and other kinds of similar lending, the fact is that as a borrower trying to finance a new or used vehicle, you’ll get much further by doing good financial research than by relying on changes to the prime lending rate. The Federal Reserve could slash interest rates to -5% (if such a thing were possible) and many dealers would still be offering the same 8-10% interest rates on car loans. In many cases, especially on used car lots, these interest rates are even higher. That’s why you can save a lot more by shopping around and getting a much lower rate deal from a bank or credit union then you can by timing your purchases at a dealership according to market interest rates. The bottom line is, when you visit a lot, always know what the manufacturer is offering, and where the best deals are. This will help you to really achieve savings in new or used car financing, regardless of where central bankers set the bar.