Will Recent Financial Events Push Auto Loans Rates Up?

It’s no secret that today’s American consumers get relatively low average interest rates for auto loans and other borrowing, compared to buyers of other eras like the 1970s. But now, financial analysts are asking how long those rates are going to stay low. Even with a prime lending rate close to zero, auto dealers and other lenders still find ways to raise car loan prices for most consumers well above that range, and with average rates now creeping up, it’s more important than ever for borrowers to understand what they are signing onto for financing a new or used vehicle.

One of the catalysts for change, according to some analysts, is the downgrade of the American government’s debt by Standard & Poor’s, something that has a lot of people talking in many different financial industries. Those looking at American auto loans note that even before the downgrade, average car loan interest rates were up a bit, headed toward 6%. Writers for financial site Smart Money contend that car loans are, in some ways, “pegged” to Treasury rates, and that it’s likely that the interest rates you see today may not be there in the future.

In the sense that car loan rates might go up quickly in the not-too-distant future, this lending niche is not so different from other areas of the lending industry, such as mortgages. Lots of consumers know about the possibility of sharp interest rate hikes, but the question is when these will occur, and how they will affect household financial decisions. Whether you act quickly to get a new car, or put off the purchase hoping for a slower interest rate increase, is a judgment call, but new or used car buyers can always benefit from knowing the current financing situation, and the greater economic context for a single purchase. When you make a deal with a lender, or seek out financing from a third-party, don’t settle: know where the market is headed, and understand your own financial risk, in order to get the deals that you want.