Rising interest rates mean higher loan costs for buying a car

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In addition to the high prices for new and used cars, financing the purchase is about to become more expensive.

With the Federal Reserve rising by a key interest rate half a percentage point On Wednesday, borrowing costs are set to rise on a variety of consumer loans, including auto loans. This marks the Fed’s largest rise in more than two decades.

“In the past, interest rate hikes haven’t significantly impacted the new car market because automakers subsidize a lot of loans,” said Jessica Caldwell, executive director of Insights for Edmunds.

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“However, this is the largest rate hike we’ve seen in over 20 years, so there may be a small impact, but it will likely only strengthen the new vehicle buyer base of higher-income buyers,” Caldwell said.

The biggest effect is likely to be felt in the used car market, he said.

“As used car prices are already at an all-time high, this increase will only make this market more expensive and buyers will be forced to give up due to affordability or buy an older vehicle to keep payments within a digestible range.” .

Amid the auto industry’s persistent struggles with limited inventory due to continued shortage of computer chips, consumers have largely been forced to contend with new car prices that have risen 12.5% ​​year-over-year. , according to the most recent data from the United States Bureau of Labor Statistics. The average price of used cars increased by 35.3% compared to a year ago.

The average amount paid for a new car reached $ 45,232, according to an estimate by JD Power and LMC Automotive. The average monthly payment is around $ 650 for 70.2 months (just under six years), according to Edmunds.com. The average rate paid for the reseller financing is 4.7% and the duration is 70.2 months.

For used cars, the average paid is over $ 30,000, Edmunds research shows. The average monthly payment is $ 544 over 70.7 months with a rate of 8%.