Will Car Loans Go Down in 2024 and What It Means for You

Car loans have been a crucial part of the automotive industry for decades, allowing millions of people to own a vehicle. Many people rely on car loans to purchase a new or used car, but what's next for car loans in 2024?

Interest rates have been rising steadily, making it more expensive to borrow money, and this trend is expected to continue in 2024. Higher interest rates mean higher monthly payments for car loan borrowers.

Some experts predict that car loan interest rates will decrease in 2024, but this is not a guarantee. The Federal Reserve has been raising interest rates to combat inflation, which could impact car loan rates.

The average car loan term has been increasing over the years, with many people opting for longer loan terms to lower their monthly payments.

Auto loan rates likely won't decrease measurably this year, primarily due to the Federal Reserve's efforts to quell inflation. Higher interest rates make borrowing more expensive, which is a braking mechanism on the economy.

New car prices in March 2024 were still over 15 percent higher than they were in March 2021, according to Kelley Blue Book. This means a more expensive car will cost more for borrowers to finance.

Auto loan rates don't track the Fed's short-term rate cuts exactly, but instead follow longer-term bond yields like 5-year and 10-year U.S. Treasuries. Auto lenders consider various factors, including the bond market, the Fed's future plans, and consumers' financial well-being.

If auto delinquencies remain elevated, lenders will be more cautious and reluctant to lower car loan rates quickly. Auto loan delinquencies remain very high, which could slow down rate decreases.

You can't control national interest rates, but there are strategies to secure a better auto loan rate.

Car loan interest rates are influenced by a variety of factors, making it complex to predict whether they'll go down in 2024. Auto lenders watch the bond market, as auto loan rates track longer-term bond yields like 5-year and 10-year U.S. Treasuries.

The Federal Reserve's interest rate decisions directly impact the cost of borrowing, including auto loans. Lenders typically increase rates when the Fed raises its rates, and decrease rates when the Fed lowers rates.

Auto loan delinquencies remain very high, which could make lenders more cautious and reluctant to lower car loan rates. Elevated delinquencies can lead to higher rates, making it harder for consumers to get affordable loans.

The balance of supply and demand in the automotive market also influences interest rates. In times of high demand and low supply, auto prices and loan rates tend to rise, but if more cars become available, lenders may compete for buyers by lowering rates.

Mark Zandi, chief economist at Moody's, expects auto loan rates to fall 75 percentage points through the end of 2025, putting the five-year car loan rate at close to 7%.

Economic indicators play a significant role in auto loan rates. Key indicators like GDP growth and unemployment rates affect the demand for borrowing.

A strong economy means consumers are more likely to take out loans, increasing interest rates. During slow growth or rising unemployment, rates may decrease as lenders try to stimulate borrowing.

If economic growth slows in the coming year, lenders might offer lower auto loan rates to encourage purchases. This is because a slower economy can lead to a decrease in demand for borrowing.

The odds of a recession beginning in 2025 are estimated to be 25%, which is a bit elevated from historical norms. This uncertainty can impact the economy and auto loan rates.

Lower auto loan rates, combined with stable gas prices and lower vehicle prices, can help support more vehicle sales. This is according to Mark Zandi, chief economist at Moody's.

Your credit score can make a big difference in the auto loan rate you qualify for. Borrowers with higher credit scores typically receive lower interest rates. Lenders assess your ability to repay the loan, so having a solid credit history is key.

Having a manageable debt load can also improve your chances of securing a better rate. Your income is another important factor in determining your auto loan rate. Borrowers with higher incomes may qualify for lower interest rates.

Improving your personal credit score could be your best shot at lowering the cost of your loan if rates remain high. This is because lenders see you as a lower risk borrower with a higher credit score.

To find the best deals on car loans in 2024, you need to shop around and compare offers from multiple lenders. This means checking out banks, credit unions, and online lenders to see who's offering the lowest rates.

Comparing offers from multiple lenders can save you a significant amount of money. For example, shopping around can help you save extra money by paying close attention to additional fees that lenders may enforce.

A higher credit score will also give you a competitive edge when it comes to auto loan financing. This means easier loan approval and better interest rates.

Preapproval is a great way to get a better sense of your budget and confidently negotiate with lenders. This can also give you a better idea of your true cost of ownership, including aspects like fuel and maintenance costs.

Here are some tips to keep in mind when shopping around for the best deals:

Additionally, driving an electric vehicle (EV) can cost you less money throughout the ownership. EV incentives can also put money back in your pocket.

You don't have to stick with traditional lenders for a car loan. Manufacturer financing can offer low interest rates or incentives, and credit union loans often have competitive rates and personalized services.

Automakers frequently offer special deals that can save you money. These deals can be a great alternative to traditional lenders.

Credit unions tend to offer more favorable terms than traditional banks. They may also have more flexible repayment options.

If you're considering online lenders, be sure to compare rates and terms carefully before committing. This will help you avoid any potential pitfalls.

Here are some alternative financing options to consider:

Be cautious of lenders who promise unusually low interest rates or fees, as they may be trying to lure you into a trap. This is especially true for subprime borrowers, who may be targeted by predatory lenders.

In 2023, the average annual percentage rate (APR) for new car loans was around 6.5%, but some lenders may offer rates that seem too good to be true.

Be wary of lenders who require you to pay a large upfront fee or make a down payment that's too high. This can be a sign that the loan is not legitimate.

According to a report by the Federal Trade Commission, in 2022, over 15,000 consumers reported falling victim to car loan scams, resulting in over $100 million in losses.

Auto loan rates are closely tied to the Federal Reserve's interest rate policy, so when the Fed raises or lowers its rates, other borrowing costs – including auto loans – tend to follow.

Experts are cautiously optimistic about a potential dip in auto loan rates if the Federal Reserve continues to cut rates in 2024 or 2025. However, no one knows when or how much rates will drop.

It's essential to understand that even if the Fed cuts rates, lenders may not immediately pass those savings onto consumers. The key is understanding how these pieces connect and what factors could influence the rates you see at the dealership.

Auto loan rates are unlikely to decrease this year, primarily due to the Federal Reserve's efforts to quell inflation. Higher interest rates are making it more expensive to borrow, and that's a braking mechanism on the economy as car buyers.

New car prices are still over 15 percent higher than they were in March 2021, according to Kelley Blue Book. This means a more expensive car will cost more for borrowers to finance.

Interest rates for both new and used vehicles have steadily increased since the pandemic began in 2020. This trend is expected to continue, making car loans more expensive for consumers.

Auto loan rates are closely tied to the Federal Reserve's interest rate policy, so if the Fed cuts rates, other borrowing costs, including auto loans, may follow. However, it's best to stay informed and be prepared for fluctuations.

Experts are cautiously optimistic that auto loan rates could dip if the Federal Reserve continues to cut rates in 2024 or 2025. The Fed has hiked rates aggressively since 2022 to combat inflation, but if the economy slows down or inflation retreats, it might pivot to more rate cuts.

Higher interest rates make it more expensive to borrow, and that's a braking mechanism on the economy as car buyers. New car prices in March 2024 were still over 15 percent higher than they were in March 2021, according to Kelley Blue Book.

A complex mix of factors influences auto loan rates, and many of these factors are outside your control. However, you can secure a lower rate by improving your credit score, shopping for deals, and exploring alternative financing options.