Buying a Car Stays Expensive Due to Fed Decision

Cars and Drivers

Published: January 30, 2025 10:15 am

The average car loan carries a 6.3% interest rate for a six-month loan, according to Edmunds data. Used cars are even higher at 10.1%. In 2022, the new car loan was under 4%. The Federal Reserve just ended any hope that car loan rates would go down. America’s central bank may only cut its rates twice this year. Therefore, assume a car loan will stay expensive.

24/7 Wall St. Key Points:

The Federal Reserve just ended any hope that car loan rates would decline soon.
People can seek lower interest rates, but often they are for cars few people want to buy.
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Cars are hugely more expensive than in 2020 for another reason. Supply chain issues forced car companies to produce fewer vehicles. Since that year, new car prices have risen 29%. The average price of a new car has jumped to $48,000. Car companies no longer have supply chain problems but they have been able to keep prices high.

Shopping for Lower Rates

What do buyers sacrifice to get a lower rate?

Shopping bank car loan rates is unlikely to bring down rates from 6.3%. Chase charges 7.7% for a 60-month lease for a new car loan. Ford’s rate on most of its cars is 7.0%. Loans for 72 and 80 months can be even more costly. By the time six years have passed, cars are often less valuable than the balance of the car loan. These loans have higher default rates. Lenders take that default rate into account when setting interest rates.

New car buyers face monthly payments that can approach the payments on some mortgages. A Ford Bronco with a 36-month loan and a 7% rate costs $1,428 with a 10% down payment. That is about half the monthly mortgage payment for a 30-year mortgage on a $450,000 house, according to the National Association of Home Builders.

The best option shoppers have to get low loan rates is to look for special deals offered by car companies through their dealers. Often, however, these are put on models that have been hard to sell.

Among the examples of new cars with extremely low finance are electric vehicles (EVs). The market for these has been soft for over a year. Subaru offers 0% financing for 72 months on its Soltarra EV. The comparable rate for its gasoline-powered cars is 4.9%. Ford takes the same approach to its EVs. The rate on a Mustang Mach-E is 0% for 72 months. The comparable rate on a gasoline-powered Mustang is 7.9%.

People can look for cars with low interest rates, but often they are cars few people want to buy.

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