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  Federal Reserve Raises Interest Rates For Third Time In 2017  


Impact On Auto Loans Is Minor But
Credit Scores Critical To Getting The Best Rate

The Federal Reserve recently announced it was raising its key interest rate by 25-basis-points for the third time this year and reiterated its forecast for three additional rate hikes in 2018.  Certain consumer interest rates, such as variable rates on credit cards, are DIRECTLY tied to the federal rate, so when the federal rate is raised, rates on those loan products see an immediate and precise increase.

Auto loan rates aren’t directly tied to any benchmark interest rate, but that is not to say that federal interest increases don’t impact them as well.  Auto loan rates are set by the free market, and tend to respond to federal rate hikes, but it is difficult to predict how fast or by how much auto loan rates will increase.

According to MYFICO.com, after the last interest rate increase, in June 2017, the national average rate on a 60-month new car loan for borrowers with a FICO score of 720 or more went up 0.125%, about half of the federal interest rate increase.

The impact of the Federal Reserve’s rates on auto loans is minimal, especially when compared to the impact of a consumers’ credit score.  According to MYFICO.com, the average interest rate on a 60-month new car loan increases dramatically as the consumers’ credit score decreases:

FICO Score Range        Average Rate On 60-Month Loan

        720-850                                      3.733% 
        690-719                                      5.104% 
        660-689                                      7.095% 
        620-659                                      9.865% 
        590-619                                    14.221% 
        500-589                                    15.211% 


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