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Car Loan Interest Rates Expected To Rise

Feb 26, 2018

According to industry analysts, there is concern that potential inflation in the U.S. economy will lead to a rise in auto-loan interest rates. The Federal Reserve raised the interest rate that banks charge each other for loans three times in 2017 and is likely to raise the rate 2-4 more times in 2018.

In 2017, the average interest rate for a 60-month new-car loan was relatively stable, rising from 4.35% to 4.51%. A bigger increase in interest rates could lead to various outcomes: consumers may choose to finance their new vehicle for 72-84 months, or opt for a smaller vehicle, a used vehicle or delay their purchase altogether.

The Consumer Financial Protection Bureau (CFPB) has warned in recent months that the number of auto loans and the amount of money that has been borrowed has gone up considerably in recent years, which increases the risk of potential defaults. According to the Federal Reserve Bank of New York, more than 4% of auto loans had balances that were 90 or more days past due at the end of December 2017, up from 3.8 percent in December 2016.