How Interest Rates are Changing in America
Interest rates are on the rise, and they are affecting the borrowing climate in America.
When the Federal Reserve increases interest rates, it costs more to borrow money. Increased rate hikes combat inflation, and in 2022, the target rate elevated to the highest rate since 1981.
In 2022, auto loan interest rates soared to 10.6%, nearly twice the cost of what it was at the beginning of the year. With the increased prime interest rate, loans are becoming very expensive as inflation impacts the entire economy across America.
Additionally, because vehicles cost more than they did pre-pandemic due to the many supply chain challenges, the cost of loans has been driven up correspondingly. Our team at Sierra Blanca Motors, a RAM dealership in Ruidoso, NM, explains how interest rates and cost of living impact auto loans and how you can prepare for periods of inflation.
How Interest Rates Affect Auto Loans
Various factors determine the cost of auto loans, including the loan amount, your credit score, income, down payment amount, and the loan length. Though Federal interest rates don’t extend to auto loans directly, as they’re not affected by the prime rate that the Federal Reserve sets, auto loan providers typically raise rates in accordance.
If you are considering a vehicle purchase soon, you should ensure your finances are in good standing, despite potential rate increases. This will allow you to plan and budget ahead of time with no surprises.
Also, be aware that banks’ advertised auto loan interest rates are typically only for applicants with excellent credit. You may pay a higher rate if you have poor credit or don’t meet income requirements.
If you’re planning to purchase a new vehicle, don’t settle on the first offer; keep your options open to ensure that you get the best price and value.
How to Prepare for a Rate Increase
The first thing you should do is check your credit score to see where you stand. This gives you the first look at your financial scenario, so you know what to expect when you begin the loan process. Some other tips to follow as you explore auto loan interest rates include:
- Correct any errors or issues on your credit report that may be hurting your credit.
- Be prepared for the loan application process. When lenders review your credit report, the inquiries can negatively impact your credit score.
- Save as much money as you can for a down payment. The larger your down payment, the less money you’ll need for a loan.
- Be prepared to negotiate the vehicle's total cost before starting the loan process. The lower the price, the lower the loan amount, and the lower your monthly payments.
- Check loan offerings from different banks and credit unions to see what’s available. Sometimes smaller banks provide better rates than national banks.
Strategies for Economic Downturn
Though it’s currently expensive to purchase a vehicle, regardless of the interest rate increase, borrowers have the ability to leverage their credit and financial histories in their favor. Before you begin applying for loans, it’s especially useful to stay informed on the most recent loan rates.
One of the best long-term strategies, especially in terms of a potential economic downturn, is saving money and maintaining good credit. You can set yourself up for getting the best rates possible by ensuring your finances are in good standing.
Rates for loans can fluctuate through market changes, but your credit score still determines the rate you get and how much your monthly payment comes out to. Good credit history and a score over 660 are ideal, especially if you are looking at potential financing down the road.
Sierra Blanca Motors | Your Local Ruidoso, NM Dealership
Sierra Blanca Motors is the top Chevrolet dealer serving Ruidoso, NM. Our friendly expert team serves customers in Roswell, Las Cruces, Artesia, Alamogordo, Carlsbad, and surrounding New Mexico cities.
We’ll help you find the right vehicle for your budget and guide you with educated insight throughout the process. We’re here to answer all of your questions about financing a vehicle, especially auto loan interest rates.
We give personalized, honest financial guidance to ensure that you drive in a vehicle you can afford. Visit Sierra Blanca Motors today to start shopping, or contact us today.
