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How the Fed affects auto loan rates Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make smarter financial decisions by providing you with interactive tools and financial calculators that provide objective and original content, by enabling users to conduct research and compare data for free and help you make sound financial decisions. Bankrate has agreements with issuers including, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make money The products that are advertised on this site are from companies who pay us. This compensation can affect the way and where products are displayed on the site, such as, for example, the order in which they be listed within the categories of listing, except where prohibited by law. This applies to our mortgage or home equity products, as well as other home lending products. This compensation, however, does have no impact on the content we publish or the reviews that you read on this site. We do not include the entire universe of businesses or financial deals that might be accessible to you. SHARE: Adam Parent/Shutterstock

3 min read Published February 1 2023

Authored by Rebecca Betterton Written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers in understanding the details of borrowing money to purchase a car. Edited by Chelsea Wing Edited by student loans editor Chelsea has been working at Bankrate since early 2020. She is invested in helping students navigate the high costs of college and dissecting the complexity of student loans. The Bankrate promises

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Established in 1976, Bankrate has a long experience of helping customers make wise financial decisions.

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We make sure that everything we publish is objective, accurate and reliable. We have loans reporter and editor focus on the points consumers care about most — the various types of loans available and the most competitive rates, the most reliable lenders, how to repay debt and much more. So you’re able to be confident about making a decision about your investment. Editorial integrity

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There are money-related questions. Bankrate has answers. Our experts have helped you understand your money for more than four years. We continually strive to give our customers the right advice and tools required to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our information is trustworthy and accurate. Our award-winning editors and journalists provide honest and trustworthy content to help you make the right financial choices. Our content produced by our editorial team is factual, accurate and is not influenced from our advertising. We’re open regarding how we’re capable of bringing high-quality content, competitive rates and useful tools to you , by describing how we earn money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for the placement of sponsored products andservices or when you click on certain hyperlinks on our website. Therefore, this compensation may impact how, where and in what order items are displayed within the categories of listing in the event that they are not permitted by law for our loan products, such as mortgages and home equity, and other products for home loans. Other factors, like our own rules for our website and whether or not a product is offered in your area or at your self-selected credit score range can also impact the manner in which products are featured on this site. We strive to offer the most diverse selection of products, Bankrate does not include specific information on each financial or credit item or service. It is important to understand that the Federal Reserve is a complex aspect of the American economic system. In the course of eight times per year The Fed determines the amount it costs to borrow money. One of its jobs is setting a benchmark interest rate for consumer loans that are short-term which private lenders use to determine their own rates. If the Fed raises rates for federal funding during one of its meetings -such as they did at the most recent December meeting -it is possible to have to pay more for a private and auto loan. What are the effects of Fed rates affect the cost of auto loans Car loan rates are determined by the time of the year, the type of vehicle, credit score of the borrower and many other factors. However, the Fed sets the on which auto loan lenders are able to lend . The options discussed members of the Fed meeting aren’t the exact interest rates consumers will receive; rather, they impact the cost for banks to lend to each other. Because of this, lenders and banks could alter the rates they offer to consumers if the federal funds rate changes. When the Fed raises interest rates, auto loan rates may increase, and reverse. Feb. 2023 Fed rate increase in reaction to the economic disruptions that result from the epidemic the central bank is trying to reduce inflation by a rate hike. The updated goal of the Federal Funds Rate was determined at 4.5-4.75 percent as of February. 1st, 2023. This number does not control the auto rate directly. Rather, it is tied to the prime rate. In simple terms, this rate hike means that car financing might result in more cost. However, lenders still have authority when it comes to the amount they will charge to the borrowers based on the driver’s credit history. But Sarah Foster, senior U.S economic reporter at Bankrate says that currently it’s an unaffordable time to purchase car — with or without this rate increase. «The Federal Reserve raising interest rates for the year is just one factor that’s likely going cause buying a car more costly.» The combined factors of the shortage of chips and the pandemic led to sky-high prices for used and new cars through 2021 and 2022. This rate hike isn’t all bad for drivers, Foster says, «If you’re seeking a glimmer of hope rising rates may be a positive thing for people who are considering buying a car, particularly if it causes demand to balance back out with supply. A receding pandemic could also boost production. All of that means that the prices of vehicles in 2022 may decrease and even though rates are going back up.» What is the reason Fed meetings are important Fed meetings are important because they allow anyone to get a clear view of the economy — more specifically, how interest rates change and are expected to shift. If the Fed declares it will be increasing interest rates, you can anticipate higher-priced loans or see rise on any variable rate loans you already have. Find out how the FOMC can affect your finances and you. How can you prepare for the possibility of future Fed rate changes Preparation is the most effective way to save money. To be prepared, educate yourself on the and how shifting rates can affect your finances. Federal funds rates and auto loan rates aren’t exactly the same but there’s a domino effect that reaches the lenders, which then can affect your rates. Even though the current federal funds rate is the determining factor for the general amount for auto loan rates however, your credit score is the main factor in determining the amount you pay. To receive a loan with the most favorable conditions, you need a credit score of generally 660 or above, and good credit history. The federal funds rate is out of your control, but you can prepare yourself for future financing of your vehicle. The next steps to take when the Fed changes rates, the available auto loan rates could be affected too. Although the Fed’s decisions impact the rate of your auto loan but the rate you will receive is primarily dependent on your financial situation. Regardless of how the federal funds rate changes, for it to be improved, you must work to improve your credit score and finances. It’s also good to keep up-to-date with the most current loan rates prior to submitting an application for an auto loan. Learn more

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This article is written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She specializes in assisting readers with the ins and outs of securely borrowing money to buy a car. The article is edited by Chelsea Wing Edited by Student loans editor Chelsea is with Bankrate since the beginning of 2020. She’s dedicated to helping students manage the steep costs of college and simplifying the complex world in student loans.

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