Latest news with #autoLoans
Yahoo
a day ago
- Automotive
- Yahoo
How does the Fed interest rate affect car loans?
Key takeaways Decisions made by the Federal Reserve to increase the benchmark rate do not directly impact auto loans but rather the cost for banks to lend. The higher the Fed sets rates, the higher auto loan rates will likely be. The Fed made its third and final cut of 2024 in December, bringing the new target rate to 4.25-4.5 percent. There was no change in the fed funds rate during the June 2025 meeting, and with inflation suspected to increase with the implementation of tariffs, a rate cut may not happen any time soon. Switch Auto Insurance and Save Today! Great Rates and Award-Winning Service The Insurance Savings You Expect Affordable Auto Insurance, Customized for You The Federal Reserve is a complex facet of the American economic system. The Fed determines how much it costs banks to borrow money at its eight or so meetings per year. One of its jobs is setting a benchmark interest rate for short-term consumer lending, which private lenders use to set their own rates. When the federal funds target rate is high, you can expect to pay more for a personal or auto loan. The opposite is also true, with a lower fed funds rate meaning lower average rates on consumer loans. How Fed rates affect auto loans Auto loan rates are dictated by the time of year, the type of vehicle, the borrower's credit score and more. But the Fed sets the benchmark rate on which auto loan lenders base their rates. The choices discussed by the Federal Open Market Committee (FOMC) during Fed meetings are not the exact interest rates consumers will be offered. Rather, they impact the cost for banks to lend to each other. Lenders may change offered rates when the federal funds rate changes because of this. When the Fed raises interest rates, auto loan rates may rise as well, and vice versa. June FOMC meeting The FOMC increased rates a total of 11 times from 2022 to 2023 in an effort to tamp down inflation. After inflation stabilized, the FOMC made three cuts at the end of 2024. The target range dropped to 4.25-4.5 percent. Throughout 2025, including the most recent June meeting, the Fed declined to change the fed funds rate, so it remains the same. However, this number does not control auto rates directly. Auto loan rates are primarily tied to the prime rate. The 11 rate increases since the beginning of 2022 mean that vehicle financing cost more money, but since then, rate decreases have meant a lower average auto loan rate through the end of 2024 and into 2025. Why Fed meetings are important Fed meetings are important because they allow anyone to have a transparent look into the economy — more specifically, the way interest rates change and are expected to shift. If the Fed announces that it is raising interest rates, you can expect to encounter more expensive loans or see interest rates rise on any variable-rate loans you already have. Learn more: Bankrate's Federal reserve hub While the Federal Reserve doesn't directly affect auto loan rates, what they do impact is the price of money. If the Fed is lowering rates, then the price of money is going down and, all else equal, borrowers can expect to see lower rates in the months ahead. The opposite is true as well, with the price of credit rising when the Fed increases benchmark interest rates. Greg McBride, Chief Financial Analyst, Bankrate The Federal Reserve has a direct line to your wallet. Every time the Fed meets to decide what to do with interest rates, its decisions ultimately impact how much you end up paying to finance big-ticket purchases, like homes and cars. Many Americans have been waiting for relief — on both the inflation and the interest rate front — but one won't happen without the other. Rates are unlikely to fall far enough, and fast enough, to offer borrowers major relief for the foreseeable future. Until then, it's the Americans who keep their credit score in tip-top shape, pay down debt, pay their bills on time and compare offers from multiple lenders who will find the best deals in a pricey borrowing environment. Sarah Foster, U.S. Economy Reporter and Analyst, Bankrate Caret Left Icon Caret Right Icon How to prepare for future Fed rate changes Preparation is the key to saving money. To be best prepared, educate yourself on the current federal funds rate and how shifting rates may impact your wallet. The federal funds rate and auto loan rates aren't the same, but a domino effect reaches the lenders, which then affects your rates. Although the current federal funds rate dictates the general range of auto loan rates available, your credit score is the primary factor in determining the amount you pay. To receive a loan with the most favorable terms, you must have a prime credit score, typically 660 and above, and good credit history. The federal funds rate is out of your control, but you can improve your credit score to prepare for future vehicle financing. Learn more: If you borrowed when interest rates were high, consider refinancing your auto loan Next steps When the Fed adjusts rates, available auto loan rates may also change. Although the Fed's decisions impact your auto loan, the rate you will receive is primarily determined by your financial history. Regardless of how the federal funds rate changes, set yourself up to save for the best auto loan rate by working to improve your credit score and finances. It's also good to keep up to date on current loan rates before applying for a new auto loan. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Forbes
15-07-2025
- Automotive
- Forbes
They're Skipping Car Payments; That's The Final Warning Sign
Stickers on the windshield of a car for sale at a used car dealership The headlines say inflation is easing and jobs remain strong, but consumers are skipping car payments. The Fed claims to be data driven. But if you're watching behavior, not just backward-looking numbers, the signals are flashing red. Last month, I highlighted how mortgage delinquencies are rising fast. That piece resonated because it cut through the noise. By the time the official data confirms it, you're already late. Smart investors look where others aren't looking yet. Now we're seeing it again, this time in auto loans. Delinquencies, especially among subprime borrowers, are spiking. This matters. People will skip everything else before they lose their car. That's how they get to work. If they're missing payments now, the strain is already severe. The Fed says it's data-driven. But when consumers start skipping car payments, it's no rounding error; it's a flashing alarm. LendingTree reports 5.1% of Americans are now delinquent on auto loans, with 2% at least 30 days late and nearly 1% over 90 days late. That's not just a trend; it's a red flag. This isn't a macro panic call. It's a window into structural pressure. The dislocation is real, and markets are still mispricing it. Timing matters. What the Data Says: The Numbers Are Breaking First Let's strip out the noise and focus on the facts: This isn't just about subprime. The whole credit stack is starting to creak. Borrowers with decent credit are feeling it. Leasing costs have surged. Used car values are correcting. And loan-to-value ratios are upside down; borrowers owe more than the car is worth. When consumers start missing car payments, they're already making hard trade-offs. That's what makes this meaningful. You don't default on your way to brunch. You default when the math stops working. This is how credit stress evolves. It starts subtly. A missed card payment here, a late auto loan there. Then it compounds. First credit cards, then cars, then homes. Right now, we're squarely in the middle of that curve and most investors are still pretending the surface is calm. Behavioral Signals Matter More Than Economic Narratives Every cycle follows the same pattern. Investors chase the headlines, GDP surprises, NFP beats, CPI revisions, while the real signals sit quietly in the background. That's not where the edge is. The edge is in behavior. When someone skips a car payment, it's not forgetfulness. It's not noise. It's a signal. That person is already juggling missed card payments, overdue rent, and maybe a utility shutoff notice. Skipping the car, the last thing most people give up is a forced decision under stress. And that's where the cracks start. Behavioral stress shows up long before it hits earnings, guidance, or credit spreads. By the time management mentions it on a call, it's already in motion. If your models assume steady repayment rates, they're wrong. If you think consumer credit risk is contained, it isn't. Behavior breaks the model. Quietly. Early. This is where smart capital plays. Watch behavior. Anticipate dislocation. Don't wait for the narrative to catch up. That's how alpha is made. Where the Market Is Still Blind Despite the mounting stress, markets haven't priced it in. Here's where the disconnect is clear: Why the gap? Narrative inertia. The market is still clinging to the idea that the consumer is strong. That full employment will carry us through. That pandemic cash is still floating in the system. But that script is running out. Real wages are stagnant. The excess savings are gone. And consumers are now rolling short-term debt into higher-rate burdens. That's not stability. That's fragility. This isn't about panic. It's about odds. The odds that we see more charge-offs, more earnings pressure, and more margin contraction in Q3 and Q4 are rising quickly. When the illusion breaks, it won't be gradual. Repricing never is. Markets wake up all at once. Where The Opportunity Lies Dislocation always creates opportunity. Most investors wait until defaults spike and headlines confirm the obvious. But by then, the edge is gone. The real opportunity is now, while the market is still pricing in calm. Here's where I'm focused: Short-Term: Risk Repricing Select lenders are still valued as if credit is stable. It's not. Tight ABS spreads, shallow reserve builds, and overconfident multiples create clear downside optionality. These are setups for swift repricing. Medium-Term: Forced Consolidation Smaller, over-levered lenders may have to sell or merge. Balance sheet stress, rising charge-offs, and liquidity needs will force the issue. Expect M&A in the non-bank lending space. Long-Term: Counter-Cyclical Winners There's real upside in the infrastructure behind the pain. Credit repair platforms, repo tech, and smarter collections systems stand to benefit. Think in behavior, not just balance sheets. Stress creates a structural tailwind. The market still sees stability. That's the setup. Position before the shift becomes consensus. That's how real returns are made. Watch Behavior, Not Headlines The consumer isn't collapsing in one dramatic moment. They're breaking slowly, and the signs are showing up where few are looking, and skipping car payments is a real warning sign. Auto delinquencies aren't just about missed payments. They're about shifting priorities under stress. When the middle class lets the car go, the thing that gets them to work, it's not noise. It's the clearest signal in the system. The Fed won't flag it. The headlines will stay behind. But the behavior speaks first. And it's already speaking. This isn't a fear trade. It's a recognition trade. The winners in this market will be the ones who act before the data catches up. That's how you stay early. That's how you stay sharp. That's how you keep the edge.
Washington Post
20-06-2025
- Automotive
- Washington Post
Government drops cases against ‘predatory' financial firms
One after another, the debtors were called to stand before the judge. First came Adrian Vega, a painter, and his wife, Natalie, a cleaner. Moments later, Andrew Vanderhoof, a mechanic. In rapid succession, three more names were called. Each was being sued by Credit Acceptance Corporation, one of the nation's largest subprime auto lenders, for thousands of dollars. This scene played out last month in Rockville, Illinois, but it has been repeated in courtrooms across the country. Every month, Credit Acceptance files hundreds of lawsuits against borrowers.
Reuters
18-06-2025
- Automotive
- Reuters
Some Chinese banks vow to rein in commissions given to car dealers for auto loans
BEIJING, June 18 (Reuters) - Banks in China's Henan province said on Tuesday they will stop giving car dealers high commissions for auto loans taken out by buyers - a move that comes amid increased regulatory scrutiny of the sector. Chinese authorities have been keen to curb a deepening price war in the car industry and what they see as excessive competition among automakers. According to industry sources, some Chinese banks offer car dealers high commissions to lure borrowers and the dealers then use that money to provide discounts to car buyers, stimulating sales. The sources were not authorised to speak to media and declined to be identified. China Everbright Bank's ( opens new tab Zhengzhou branch, Henan Rural Commercial Bank and Bank of Communications' ( opens new tab Henan branch also said in statements that they will prevent car dealers from making it compulsory for customers to take out a car loan. The practice increases borrowing costs for consumers and ultimately harms the interests of both consumers and financial institutions, the lenders said. The banks added that interest rates on car loans should be no more than 6%. Until recently, the price war that began in early 2023 had shown little sign of abating, and tensions have been running high with some auto executives questioning the health of the sector. China's industry ministry summoned automakers to a meeting this month where they were told rein in the price war and excessive practices that have hurt the industry's supply chain. Since then, automakers have pledged to make payments to suppliers in 60 days, responding to an outcry from steelmakers over long payment times. Chinese auto dealers have also complained, calling on automakers to stop offloading too many cars on dealerships, saying the intense price war was damaging their cash flow, driving down their profitability and forcing some to shut.
Bloomberg
16-06-2025
- Automotive
- Bloomberg
Japan's Orico to Speed Up Restructuring Thai, Indonesia Firms
Orient Corp., a Japanese non-bank lender, is accelerating efforts to restructure its struggling overseas business with a focus on its unprofitable auto loan operations in Indonesia and Thailand. The Tokyo-based company, which like other Japanese financial firms is looking to expand abroad to tap into growing markets, established a subsidiary in Thailand in 2015 and took a stake in an Indonesian firm in 2021. But the new and used car loans businesses it's run in the two markets have been sluggish, with both operations posting recurring losses for two straight fiscal years through March 2025.
