Are you in the market for a new or used car? If so, you may be interested in the recent decision by the Federal Reserve to cut interest rates for the first time in over four years. While this may eventually lead to a boost in new vehicle sales, the impact may not be as immediate or significant as some may hope.
According to Cox Automotive, auto loan rates are currently near decades-high levels, with rates over 9.61% for new vehicles and nearly 14% for used cars or trucks. Despite the rate cut of 50 basis points, it will take time for these changes to trickle down to consumers.
Cox Automotive chief economist Jonathan Smoke noted that while conditions may improve compared to the past year, affordability challenges will not be completely solved by the rate cut. The biggest near-term improvement in auto loan rates is not expected until early next year, as changes in auto loan rates are tied to longer-term bond yields.
In addition to high interest rates, consumers are also facing near-record-high average new vehicle prices and inflated used vehicle prices. Despite a slight decrease from peak levels during the pandemic, prices remain elevated compared to historical norms.
Edmunds.com reports that average financing for a new vehicle was over $40,700 in August, with a payoff term of nearly 6 years. This is a significant increase from pre-pandemic levels, with average financing of around $33,000 over 5.8 years in September 2019.
As rates continue to decline, consumers may see some relief in monthly payments. BofA Securities estimates that each point decrease in the Fed benchmark rate could result in roughly a $20 decrease in the average monthly payment for a new vehicle.
At Extreme Investor Network, we keep a close eye on market trends and news to provide you with valuable insights for making informed decisions about your investments. Stay tuned for more updates on how the changing economic landscape may impact your financial goals.