New-car loans are anticipated to become more affordable this year, which should benefit consumers, ... [+]
Despite rising prices for new cars, SUVs, and especially pickup trucks, experts predict low interest rates should continue to work in the favor of buyers and lessees throughout the year. That’s welcome news not only for those who intend to buy or lease a vehicle, but it should help automakers and dealers move the metal in the wake of falling sales caused by the latest surge in coronavirus cases.
According to BankRate.com’s chief financial analyst Greg McBride, CFA, the national average for a five-year new-vehicle loan should drop to 4.08 percent in the coming months, with four-year financing expected to average 4.75 percent. By contrast, auto loan rates were at 4.60 percent last January for five-year terms, and 5.33 percent for five-year financing. They subsequently dropped to 4.22 percent and 4.88 percent, respectively, by year’s end.
With the typical new vehicle now costing around $39,000, the expected rate cuts would mean a consumer could expect a monthly payment of $627 on a five-year loan with $5,000 down and $779 with a four-year term.
“The backdrop of low interest rates and a recovering economy will bring about an easing of terms, especially rates, as competition heats up,” McBride says. “We’ll see rates for both new and used car loans trending lower throughout the year, but at a snail’s pace.”
Lower financing costs and still strong residual values will likely help new-vehicle leasing stay affordable as well. That’s because monthly payments are based on the difference between the transaction price and what it’s expected to be worth at the end of the term, financed at current rates. It would also make it easier for automakers’ financing subsidiaries to offer low-rate or zero-percent-interest loans on select models as needed to spur sales.
If Bankrate’s predictions are, in fact, on the money, that would mean five-year auto financing would be the cheapest since early 2015, with four-year rates being the lowest since 2014. That’s when the Federal Reserve Board first began raising interest rates since the onset of the Great Recession. As it is, the Fed has already signaled to keep borrowing rates at zero percent through 2023 at the earliest to keep the U.S. economy in positive territory in wake of the COVID-19 pandemic’s punishing effects.
At that, we suggest anyone shopping for a new or used car, truck, or SUV in the coming months to compare rates among local lenders before heading for a showroom and see how they stack up compared to what the dealer may have to offer. Check with automaker’s websites to see if special financing or leasing offers are available for the vehicle of your choice; such deals sometimes extend to a brand’s recent model-year new cars.
But keep in mind that the lowest rates are reserved for those having pristine credit ratings. Those with borrowing histories that are pockmarked with late payments or delinquencies will be asked to pay more. In some cases much more.
According to a recent State of the Automotive Finance Market compiled by the financing experts at Experian, a new-vehicle buyer having a “super prime” FICO score of 720 or above was able to score an average financing rate of 3.65 percent last year, while someone suffering a “subprime” score of 580-619 was charged an average 11.92 percent. Those having the worst credit scores of 579 or below were forced to pay a whopping average 14.39 percent for a car loan.
