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How the Fed affects auto loan rates Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our mission is to help you make smarter financial decisions by offering you interactive tools and financial calculators, publishing original and objective content. This allows you to conduct research and compare information for free to help you make financial decisions with confidence. Bankrate has partnerships with issuers such as, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Make Money The offers that appear on this site are from companies who pay us. This compensation may impact how and where products appear on this site, including for instance, the order in which they may appear in the listing categories and other categories, unless prohibited by law. This applies to our mortgage home equity, mortgage and other products that lend money to homeowners. However, this compensation will affect the information we provide, or the reviews that you read on this site. We do not include the vast array of companies or financial offerings that could 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 is a specialist in helping readers with the details of taking out loans 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 is invested in helping students navigate the high costs of college and breaking down the complexities of student loans. The Bankrate guarantee

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They ensure that what we write will ensure that our content is reliable, honest and trustworthy. The loans journalists and editors concentrate on the areas that consumers are concerned about the most — the different types of lending options, the best rates, the most reliable lenders, how to repay debt, and many more. This means you’ll be able to feel secure when investing your money. Editorial integrity

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If you have questions about money. Bankrate can help. Our experts have been helping you manage your money for more than four decades. We strive to continuously give our customers the right guidance and the tools necessary to be successful throughout their financial journey. Bankrate follows a strict , so you can trust that our information is trustworthy and accurate. Our award-winning editors and journalists create honest and accurate content to help you make the right financial choices. The content we create by our editorial team is factual, accurate, and not influenced from our advertising. We’re open regarding how we’re able to bring quality information, competitive rates and useful tools for our customers by revealing how we earn money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We receive compensation for placement of sponsored products or services, or when you click on certain links posted on our site. This compensation could impact how, where and in what order items appear within listing categories and categories, unless it is prohibited by law for our credit, mortgage, and other home loan products. Other factors, such as our own website rules and whether or not a product is available within your area or at your own personal credit score may also influence the manner in which products are featured on this site. We strive to offer a wide range offers, Bankrate does not include details about every credit or financial product or service. The Federal Reserve is a complex facet of the American economic system. At what’s typically eight times a year The Fed determines the amount it will cost to borrow money. One of its jobs is to establish a benchmark rate for consumer loans that are short-term which private lenders use to set their own rates. If the Fed raises its federal fund rate at one of its meetingslike they did at the most recent meeting in December- you can expect to be charged more for a personal or auto loan. How Fed rates affect auto loans The auto loan rates are determined by the season as well as the type of vehicle, borrower’s credit score and more. However, the Fed decides on the criteria for auto loan lenders are able to lend . The options discussed during Fed meeting aren’t the rates that consumers can expect to receive however, they affect the cost banks pay to lend to one another. Because of this, lenders and banks may alter the rates they provide to customers when they see that the Federal Funds rate is changed. If the Fed increases interest rates and auto loan rates may rise as well, or vice versa. February 2023 Fed rate hike in reaction to the economic disruptions due to the outbreak the central bank aims to control inflation through a rate hike. The updated target range for the federal funds rate has been fixed as 4.5-4.75 percent as of February. 1, 2023. This rate does not influence auto rates directly. Rather, it is tied to prime rates. In simple terms, this rate increases means that your vehicle financing could result in more cost. However, lenders still have power when it comes to the amount charged to customers based on their credit record. But Sarah Foster, senior U.S economy reporter at Bankrate and Bankrate.com, says currently it’s an unaffordable time to buy an automobile — with or without this rate hike. “The Federal Reserve raising interest rates for the year is just one factor that’s likely going cause buying cars more costly.” The combined factors of the chip shortage and the pandemic caused sky-high prices for both new and used vehicles until 2021 and 2022. This rate hike can be beneficial for drivers, Foster says, “If you’re seeking a glimmer of hope, higher rates could be a positive thing for those who are thinking of buying a car, particularly if it causes demand to balance back out with supply. A receding pandemic could increase manufacturing. That means vehicle prices in 2022 could decrease even though the rates are expected to rise.” Why Fed meetings are important Fed meetings are important because they allow anyone to gain a full view of the economic system — specifically, how interest rates fluctuate and are likely to change. If the Fed announces that it is increasing the interest rate, then you should expect to see more costly loans or see rise on the variable rate loans you already have. Check out to see how the FOMC could impact your financial situation and personal finances. How can you prepare for future Fed rate changes. Preparation is the key to saving money. To be best prepared be aware of the changing rates and how they may impact your wallet. The federal funds rate and auto loan rates aren’t exactly the same but there’s the domino effect, which reaches the lenders, which in turn can affect your rates. While the federal funds rate is the determining factor for the amount in auto loan rates however, your credit score plays a major role in determining the amount you will pay. In order to get a loan that has the best terms, you must have a prime credit score, typically 660 and above, and good credit history. The federal funds rate is not within your control, however you can to prepare for future vehicle financing. The next steps to take when the Fed changes rates, your available auto loan rates can alter too. While Fed’s decisions affect your auto loan however, the rate you will receive is primarily dependent on your credit history. No matter how the federal funds rate is changing, you can benefit from it to be improved, you must work to improve your credit score and finances. It is also important to stay up-to-date with the most current loan rates before applying for a new auto loan. Find out more

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The article was written by Auto Loans Reporter Rebecca Betterton is the auto loans reporter for Bankrate. She is a specialist in helping readers in understanding the ways and pitfalls of borrowing money to buy cars. Written by Chelsea Wing Edited by Student loans editor Chelsea has been with Bankrate since early 2020. She’s dedicated to helping students manage the steep cost of college as well as simplifying the complex world of student loans.

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