are car rates going down

[LeTheo]

As of late 2023 and into 2024, car loan rates are showing signs of plateauing or slightly decreasing after a period of consistent increases. While they remain significantly higher than the historic lows seen a few years ago, the aggressive rate-hiking cycle by the Federal Reserve has paused. This means the steep climb has likely ended, but a return to very low rates is not expected soon. The actual rate you receive is highly individual, depending heavily on your credit score, the loan term, and the vehicle's age.

The primary driver behind car loan rates is the Federal Reserve's benchmark interest rate. After a series of rapid hikes to combat inflation, the Fed has held rates steady, which has allowed auto loan rates to stabilize. According to data from sources like Edmunds and Kelley Blue Book, the average annual percentage rate (APR) for new car loans has dipped slightly from its peak.

The following table illustrates the average APRs for different credit tiers and loan types, showing the current landscape.

Credit Tier	New Car APR (60-month loan)	Used Car APR (36-month loan)
Super Prime (781-850)	5.6% - 6.8%	6.9% - 8.1%
Prime (661-780)	7.1% - 8.5%	9.2% - 10.8%
Non-Prime (601-660)	10.2% - 12.1%	14.5% - 16.9%
Subprime (501-600)	14.8% - 17.2%	19.5% - 22.1%

For borrowers, this environment means shopping for a loan is more critical than ever. The difference between a rate from a captive lender (like Toyota Financial Services) and a local credit union can be substantial. If you have strong credit, you have more negotiating power. For those with lower scores, rates remain expensive, making it a challenging time to finance a vehicle. The best strategy is to get pre-approved from a bank or credit union before visiting the dealership to create a competitive situation.

[DeRiver]

I just bought a car last month, and from my experience, yeah, the crazy rate hikes seem to have stopped. My credit union’s rate was a full point lower than what the dealer initially offered me. I had to really push them to match it. It’s not the 2% or 3% my friend got back in 2021, but it’s better than it was six months ago. If you have good credit, you can probably find a decent deal now, but you gotta shop around. Don’t just take the first offer.

[MacAriel]

From a macroeconomic perspective, the trend indicates a stabilization. The Federal Reserve's pause on interest rate increases has allowed the auto finance market to find a new equilibrium. While rates are not "going down" in a dramatic sense, the upward pressure has subsided. This creates a more predictable environment for both lenders and consumers. However, persistently high vehicle prices continue to offset the benefit of slightly lower financing costs for many buyers. The overall cost of ownership remains elevated.

[Josiah]

In the dealership world, we're seeing lenders become slightly more competitive. The banks we work with are offering better buy rates to us, which means we can sometimes present a more attractive financing package to a customer than we could last quarter. It's not a free-for-all, but for a customer with a prime credit score, there's a bit of wiggle room. The key advice is to come in with a pre-approval. That immediately shows us you're a serious and informed buyer, and we'll often work harder to beat an existing offer.

[Gretchen]

Looking ahead, most industry analysts don't predict a sharp decline in car rates unless the U.S. economy enters a significant recession. The new normal for rates will likely be higher than what we were accustomed to over the past decade. For anyone considering a purchase, the focus should be on the total amount financed and the loan term. A slightly lower rate on a more expensive car or a longer 72-month loan can still cost you more in the long run. Improving your credit score before applying is the single most effective way to secure a better rate, regardless of the broader market trends.