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While auto loan rates haven’t reached their 1980s highs, they’ve fluctuated quite a bit over the past few decades.
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By: Dash Lewis, By: Dash Lewis Contributor Dash is a contributor to the Guide team covering auto insurance news and trends.
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Edited by: Rashawn Mitchner, Edited by: Rashawn Mitchner Managing Editor Rashawn Mitchner is a Guide team editor with more than 10 years of experience covering personal finance and insurance topics.
Auto loan rates have fluctuated significantly since 1972, when the Federal Reserve began tracking historical data. In this article, we take a closer look at decadal rate trends, considering data collected by the Federal Reserve on the guidance team. We’ll also explore the impact of the COVID-19 pandemic on car loan rates and dive into expert opinions on what we can expect from the Fed over the next year.
The Federal Reserve Bank of St. Louis launched the Federal Reserve Economic Data (FRED) database in the early 1990s. The goal was to collect and present information that helps contextualize the Federal Reserve’s monetary policies. FRED combines data from a variety of public, private, national and international sources, providing a number of tools to help users interact with and understand the collected information.
Our main source of information for this article is FRED’s Automobile Loan Rate Data page, which presents historical data for various loan terms over a period of time. The most extensive set deals with 48-month loans. We’ll also look at loans with 60-month and 72-month terms, although the Fed has tracked these for significantly shorter periods.
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The Fed began tracking auto loan rates for new cars with 48-month loan terms in February 1972. We summarize the FRED results in the decade below.
When the Fed first started tracking this data in February 1972, auto loan rates sat at 10.2%. They were consistently around 10% until about May 1973. Rates began to rise gradually as the country dealt with problems such as high inflation, high unemployment and the global stock market crash caused by the 1973-1975 recession. Rates peaked at 11.57% in November 1974, and it took several years for them to drop below 11% again.
As the United States faced high inflation after the Depression, this led to a sharp increase in auto loan rates in the late 1970s.
The 1980s began with the highest auto loan rates of all time, reaching a record 17.36% by November 1981. The early 80s was a period of extreme economic contraction, with the country facing another recession in 1981–1982. Monetary policy focused on controlling residual inflation from the 1970s, and the Fed raised interest rates to combat this sky-high inflation, leading to higher auto loan rates.
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By November 1982, the rate began to decline, falling 1.39 points from the previous year to 15.97%. The downward trend continued through much of the 80s as rates declined relatively steadily, reaching a low of 10.23% in May 1987. Rates would rise again to 12.44% in May 1989 but would begin to decline almost immediately.
In August 1990, Iraq invaded Kuwait, causing what is now referred to as the 1990 oil price shock. A sudden rise in oil prices triggered a mild recession in the United States, which caused borrowing rates to remain fairly high in the early 90s.
But the recession was short-lived. It ended in March 1991, and the United States saw a drastic drop in auto loan rates after its conclusion. They fell from 11.6% in February 1991 to 7.54% in February 1994. Although they would climb again to reach 9.78% in May 1995, they never reached 10% growth. For the rest of the decade, auto loan rates hovered between 8.31% and 9.44%.
The early 2000s was another period of decline in new car loan rates, falling from 9.64% in November 2000 to 6.43% by May 2004. The 2001 New York City terrorist attacks played a significant role in this decline, but rates continued to rise. Started in 2004.
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Rates continued to rise until the Great Recession hit the economy in 2008, causing new automobile loan rates to drop sharply. At the start of the recession, rates were 7.27% – by May 2009, they had dropped to 6.79%.
As the economy began to recover in 2010, auto loan rates continued to decline, plunging to 5.87% by November of that year. Rates were at their highest in 2011, peaking at 5.89% in August before falling to exceptionally low levels in the first half of the decade. There were moments of slight volatility between 2013 and 2015: the rate sat at 4.13% in May 2013, then rose to 4.5% a year later, dropped immediately to 4.06% in November 2014, and then returned to 4.53% by February 2015. Goes
Auto loan rates reached their all-time low point of 4% in November 2015. By 2019, they had climbed above 1.5%, only to start falling after the Covid-19 pandemic hit in early 2020.
Auto loan rates were significantly affected by the COVID-19 pandemic and its impact on the US economy. Rates started relatively low in 2020 and continued to decline during the first year of the epidemic. Once the world begins to recover, auto loan rates skyrocket, rising to 6.94% by November 2022. As of February 2023, the most recent data collected by the Fed, the rate sits at 7.46%.
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The Fed only began collecting data on 60-month loans for new cars in August 2006, so the data available is not nearly as comprehensive as for 48-month loans.
Auto loan rates declined relatively steadily from 2006 to 2009, falling from a high of 7.82% in August 2006 to 6.59% in November 2009. The steepest decline occurred between November 2007 and February 2008, when the rate fell from 7.6% to 711%. . During the Great Recession, rates stabilized around 7% but began to slowly decline as the market recovered.
In the 2010s, 60-month auto loan rates saw a similar pattern to 48-month rates, falling steadily over the first four years to a low of 4.05% in November 2015. Rates remained relatively consistent over the next year, until they began to steadily back up over the next two years. From November 2016 to November 2018, the rate increased by more than one percentage point, from 4.05% to 5.36%. They were close to that level until the end of 2019, just before the start of the Covid-19 pandemic.
As the Fed lowered interest rates in response to the economic impact of the Covid-19 pandemic, auto loan rates began to decline steadily throughout 2020. Although little changed in 2021 and early 2022, 60-month loan rates were between 4.52% (February 2022) and 5.05% (May 2021). By August 2022, the rate rose to 5.5% and began to rise significantly, hitting 7.48% by February 2023.
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When the Fed first began collecting data on 72-month loans for new autos in August 2015, the rate was 4.52%. In May 2016, they will decrease by 0.44 percentage points, landing at 4.08%. From there, rates began to rise steadily for most of the rest of the decade, peaking at 5.63% in November 2018. From there, they ranged between 5% and 5.5% throughout 2019.
Like rates for all other loan terms, the 72-month loan rate declined throughout 2020 and remained low through most of 2021 and into early 2022. Rates did not rise above 5% again until May 2022, when they reached 5.19%. From there, they increased every few months to reach 6.97% in February 2023.
Based on Federal Reserve data, auto loan rates declined in 2020 after the start of the COVID-19 pandemic. This is due to the Fed drastically reducing interest rates to help stabilize the economy during that time. Rates were lower in 2021 and early 2022 as the country looked to recover from the economic challenges it faced in the ongoing pandemic.
However, as the United States faces rising inflation, the Federal Reserve begins to take steps to combat it in 2022. March 2022 marked the start of a series of rate hikes in which the Fed raised rates by five percentage points, with the most recent increase occurring in May 2023.
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Although the pandemic initially led to lower auto loan rates for consumers, new car prices skyrocketed as supply chain issues, chip and inventory shortages and automakers prioritized higher-profit models. New car prices were highly volatile throughout much of the pandemic.
New car costs have now mostly stabilized, however, settling at an average of $48,275 as of April 2023. While it’s good news that price increases have moderated in recent years, the current average new car price is higher than what Americans paid from 2019 to 2022.
If you are thinking of buying a new car,
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