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Although auto loan rates have not reached the highs of the 1980s, they have fluctuated widely over the past few decades.
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Written by: Dash Lewis Written by: Dash Lewis Contributor Dash is a contributor to the Guides team covering news and trends in car insurance.
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Edited by: Rashawn Mitchner, Edited by: Rashawn Mitchner Managing Editor Rashawn Mitchner is an editor on the Guides team with over 10 years of experience in the personal finance and insurance industry.
Auto loan rates have fluctuated significantly since 1972, when the Federal Reserve began tracking historical data. In this article, we at the Guides Team take a closer look at rate trends over the decade with data collected by the Federal Reserve System. We’ll also examine the impact of the COVID-19 pandemic on auto loan rates and delve into expert views on what we can expect the Fed to do next year.
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 data to help contextualize the Federal Reserve’s monetary policy. FRED combines data from several public, private, national and international sources and offers a range of tools to help users work with and understand the collected information.
Our primary source of information for this article is FRED’s auto loan interest rate data page, which presents historical data for various loan terms over a period of time. The most comprehensive set concerns loans for 48 months. We’ll also look at 60- and 72-month loans, although the Fed has been watching them for a significantly shorter period.
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The Fed began tracking interest rates on new car loans with 48-month terms in February 1972. Below we summarize FRED’s findings over the decade.
When the Fed first started tracking this data in February 1972, auto loan rates were 10.2%. Until about May 1973, they were consistently around 10%. In the 1973-1975 recession, rates slowly began to rise as the country dealt with issues such as high inflation, high unemployment, and the global stock market crash. Rates peaked at 11.57% in November 1974 and took several years to fall below 11% again.
As the US continued to face high inflation after the recession, this led to a sharper increase in auto loan rates in the late 1970s.
The 1980s began with auto loan rates at an all-time high, reaching a record 17.36% in November 1981. The early 1980s was a period marked by extreme economic decline, with the country facing another recession in 1981-1982. Monetary policy focused on controlling inflation left over from the 1970s, and the Fed raised interest rates to combat this sky-high inflation, leading to high car loan rates.
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In November 1982, rates began to decline, falling 1.39 points from the previous year to 15.97%. The downward trend continued through most of the 1980s, with rates experiencing a relatively steady decline, reaching a low of 10.23% in May 1987. Rates would climb back up to 12.44% by May 1989, but would begin to decline almost immediately.
In August 1990, Iraq invaded Kuwait and caused what is now known as the oil price shock of 1990. The sudden rise in oil prices triggered a mild recession in the US, which caused interest rates on loans to remain relatively high in the early 1990s.
However, the recession was short-lived. It ended in March 1991, and after it closed there was a drastic drop in car loan rates in the US. They fell from 11.6% in February 1991 to a low of 7.54% in February 1994. Although they climbed again to 9.78% in May 1995, they never exceeded 10%. For the rest of the decade, auto loan interest rates hovered between 8.31% and 9.44%.
The early 2000s saw another period of decline in new car loan rates, dropping from 9.64% in November 2000 to 6.43% in May 2004. The terrorist attack in New York in 2001 played a significant role in this decline, but rates began to rise steadily again. starting in 2004.
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Rate hikes continued until the Great Recession hit the economy in 2008, causing new auto loan rates to drop sharply and quickly. At the beginning of the decline, rates were at 7.27% — in May 2009, they fell to 6.79%.
As the economy began to recover in 2010, auto loan rates continued to decline, falling to 5.87% by November of that year. Rates were at their highest in 2011, peaking at 5.89% in August, before falling to extraordinarily low levels in the first half of the decade. Between 2013 and 2015, there were moments of mild volatility: rates were at 4.13% in May 2013, rose to 4.5% a year later, dropped immediately to 4.06% in November 2014, and then jumped back to 4.53 % until February 2015.
Car loan rates reached their all-time low in November 2015, at 4%. They climbed 1.5% through 2019, only to start falling once the COVID-19 pandemic hit in early 2020.
Auto loan rates have been significantly impacted by the COVID-19 pandemic and its impact on the US economy. Rates started 2020 relatively low and continued to decline in the first year of the pandemic. As the world began to recover, car loan rates skyrocketed to 6.94% by November 2022. As of February 2023, the most recent data collected by the Fed, rates were 7.46%.
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The Fed only began collecting data on 60-month new car loans in August 2006, so the information available is not nearly as extensive as for 48-month loans.
Auto loan rates saw a relatively steady decline from 2006 to 2009, 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 rates fell from 7.6 % to 7.18%. . During the Great Recession, rates stabilized around 7%, but began to gradually decline as markets recovered.
In 2010, 60-month auto loan rates followed 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 creeping back up over the next two years. From November 2016 to November 2018, rates climbed more than a percentage point from 4.05% to 5.36%. They remained at this 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 impacts of the COVID-19 pandemic, auto loan interest rates began to decline steadily throughout 2020. While there have been slight changes in 2021 and early 2022, rates for 60-month loans have remained between 4.52% (February 2022) and 5.05% (May 2021). By August 2022, rates had climbed to 5.5% and began to rise significantly, reaching 7.48% in February 2023.
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When the Fed first began collecting data on 72-month new car loans in August 2015, rates were 4.52%. By May 2016, they had fallen by 0.44 percentage points to 4.08%. From there, rates began to rise steadily for most of the rest of the decade, reaching a level of 5.63% in November 2018. From there, they stayed between 5% and 5.5% throughout 2019.
Similar to rates for all other credit terms, 72-month interest rates fell in 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, reaching 6.97% in February 2023.
Auto loan rates fell in 2020 following the start of the COVID-19 pandemic, according to data from the Federal Reserve. This is partly because the Fed cut interest rates drastically at the time to help stabilize the economy. Rates remained low throughout 2021 and into early 2022 as the country struggled to recover from the economic challenges it faced amid the ongoing pandemic.
However, as the US grappled with rising inflation, the Federal Reserve began to take steps to curb it in 2022. March 2022 marked the beginning of a series of rate hikes in which the Fed raised rates by five percentage points, with the last increase occurring in May 2023.
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Although the pandemic initially led to low interest rates on consumer auto loans, new car prices skyrocketed at the time due to supply chain issues, chip and inventory shortages, and automakers choosing to favor higher-margin models. New car costs have remained highly volatile throughout much of the pandemic.
New car costs have now mostly stabilized, settling at an average of $48,275 in April 2023. While the good news is that the price increases that have become common in recent years have slowed, the current average cost of a new car is high. compared to what Americans paid between 2019 and 2022.
If you are thinking of buying a new car,
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