Auto Loan Interest Rates Hit Nine-Year High

Auto loan interest rates are expected to climb to their highest level since 2009 for the second month in a row in June, according to Edmunds.

The annual percentage rate (APR) on new financed vehicles averaged 5.82 percent in June, compared to 4.96 percent in June 2017 and 4.10 percent in June 2013. Edmunds analysts point to the most recent Fed rate hike as a contributing factor toward this increase, and note that June marks a 17-percent total increase since January, when APRs averaged just below 5 percent.

“Auto loan interest rates have been steadily on the rise this year and we don’t see them going down anytime soon, which could mean trouble for automaker sales through the end of the year,” said Jeremy Acevedo, Edmunds’ manager of industry analysis. “While some shoppers may take this as a cue to purchase new vehicles now while rates are still somewhat favorable, we’re getting dangerously close to a tipping point. Shoppers with average or subprime credit may end up putting off purchases as financing vehicles get increasingly more expensive.”

Edmunds experts note that zero percent financing loans reached their lowest level in nine years in June, constituting just 5.6 percent of total finance deals, compared to 9.47 percent in June 2017 and 10.55 percent in June 2013.

“June typically boasts a substantial amount of zero percent financing deals, so this is a big red flag,” Acevedo said. “This might be a sign that access to cheap and easy credit-a post-Recession hallmark that we’ve all grown so accustomed to-could be officially over. But there’s hope yet-the true indicator will be whether zero percent deals materialize through the rest of the summer selling season, which automakers typically rely on to clear outgoing model-year inventory.”

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