The rising interest rates have affected almost every aspect of the economy, from the price of the egg to the amount you pay for the loan. Additionally, the Federal Reserve was stable at its June meeting, but it totaled to 11 times between 2022 and 2023, with the range remaining at 4.25-4.5%.
It is wise to understand how changes to the Fed rate will affect the price you pay to secure a new set of wheels. Is it better to wait for the prices to drop? And if you choose to wait, how long are you waiting?
I sat down with Greg McBride, Bankrate’s chief financial analyst, to explore these questions.
Auto loan fees probably won’t drop this year
Simply put, car loan fees are not expected to fall measurably this year. This is primarily due to ongoing work from the Federal Reserve. However, this year, the interest rates that only make car loans more expensive are not higher.
“Higher interest rates make borrowing more expensive. It’s the brake mechanism of the economy as a car buyer,” explains McBride. “Rises in interest rates are another factor that costs money to buy vehicles and fundraising.”
McBride references vehicle prices rising, coinciding with a surge in interest rates. According to the Kelley Blue Book, new car prices in March 2025 were more than $10,000 higher than 2020. And more expensive cars cost borrowers to raise funds.
Since the pandemic began in 2020, interest rates for both new and used cars have been steadily increasing.
So is this a good time to fund your car?
The answer comes down to your needs. If you have a set of wheels in your driveway that will reach point A to point B, it may be wise to stick to what you have. However, if you need a vehicle, be prepared to spend more money on fundraising, especially if you’re not very trusted.
The competitiveness of poor credit borrowers will be difficult to find
The moves made by the Fed will affect lenders’ costs to provide money for their purchases, rather than determining the interest rates they will receive when purchasing a car. These expenses will be passed on to the borrower, and the lender tightens the lending standards. Borrowers are feeling the domino effect as federal fund rates increased 11 times in 2022 and 2023.
The ones that were most disproportionately affected are those with poor credit history, explains McBride.
“Not only are they continuing to see a higher rate, but their ability to borrow and the amount you’re approved may also look different as the year progresses,” he says.
Borrowers falling in the 300-500 deep subprime category can expect rates above 15% for new and rates above 21% for second-hand, according to the 2025 average quarter.
Unlike people with strong credit, poor credit borrowers do not have the leverage to find the best available rates.
Higher prices collide with your wallet more than interest rates
The increase in interest rates is directly influenced by the Federal Open Market Committee’s choice, but that is not the only factor at the expense of consumers. According to McBride, what really went up was the price of the vehicle. “The impact of higher interest rates is a type of small potato by comparison.”
Interest rates are rising at the fastest pace in 40 years, but the real problem is expanding the price of the vehicle. Prices have skyrocketed during the pandemic and remained high. Despite car prices steady, high interest rates denies real victory.
The prices of wholesale cars fell in the spring, resulting in slightly lower prices for second-hand car shoppers this summer. As more cars are available in lots, there is less competition to secure your dream car.
Still, how to get the best car loan deal
Even if the economy is set for you, you may still need to buy a car. If so, still do some pretty good deals.
- Shopping. Currently, most lender options offer similar rates, but finding the best rate you can protect is still important. Paying close attention to the extra charges that lenders may implement will save you extra money.
- Find the true cost of ownership. The cost of ownership of a vehicle is more than a monthly payment for the vehicle. Instead, take your time to calculate the true all-in-cost. This covers aspects such as a trip to fill up tanks and maintenance along the way.
- Locks the expected rate. If your lender offers it, applying for pre-approval for the loan will tell you exactly what you need to pay each month.
- Consider driving an EV. Apart from clear environmental benefits, driving electric power costs no money through ownership. EV incentives also allow you to return money to your pocket.
However, the best way to stay competitive when it comes to financing your car loan is to ensure that your credit is in the form of a tip top, advises McBride. He explains that a higher credit score means easier to approve loans and additional perks associated with better interest rates.
Conclusion
It’s hard to know without Crystal Ball, but experts believe that car loan interest rates won’t drop significantly anytime soon. With that in mind, spend this time improving your credit and make sure you benefit from the most competitive rates offered, whatever the fees available.
